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Index to Financial Statements

As filed with the Securities and Exchange Commission on June 11, 2014.

Registration No. 333-196083

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

GOPRO, INC.

(Exact name of registrant as specified in its charter)

 

Delaware  

3600

  77-0629474

(State or other jurisdiction of

incorporation or organization)

 

(Primary standard

industrial code number)

 

(I.R.S. employer

identification no.)

 

 

Copies to:

GoPro, Inc.

3000 Clearview Way

San Mateo, California 94402

(650) 332-7600

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

 

 

Nicholas Woodman

Chief Executive Officer

GoPro, Inc.

3000 Clearview Way

San Mateo, California 94402

(650) 332-7600

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

 

 

Copies to:

 

Michael T. Esquivel, Esq.

Cynthia C. Hess, Esq.

Daniel J. Winnike, Esq.

Fenwick & West LLP

801 California Street

Mountain View, CA 94041

(650) 988-8500

 

Sharon Zezima, Esq.

GoPro, Inc.

3000 Clearview Way

San Mateo, California 94402

(650) 332-7600

 

Robert G. Day, Esq.

Allison B. Spinner, Esq.

Wilson Sonsini Goodrich & Rosati

Professional Corporation

650 Page Mill Road

Palo Alto, CA 94304

(650) 493-9300

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.   ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, 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 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  

Amount to be
Registered(1)

  Proposed
Maximum
Offering Price
Per Share(2)
  Proposed Maximum
Aggregate Offering
Price(1)(2)
 

Amount of

Registration Fee(2)(3)

Class A common stock, par value $0.0001 per share

  20,470,000  

$24.00

  $491,280,000  

$63,276.87

 

 

 

(1) Includes an additional 2,670,000 shares that the underwriters have the option to purchase.
(2) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as amended, solely for the purpose of calculating the amount of the registration fee. Includes the offering price of shares that the underwriters have the option to purchase.
(3) The Registrant previously paid $12,880 of this amount in connection with a prior submission of this Registration Statement.

 

 

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 that 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 prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and neither we nor the selling stockholders are soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated June 11, 2014

Preliminary Prospectus

17,800,000 shares

LOGO

Class A common stock

This is an initial public offering of shares of Class A common stock by GoPro, Inc. We are selling 8,900,000 shares of Class A common stock, and the selling stockholders are selling 8,900,000 shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. The estimated initial public offering price is expected to be between $21.00 and $24.00 per share.

We have two classes of outstanding common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of Class A common stock. The holders of our outstanding Class B common stock will hold approximately 98.4% of the voting power of our outstanding capital stock following this offering, with our executive officers and directors and their affiliates holding approximately 72.8%, and Nicholas Woodman, our Chief Executive Officer, holding approximately 47.7% after his sale of 3,562,892 shares of Class A common stock in this offering.

Prior to this offering there has been no public market for our common stock. We have applied to list our Class A common stock on the NASDAQ Global Select Market under the symbol “GPRO.”

We are an “emerging growth company” as defined under the federal securities laws. Investing in our Class A common stock involves a high degree of risk. See “ Risk factors ” beginning on page 18.

 

         Per share        Total  

Initial public offering price

     $                          $                    

Underwriting discounts and commissions(1)

     $           $     

Proceeds to GoPro, Inc., before expenses

     $           $     

Proceeds to selling stockholders

     $           $     

 

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

Certain of the selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to 2,670,000 additional shares of Class A common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of Class A common stock to purchasers on                     , 2014.

 

J.P. Morgan   Citigroup     Barclays   
Allen & Company LLC   Stifel     Baird   
MCS Capital Markets   Piper Jaffray     Raymond James   

                , 2014


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LOGO

Gopro® Be a HERO.


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Index to Financial Statements

LOGO

Enabling The World To Capture And Share Its Passion. Gopro® Be a HERO.


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Table of contents

 

Prospectus summary

     1   

Risk factors

     18   

Special note regarding forward-looking statements and industry data

     44   

Use of proceeds

     46   

Dividend policy

     47   

Capitalization

     48   

Dilution

     51   

Selected consolidated financial data

     54   

Management’s discussion and analysis of financial condition and results of operations

     57   

Business

     91   

Management

     111   

Executive compensation

     121   

Certain relationships and related person transactions

     135   

Principal and selling stockholders

     140   

Description of capital stock

     145   

Shares eligible for future sale

     151   

Certain material U.S. federal income tax considerations for non-U.S. holders of Class A common stock

     154   

Underwriting

     159   

Conflicts of interest

     167   

Legal matters

     168   

Experts

     168   

Where you can find additional information

     168   

Index to consolidated financial statements

     F-1   

 

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You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission. Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the selling stockholders are offering to sell, and seeking offers to buy, our Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including                 , 2014 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: Neither we, the selling stockholders nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside the United States.

 

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Prospectus summary

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our Class A common stock. You should read the entire prospectus carefully, including “Risk factors,” ”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, before making an investment decision.

Company overview

 

LOGO

GoPro is transforming the way consumers capture, manage, share and enjoy meaningful life experiences. We do this by enabling people to capture compelling, immersive photo and video content of themselves participating in their favorite activities. Our customers include some of the world’s most active and passionate people. The volume and quality of their shared GoPro content, coupled with their enthusiasm for our brand, are virally driving awareness and demand for our products. To date, we have generated substantially all of our revenue from the sale of our cameras and accessories and we believe that the growing adoption of our capture devices and the engaging content they enable, position GoPro to become an exciting new media company.

What began as an idea to help athletes document themselves engaged in their sport has become a widely adopted solution for people to document themselves engaged in their interests, whatever they may be. From extreme to mainstream, professional to consumer, GoPro has enabled the world to capture and share its passions, and the world, in turn, is enabling GoPro to become one of the most exciting and aspirational companies of our time.

In 2011, 2012, 2013 and the three months ended March 31, 2014, we generated revenue of $234.2 million, $526.0 million, $985.7 million and $235.7 million and reported net income of $24.6 million, $32.3 million, $60.6 million and $11.0 million, respectively.

 

 

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Our business focus

Enabling engaging content is at the core of our business. We develop hardware and software solutions to alleviate consumer pain points associated with capturing, managing, sharing and enjoying engaging content.

Capture

Our mountable and wearable cameras and accessories, which we refer to as capture devices, enable professional-quality capture and exceptional versatility at affordable prices. Our products’ small, lightweight, yet durable designs make them easy to use even in highly challenging situations. In addition, our remote control solutions and our seamless integration with mobile devices via the GoPro App, our mobile application, enable engaging self-capture during virtually any activity.

Since launching our first high-definition, or HD, capture device in July 2009, we have sold more than 8.5 million HD cameras, including more than 3.8 million in 2013. We sell our products in over 100 countries and through more than 25,000 retail stores. According to The NPD Group’s Retail Tracking Service, GoPro was the #1 selling camcorder (by dollars and units) and a top six selling camera accessory company (by dollars and units) in the United States in 2013. Also according to The NPD Group, our HERO cameras represented a 45% share of the U.S. camcorder market (by dollars) in 2013, up from an 11% share during December 2011 and our camera accessories represented a 4% share of the U.S. camera accessory market (by dollars) in 2013.

Manage

We seek to eliminate the pain point of managing content by making it easy for our customers to transfer footage from their cameras to a system that efficiently organizes their content and facilitates convenient editing and sharing. GoPro Studio, our desktop application, and the GoPro App, reflect the early stages of our content management platform strategy.

GoPro Studio enables our customers to quickly edit simple or complex videos and create videos from time-lapse photo sequences. As of March 31, 2014, there had been more than 4.3 million downloads of GoPro Studio. During the first quarter of 2014, our customers in the aggregate exported, on average, 20,000 videos per day using GoPro Studio.

In addition to facilitating full camera control from a mobile device, the GoPro App enables a customer to easily and wirelessly copy footage from a GoPro camera to a mobile device for storage and sharing without a computer.

Share

By facilitating the capture, management and editing of engaging photos and videos, we are ultimately helping our customers share more compelling personal content. GoPro Studio and the GoPro App facilitate the posting of photos and videos directly to leading social networks and content platforms, including Facebook, Instagram, Twitter, Vimeo and YouTube. Thousands of GoPro customer photos and videos are shared daily, driving awareness and enthusiasm for our customers’ content, as well as for GoPro’s own brand and products. In 2013, our customers uploaded to YouTube approximately 2.8 years worth of video featuring “GoPro” in the title. Also on YouTube, in the first quarter of 2014, there was an average of 6,000 daily uploads and more than 1.0 billion views representing over 50.0 million watched hours of videos with “GoPro” in the title, filename, tags or description.

 

 

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Enjoy

GoPro enables the production of entertaining and inspiring content, both in the form of our customers’ user-generated content, or UGC, as well as GoPro originally produced content, that we collectively refer to as GoPro programming. This often features professional athletes, celebrities and entertainers, as well as everyday people engaged in their favorite activities. Having recognized the role GoPro content plays in attracting and exciting consumers, we are expanding the distribution of GoPro programming to engage and build relationships with even those consumers who do not own a GoPro capture device.

We distribute GoPro programming through what we refer to as the GoPro Network, a collection of GoPro Channels hosted on a variety of platforms, including the following:

 

Ÿ  

Facebook: over 7.2 million “likes;”

 

Ÿ  

Instagram: over 2.0 million followers;

 

Ÿ  

Twitter: over 950,000 followers; and

 

Ÿ  

YouTube: over 450 million video views, over 1.8 million subscribers and ranked #1 on the Brand Channel Leaderboard for January through March 2014.

As of December 31, 2013, we had not derived revenue from the distribution of, or social engagement with, our content on the GoPro Network. However, we plan to pursue new revenue opportunities from the distribution of engaging GoPro content in the near term. For example, in the first quarter of 2014, we entered into an agreement with Microsoft to develop and launch the GoPro Channel on Xbox Live, a leading delivery system for IP video streams on connected televisions, that will provide us with access to advertising revenue, fees from third-party sponsorship of the GoPro Channel and the ability to sell our capture devices directly to consumers as they watch GoPro programming. We expect to begin earning revenue from GoPro Channel advertising and sponsorship opportunities on Xbox Live and GoPro Channel advertising on YouTube and Virgin America in the second quarter of 2014. We do not expect the revenue earned from these GoPro Channels to be material to us in 2014.

The virtuous cycle

We believe our business focus results in a virtuous cycle and a self-reinforcing consumer acquisition model that fuels our growth. Our products in the hands of our customers enable compelling, authentic content that organically increases awareness for GoPro and drives demand for our products.

The GoPro opportunity

We believe the following create an attractive market opportunity for GoPro.

Consumers want an easy way to self-capture engaging content

Before GoPro, if people wanted compelling, high-quality footage of themselves engaged in activities, they needed a skilled third-party camera operator and often required expensive, fragile and cumbersome camera equipment.

 

 

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GoPro has enabled a new era of convenient self-documentation. Our products’ high-performance features, ease of use and versatility, made available at affordable price points, provide a premium-quality self-capture solution that appeals to both consumers and professionals.

Consumers want a quick, easy way to manage, edit and share their content

Managing, editing and sharing engaging, high-quality content often requires substantial time, resources and skill. GoPro Studio and the GoPro App begin to address these pain points by offering intuitive, easy-to-use tools for managing, editing and sharing professional-grade footage. As social media and content sharing outlets like Facebook, Instagram, Twitter, Vimeo and YouTube proliferate, we see an opportunity to further develop our currently separate software solutions into an integrated and enhanced GoPro content management platform.

Consumers continue to replace traditional cameras with mobile devices

As mobile devices continue to displace traditional cameras and camcorders, we believe consumers will seek capture devices that offer differentiated capabilities like GoPro products. Moreover, we believe mobile devices complement our products. With the GoPro App, mobile devices can be used to remotely control GoPro cameras, thereby optimizing customers’ ability to self-capture high-quality content of themselves and their activities. The GoPro App also enables customers to manage and share their captured content without the need for a computer. Furthermore, smartphones and tablets expand consumers’ ability to access and enjoy GoPro content online.

Consumers want compelling content on demand

We believe consumer demand for compelling content combined with GoPro’s self-capture technology and the explosive popularity of social media create a significant media opportunity for GoPro. GoPro programming has developed a dedicated and growing audience. We believe GoPro is well-positioned to become the first media company whose content is captured exclusively using its own hardware. We will continue to expand our distribution of GoPro programming and the reach of the GoPro Network to new platforms such as Xbox Live.

What makes GoPro unique

Category-defining self-capture devices

Our capture devices offer our customers, both consumers and professionals, exceptional capabilities that have earned us multiple awards, including a 2013 technical Emmy Award. Our cameras’ small, lightweight, yet durable designs make them easy to use even in highly challenging situations, and along with their affordable prices, encourage adoption and experimentation that often leads to interesting content. In addition, our broad portfolio of mountable and wearable accessories enables multiple use cases and facilitates a differentiated self-capture experience than that of traditional cameras and smartphones. Our products have been embraced by media professionals and are used in production by The Discovery Channel, ESPN and other networks.

 

 

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Passionate consumer- and content-supported business model

Our business model is supported by some of the world’s most active and influential consumers who use GoPro to capture and share their life experiences and interests. Their shared content excites and inspires others around the world to do the same, which we believe, leads to higher camera and accessory sales and, in turn, a massive volume of UGC.

Best-in-class marketing relationships

GoPro has established marketing relationships with more than 120 athletes, celebrities and entertainers, and sponsors more than 90 sporting events annually, including the X Games, Supercross and ASP world surfing championship events. We partner with athletes such as Olympic gold medal winning snowboarder Shaun White and 11-time world champion surfer Kelly Slater, as well as entertainers, such as Foo Fighters, Jane’s Addiction, Guy Fieri and Alton Brown, and producers of popular television shows. We also have promotional agreements with recreational destination resorts, such as all Vail Company resorts and the Whistler Blackcomb resort. Validating the quality of our products and our growing role as a media brand, we are approached by professionals and organizations seeking to leverage GoPro as a media platform to distribute their own branded content captured with our products.

Differentiated sales strategy with specialty retailers

Since our first sale in 2004, our distribution strategy has focused on specialty retailers, including surf, ski and motorsports outlets, where we believe GoPro is often the only capture device sold in-store. Our early, first-mover relationships with these retailers and their customers helped us establish an authenticity that remains a cornerstone of our business. This focus on the specialty retail channel has also enabled us to develop a high-touch, differentiated sales network of more than 25,000 stores globally that we believe is difficult to replicate.

Strong, global brand

Over the past 10 years, we have built a powerful brand that is emblematic of the pursuit and celebration of human passion. Our trademarks, “GoPro” and “Be a Hero,” are relevant and aspirational to consumers, as reflected in the variety of our customers’ shared content, which spans from our roots in action sports to now include family, travel, music, science and other areas of human interest. The strength of our brand is further evidenced by our customers’ frequent tagging, titling and describing of their footage as “GoPro” content.

A company culture built around our vision

GoPro was founded by dedicated sports enthusiasts who wanted a better way to document and share their personal passions. As we have grown, we have remained focused on hiring employees who share this same ethos, whatever their personal interests may be. We have built a team focused on developing innovative solutions to the problems we encounter during our own self-capture pursuits, and we believe our employees’ shared passion, experience and vision represent an increasingly important competitive advantage.

 

 

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Our strategy

We intend to expand our existing capture business with content management, editing and sharing solutions to provide increased value to our customers, introduce new revenue streams and further differentiate us from competitors. Key components of our strategy include the following:

Continue to introduce innovative capture devices

We relentlessly pursue our goal of developing the world’s most versatile capture devices and enabling self-capture during any activity. To stay at the forefront of our industry, we are focused on continued product innovation and leadership. Areas of innovation include custom sensor and digital signal processing technologies as well as custom lens, audio, battery and accessory design.

Develop seamless content management, editing and sharing solutions

We are developing an integrated content management platform to simplify the organizing, editing and sharing of engaging content. Our October 2013 acquisition of General Things Inc., a web development firm, has provided us with additional software competencies to accelerate this process. In addition, we may seek to leverage our content management platform as a new revenue stream.

Scale as a media brand

We are investing to scale GoPro as a media entity and develop new revenue opportunities by increasing production of GoPro originally produced content while simultaneously increasing the aggregation and redistribution of our customers’ “best of” UGC. Additionally, we are investing to develop, distribute and promote GoPro programming on additional partner platforms such as Virgin America and Xbox Live.

Expand into new vertical markets

Leveraging the product development and sales and marketing strategies that have enabled us to be a leader in vertical markets such as skiing, surfing and motorsports, we are targeting new vertical markets where we believe GoPro can authentically deliver meaningful solutions to consumers.

Grow internationally

We believe that international markets represent a significant growth opportunity for us. We plan to capitalize on the strength of our brand to increase our presence worldwide through additional retailers and strategic distribution partnerships.

Expand in-store brand and sales footprint

We invest heavily to produce GoPro-branded, video-enabled point of purchase, or POP, merchandising displays that we make available to nearly all of the retail outlets through which our products are sold. Having recognized our sales success in these stores, coupled with our expanding product portfolio, we are working with our retailers to further expand the footprint of our POP displays.

 

 

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Extend strategic marketing relationships

We form relationships with marketing partners that use our products and services to promote their own brands and properties. As a result, GoPro benefits not only from the expanded brand awareness that traditionally comes with such marketing partnerships, but also from being recognized as our partners’ technology enabler. We will continue developing and leveraging strategic marketing relationships to increase GoPro brand awareness.

Expand brand awareness through increased advertising

Notwithstanding the visibility we have gained in the consumer markets where we have historically focused, we believe consumers in many other markets are not familiar with our brand and products. We believe this underscores a significant opportunity for GoPro to expand awareness through increased advertising on television, in print, online, and on billboards and other out of home advertising, while continuing to scale our promotional marketing efforts and trade show presence.

Risk factors

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks highlighted in the section titled “Risk factors” following this prospectus summary before making an investment decision. These risks include:

 

Ÿ  

We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue and profitability.

 

Ÿ  

We depend on sales of our capture devices for substantially all of our revenue, and any decrease in the sales of these products would harm our business.

 

Ÿ  

We rely on third-party suppliers, some of which are sole-source suppliers, to provide components for our products.

 

Ÿ  

We do not expect to continue to grow in the future at the same rate as we have in the past and profitability in recent periods might not be indicative of future performance.

 

Ÿ  

If our sales during the holiday season fall below our forecasts, our overall financial condition and results of operations could be adversely affected.

 

Ÿ  

We may have difficulty in accurately predicting our future customer demand, which could adversely affect our operating results.

 

Ÿ  

Our success depends on our ability to maintain the value and reputation of our brand.

 

Ÿ  

To remain competitive and stimulate customer demand, we must successfully manage frequent product introductions and transitions.

 

Ÿ  

We are subject to international business uncertainties.

 

Ÿ  

We are highly dependent on our Chief Executive Officer.

 

 

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Ÿ  

If we do not effectively maintain and further develop our sales channels, including developing and supporting our retail sales channel and distributors, our business could be harmed.

 

Ÿ  

Any material disruption of our information systems could adversely affect our operating results.

Corporate information

We were incorporated as Woodman Labs, Inc. in California and began doing business as GoPro in February 2004. We reincorporated in Delaware in December 2011 and in February 2014 we changed our name to GoPro, Inc. Our principal executive offices are located at 3000 Clearview Way, San Mateo, California 94402, and our telephone number is (650) 332-7600. Our website address is www.gopro.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our Class A common stock. We have included our website address in this prospectus solely as an inactive textual reference.

Unless the context indicates otherwise, as used in this prospectus, the terms “GoPro,” “we,” “us,” “our” and the “Company” refer to GoPro, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted.

We have registered a number of trademarks including “GOPRO,” “HERO,” “BACPAC” and “CINEFORM” and have filed with the U.S. Patent and Trademark Office to register the GoPro logo and GoPro Be a Hero logo. This prospectus also includes references to trademarks and service marks of other entities, and those trademarks and service marks are the property of their respective owners.

 

 

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The offering

 

Class A common stock offered by us

8,900,000 shares

 

Class A common stock offered by the selling stockholders

8,900,000 shares

 

Option to purchase additional shares of Class A common stock

2,670,000 shares of Class A common stock being offered by certain of the selling stockholders

 

Class A common stock to be outstanding after this offering

17,800,000 shares (20,470,000 shares if the option to purchase additional shares is exercised in full)

 

Class B common stock to be outstanding after this offering

105,340,583 shares (102,670,583 shares if the option to purchase additional shares is exercised in full)

 

Total common stock to be outstanding after this offering

123,140,583 shares

 

Use of proceeds

We intend to use a portion of the net proceeds from this offering to fully repay our term loan under our credit facility, which had an outstanding balance of $111.0 million as of March 31, 2014. We expect to use the remaining net proceeds from this offering for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies or assets. We will not receive any of the proceeds from the sale of shares by the selling stockholders.

 

Conflicts of interest

We expect to use at least 5% of the net proceeds from this offering to fully repay our term loan under our credit facility, owed by us to our lenders, including affiliates of J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Barclays Capital Inc. See “Use of proceeds” and “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources” for additional information regarding our credit facility. Accordingly, this offering is being made in compliance with the requirements of Rule 5121 of FINRA’s conduct rules. This rule generally provides that if at least 5% of the net proceeds from the sale of securities, not including

 

 

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underwriting compensation, is used to reduce or retire the balance of a loan or credit facility extended by the underwriters or their affiliates, a “qualified independent underwriter” meeting certain standards set forth by FINRA must participate in the preparation of this prospectus and exercise the usual standards of due diligence with respect thereto. Piper Jaffray & Co. is assuming the responsibilities of acting as the qualified independent underwriter in connection with this offering and in conducting due diligence. None of J.P. Morgan Securities LLC, Citigroup Global Markets Inc. or Barclays Capital Inc. will confirm sales of the securities to any account over which they exercise discretionary authority without the prior written approval of the customer. See “Conflicts of interest.”

 

Voting rights

We have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of our Class A and Class B common stock are identical, except with respect to voting and conversion. The holders of our Class B common stock are entitled to 10 votes per share, and the holders of our Class A common stock are entitled to one vote per share. The holders of our Class A common stock and Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders, unless otherwise required by law. Following the completion of this offering, each share of our Class B common stock will be convertible into one share of our Class A common stock at any time and will convert automatically upon certain transfers or the date that the total number of shares of Class B common stock outstanding represents less than 10% of the total number of shares of Class A and Class B common stock outstanding. The holders of our outstanding Class B common stock will hold approximately 98.4% of the voting power of our outstanding capital stock following this offering, with our executive officers and directors and their affiliates holding approximately 72.8%, and Mr. Woodman, our Chief Executive Officer, holding approximately 47.7% after his sale of 3,562,892 shares of Class A common stock in this offering. These holders will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction. See “Principal and selling stockholders” and “Description of capital stock.”

 

 

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Directed share program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5.0% of the Class A common stock offered hereby (including any shares sold pursuant to the LOYAL3 platform described below) for sale to certain business and other associates of ours. None of our directors or executive officers will participate in the directed share program. We will offer these shares to the extent permitted under applicable regulations in the United States and other applicable jurisdictions through a directed share program. The number of shares of our Class A common stock available for sale to the general public will be reduced by the number of directed shares purchased by participants in the program. Any directed shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares of our Class A common stock offered hereby. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act of 1933, as amended, in connection with the sale of shares through a directed share program. See “Underwriting.”

 

LOYAL3 platform

At our request, the underwriters have reserved up to 1.5% of the Class A common stock offered hereby to be offered through the LOYAL3 platform at the initial public offering price. See “Underwriting.”

 

Proposed NASDAQ symbol

GPRO

The number of shares of our Class A and Class B common stock to be outstanding after this offering is based on (i) 112,422,478 shares of common stock outstanding as of March 31, 2014, (ii) the exercise of options for the purchase of 2,476,548 shares of Class B common stock by certain selling stockholders and the conversion of such shares into the same number of shares of Class A common stock for sale in this offering and (iii) the contribution of 658,443 shares of Class B common stock by Mr. Woodman to us in respect of stock options exercised by a certain selling stockholder and excludes:

 

Ÿ  

27,798,919 shares of Class B common stock issuable upon the exercise of stock options outstanding as of March 31, 2014 with a weighted average exercise price of $3.24 per share (other than the shares to be sold in this offering by certain selling stockholders upon the exercise of stock options) and 570,000 shares of Class B common stock issuable pursuant to restricted stock units, or RSUs, outstanding as of March 31, 2014 under our 2010 Equity Incentive Plan, or 2010 Plan;

 

Ÿ  

The effect of the contribution back to us of a number of shares of Class B common stock equal to the number of shares we issue upon exercise of an outstanding option for the purchase of 6,584,427 shares of Class B common stock (other than those shares of Class B common stock

 

 

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contributed back to us in respect of stock options exercised by a certain selling stockholder); see “Certain relationships and related person transactions—Equity grants and contribution agreements;”

 

Ÿ  

3,063,915 shares of Class B common stock issuable upon the exercise of stock options granted after March 31, 2014 with a weighted average exercise price of $18.24 per share and 4,750,379 shares of Class B common stock issuable upon settlement of RSUs granted after March 31, 2014;

 

Ÿ  

398,121 shares of Class B common stock subject to a right of repurchase by us outstanding as of March 31, 2014;

 

Ÿ  

13,470,229 shares of Class A common stock to be reserved for future issuance under our 2014 Equity Incentive Plan, or 2014 Plan, which will become effective on the date immediately prior to the date of this prospectus. Upon completion of this offering, any remaining shares available for issuance under our 2010 Plan will be added to the shares reserved under our 2014 Plan and we will cease granting awards under our 2010 Plan; and

 

Ÿ  

3,367,557 shares of Class A common stock to be reserved for future issuance under our 2014 Employee Stock Purchase Plan, or ESPP, which will become effective on the date of this prospectus.

Our 2014 Plan and ESPP also provide for automatic annual increases in the number of shares reserved under the plans each year, as more fully described in “Executive compensation—Employee benefit plans.”

Unless otherwise noted, all information in this prospectus assumes:

 

Ÿ  

the amendment of our certificate of incorporation to redesignate our currently outstanding common stock as Class B common stock and to create a new class of Class A common stock to be offered and sold in this offering;

 

Ÿ  

no exercise of the underwriters’ option to purchase up to 2,670,000 additional shares of Class A common stock from certain of the selling stockholders in this offering;

 

Ÿ  

the conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of 30,523,036 shares of our Class B common stock and the conversion by the selling stockholders of shares of our Class B common stock into the same number of shares of our Class A common stock, in each case in connection with the closing of this offering;

 

Ÿ  

the filing of our restated certificate of incorporation and the effectiveness of our amended and restated bylaws, which will occur in connection with the closing of this offering; and

 

Ÿ  

no exercise of options, warrants or similar rights outstanding as of the date of this prospectus.

 

 

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Summary consolidated financial data

The following tables summarize our consolidated financial data and should be read together with “Selected consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus.

We derived the consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 and the balance sheet data as of December 31, 2013 from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the three months ended March 31, 2013 and 2014 and the consolidated balance sheet data as of March 31, 2014 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of the results we expect in the future, and our interim results should not necessarily be considered indicative of results we expect for the full year or any other period.

 

 

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Consolidated statements of operations data:    Year ended December 31,     Three months ended
March 31,
 
(in thousands, except per share amounts)    2011      2012     2013     2013     2014  

 

   

 

 

   

 

 

   

 

 

 

Revenue

   $ 234,238       $ 526,016      $ 985,737      $ 255,057      $ 235,716   

Cost of revenue(1)

     111,683         298,530        623,953        165,628        139,202   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     122,555         227,486        361,874        89,429        96,514   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

           

Research and development(1)

     8,644         36,115        73,737        12,012        28,739   

Sales and marketing(1)

     64,375         116,855        157,771        35,673        41,341   

General and administrative(1)

     10,757         20,899        31,573        6,988        9,878   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     83,776         173,869        263,081        54,673        79,958   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     38,779         53,617        98,703        34,756        16,556   

Other income (expense), net

     12         (407     (7,374     (1,694     (1,625
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     38,791         53,210        91,329        33,062        14,931   

Income tax expense

     14,179         20,948        30,751        10,027        3,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 24,612       $ 32,262      $ 60,578      $ 23,035      $ 11,049   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

           

Basic

     73,481         74,226        81,018        80,768        81,582   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     78,551         74,226        98,941        98,457        100,783   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders(2):

           

Basic

   $ 0.26       $ 0.07      $ 0.54      $ 0.21      $ 0.10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.24       $ 0.07      $ 0.47      $ 0.18      $ 0.08   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per share attributable to common stockholders (unaudited)(2):

           

Basic

        $ 0.54        $ 0.10   
       

 

 

     

 

 

 

Diluted

        $ 0.47        $ 0.08   
       

 

 

     

 

 

 

Pro forma weighted-average shares used to compute net income per share attributable to common stockholders (unaudited)(2):

           

Basic

          111,541          112,105   
       

 

 

     

 

 

 

Diluted

          129,464          131,306   
       

 

 

     

 

 

 

Supplemental pro forma net income per share attributable to common stockholders (unaudited)(2):

           

Basic

        $ 0.54        $ 0.10   
       

 

 

     

 

 

 

Diluted

        $ 0.47        $ 0.09   
       

 

 

     

 

 

 

Supplemental pro forma weighted-average shares used to compute net income per share attributable to common stockholders (unaudited)(2):

           

Basic

          116,474          117,038   
       

 

 

     

 

 

 

Diluted

          134,397          136,239   
       

 

 

     

 

 

 

Other financial information:

           

Adjusted EBITDA

   $ 52,873       $ 75,288      $ 133,726      $ 40,923      $ 28,627   

 

   

 

 

   

 

 

   

 

 

 

(footnotes appear on following page)

 

 

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

 

       Year ended December 31,      Three months ended
March 31,
 
(in thousands)        2011          2012          2013          2013          2014  

 

 

Cost of revenue

   $ 122       $ 333       $ 690       $ 220       $ 168   

Research and development

     261         1,452         3,003         441         1,401   

Sales and marketing

     7,690         6,335         5,670         1,204         1,414   

General and administrative

     902         1,036         1,524         230         1,054   
  

 

 

 

Total stock-based compensation expense

   $ 8,975       $ 9,156       $ 10,887       $ 2,095       $ 4,037   

 

 

 

(2)   See Note 8 of our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our historical basic and diluted net income per share attributable to common stockholders and our pro forma and supplemental pro forma unaudited basic and diluted net income per share.

Adjusted EBITDA

We use adjusted EBITDA as a key measure to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA is not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. In addition, adjusted EBITDA is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. Some of these limitations are:

 

Ÿ  

adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

 

Ÿ  

adjusted EBITDA does not reflect the amounts we paid in taxes or other components of our tax expense;

 

Ÿ  

adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

Ÿ  

adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

Ÿ  

adjusted EBITDA does not reflect the non-cash component of employee compensation;

 

Ÿ  

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, including POP displays, and adjusted EBITDA does not reflect any cash requirements for such replacements; and

 

Ÿ  

other companies may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

 

 

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Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including our financial results presented in accordance with GAAP.

The following table presents a reconciliation of net income to adjusted EBITDA:

 

       Year ended December 31,      Three months ended
March 31,
 
(in thousands)    2011     2012      2013      2013      2014  

 

 

Net income

   $ 24,612      $ 32,262       $ 60,578       $ 23,035       $ 11,049   

Income tax expense

     14,179        20,948         30,751         10,027         3,882   

Interest (income) and expense, net

     (12     346         6,018         1,332         1,335   

Depreciation and amortization

     1,517        3,975         12,034         2,209         3,811   

POP display amortization

     3,602        8,601         13,458         2,225         4,513   

Stock-based compensation

     8,975        9,156         10,887         2,095         4,037   
  

 

 

 

Adjusted EBITDA

   $ 52,873      $ 75,288       $ 133,726       $ 40,923       $ 28,627   

 

 

Consolidated balance sheet data as of March 31, 2014 are presented below:

 

Ÿ  

on an actual basis;

 

Ÿ  

on a pro forma basis to reflect the conversion of all outstanding shares of our redeemable convertible preferred stock into 30,523,036 shares of our common stock in connection with the closing of this offering; and

 

Ÿ  

on a pro forma as adjusted basis to give further effect to (i) the application of a portion of the proceeds of this offering to repay in full the outstanding balance of our term loan, which was $111.0 million as of March 31, 2014, (ii) the redesignation of our currently outstanding common stock as Class B common stock, (iii) the issuance of 2,476,548 shares of our Class B common stock upon the exercise of outstanding stock options with an aggregate exercise price of $1.7 million by certain selling stockholders in connection with this offering and the contribution back to us by a certain stockholder of 658,443 shares of our Class B common stock in respect of stock options exercised by a selling stockholder, (iv) the conversion by the selling stockholders of 8,900,000 shares of our Class B common stock into the same number of shares of our Class A common stock in connection with the closing of this offering, (v) the sale by us of 8,900,000 shares of our Class A common stock in this offering at an assumed initial public offering price of $22.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (vi) the filing and effectiveness of our restated certificate of incorporation in connection with the closing of this offering.

 

 

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       As of March 31, 2014  
(in thousands)    Actual      Pro forma      Pro forma as
adjusted(1)
 

 

 

Consolidated balance sheet data:

        

Cash

   $ 111,215       $ 111,215       $ 186,715 (2) 

Working capital

     66,999         66,999         206,656 (3) 

Total assets

     355,200         355,200         426,955 (4) 

Long-term debt, including current portion

     110,666         110,666           

Redeemable convertible preferred stock

     77,213                   

Total stockholders’ equity

     10,391         87,604         271,347 (5) 

 

 

 

(1)   Each $1.00 increase or decrease in the assumed initial public offering price of $22.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, our cash, working capital, total assets and total stockholders’ equity by $8.4 million, assuming 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.
(2)   Pro forma as adjusted cash reflects $1.7 million of deferred offering costs that had been paid as of March 31, 2014.
(3)   Pro forma as adjusted working capital reflects $1.7 million of deferred offering costs that had been paid as of March 31, 2014, and the settlement of unpaid deferred offering costs of $1.3 million as of March 31, 2014.
(4)   Pro forma as adjusted total assets reflects the reclassification of the total deferred offering costs of $3.0 million as of March 31, 2014 to stockholders’ equity.
(5)   Pro forma as adjusted stockholders’ equity also reflects charges to accumulated deficit to reflect the accelerated amortization of the debt discount and issuance costs to interest expense due to the repayment of the term loan.

 

 

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Risk factors

You should carefully consider the risks described below and all other information contained in this prospectus before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected if any of the following risks, or other risks and uncertainties that are not yet identified or that we currently think are immaterial, actually occur. In that event, the trading price of our shares may decline, and you may lose part or all of your investment.

Risks related to our business and industry

We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue and profitability.

The market for capture devices, including cameras and camcorders, is highly competitive. Further, we expect competition to intensify in the future as existing competitors introduce new and more competitive offerings alongside their existing products, and as new market entrants introduce new products into our markets. We compete against established, well-known camera manufacturers such as Canon Inc., Nikon Corporation, Olympus Corporation, Polaroid Holding Corporation and Vivitar Corporation, large, diversified electronics companies such as JVC Kenwood Corporation, Panasonic Corporation, Samsung Electronics Co., Sony Corporation and Toshiba Corporation, and specialty companies such as Garmin Ltd. Many of our current competitors have substantial market share, diversified product lines, well-established supply and distribution systems, strong worldwide brand recognition and greater financial, marketing, research and development and other resources than we do. In addition, many of our existing and potential competitors enjoy substantial competitive advantages, such as:

 

Ÿ  

longer operating histories;

 

Ÿ  

the capacity to leverage their sales efforts and marketing expenditures across a broader portfolio of products;

 

Ÿ  

broader distribution and established relationships with channel partners;

 

Ÿ  

access to larger established customer bases;

 

Ÿ  

greater resources to make acquisitions;

 

Ÿ  

larger intellectual property portfolios; and

 

Ÿ  

the ability to bundle competitive offerings with other products and services.

Moreover, smartphones and tablets with photo and video functionality have significantly displaced traditional camera sales. It is possible that, in the future, the manufacturers of these devices, such as Apple Inc. and Samsung, may design them for use in a range of conditions, including challenging physical environments, or develop products similar to ours. In addition to competition or potential competition from large, established companies, new companies may emerge and offer competitive products. Further, we are aware that certain companies have developed cameras designed and labeled to appear similar to our products, which may confuse consumers or distract consumers from purchasing GoPro products.

 

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Increased competition may result in pricing pressures and reduced profit margins and may impede our ability to continue to increase the sales of our products or cause us to lose market share, any of which could substantially harm our business and results of operations.

We depend on sales of our capture devices for substantially all of our revenue, and any decrease in the sales of these products would harm our business.

To date, substantially all of our revenue has been derived from sales of our capture devices, and we expect to continue to derive the substantial majority of our revenue from sales of cameras and accessories for the foreseeable future. A decline in the price of these products, whether due to macroeconomic conditions, competition or otherwise, or our inability to increase sales of these products, would harm our business and operating results more seriously than it would if we derived significant revenue from a variety of product lines and services. Any decrease in the sales of our capture devices would harm our business. While we are evaluating other products and services to add to our offerings, we may not be successful in identifying or executing on such opportunities, and we expect sales of capture devices to represent a substantial portion of our revenue for the foreseeable future. As a result, our future growth and financial performance will depend heavily on our ability to develop and sell enhanced versions of our capture devices. If we fail to deliver product enhancements, new releases or new products that our customers want, our business and results of operations would be harmed.

We rely on third-party suppliers, some of which are sole-source suppliers, to provide components for our products.

All of the components that go into the manufacture of our cameras and accessories are sourced from third-party suppliers, and some of these components are provided by a single supplier or by a supplier that could potentially become a competitor. If we lose access to components from a particular supplier, or experience a significant disruption in the supply of products and components from a current supplier, we may be unable to locate alternative suppliers of comparable quality at an acceptable price, or at all, and our business could be materially and adversely affected. In addition, if we experience a significant increase in demand for our products, our suppliers might not have the capacity or elect to meet our needs as they allocate components to other customers. Identifying a suitable supplier is an involved process that requires us to become satisfied with the supplier’s quality control, responsiveness and service, financial stability and labor and other ethical practices, and if we seek to source materials from new suppliers there can be no assurance that we could do so in a manner that does not disrupt the manufacture and sale of our products. Our reliance on single source, or a limited number of, suppliers involves a number of additional risks, including risks related to:

 

Ÿ  

supplier capacity constraints;

 

Ÿ  

price increases;

 

Ÿ  

timely delivery;

 

Ÿ  

component quality;

 

Ÿ  

failure of a key supplier to remain in business and adjust to market conditions;

 

Ÿ  

delays in, or the inability to execute on, a supplier roadmap for components and technologies; and

 

Ÿ  

natural disasters, fire, acts of terrorism or other catastrophic events.

 

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In particular, we incorporate video compression and image processing semiconductors from one provider, Ambarella, Inc., into all of our cameras, and we do not have an alternative supplier for these key components. If Ambarella stopped supplying components on acceptable terms, or at all, or we experienced delays in receipt of components from Ambarella, we would experience a significant disruption in our ability to produce our products, and our business would be materially and adversely affected.

We do not expect to continue to grow in the future at the same rate as we have in the past and profitability in recent periods might not be indicative of future performance.

Although our revenue and profitability have grown rapidly from 2009 through 2013, you should not consider our recent revenue growth as indicative of our future performance. In future periods, our revenue could decline or grow more slowly than we expect. We also may incur significant losses in the future for a number of reasons, including other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors.

If our sales during the holiday season fall below our forecasts, our overall financial condition and results of operations could be adversely affected.

Seasonal consumer shopping patterns significantly affect our business. Specifically, our revenue is traditionally strongest in the fourth quarter of each year due to increased consumer purchases during holiday periods, and fourth quarter revenue comprised 44% and 37% of our 2012 and 2013 revenue, respectively. Given the strong seasonal nature of our sales, appropriate forecasting is critical to our operations. We anticipate that this seasonal impact on our net sales is likely to continue and any shortfall in expected fourth quarter net sales, due to macroeconomic conditions, a decline in the effectiveness of our promotional activities or supply chain disruptions, or for any other reason, would cause our annual results of operations to suffer significantly.

In contrast, a substantial portion of our expenses are personnel related and include salaries, stock-based compensation, benefits and incentive-based compensation plan expenses, which are not seasonal in nature. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins in the short term. If this were to occur, our operating results would be harmed.

We may have difficulty in accurately predicting our future customer demand which could adversely affect our operating results.

To ensure adequate inventory supply and meet the demands of our retailers and distributors, we must forecast inventory needs and place orders with our contract manufacturers and component suppliers based on our estimates of future demand for particular products. We have relatively recently begun producing our products in substantial volumes, and we have experienced rapid growth. We may be unable to meet customer, retailer or distributor demand for our products or may be required to incur higher costs to secure the necessary production capacity and components. We could also overestimate future sales of our products and risk carrying excess product and component inventory. Further, our ability to accurately forecast demand for our products could be affected by other factors, including product introductions by competitors, unanticipated changes in general market demand, macroeconomic conditions or consumer confidence. If we fail to continue to develop the infrastructure that enables us to accurately forecast customer demand for our products, our business and operating results could be adversely affected.

 

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Our success depends on our ability to maintain the value and reputation of our brand.

Our success depends on the value and reputation of our brand, including our primary trademarks “GoPro” and “Be a Hero.” The GoPro name and premium brand image are integral to the growth of our business and expansion into new vertical markets. Maintaining, promoting and positioning our brand will largely depend on the success of our marketing and merchandising efforts and our ability to provide consistent, high quality products. If we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity, our brand, business and operating results could be adversely affected. Negative publicity regarding the athletes we sponsor and celebrities we are associated with, our products, our customers’ UGC and the labor policies of any of our suppliers or manufacturers could create corresponding negative publicity for us, harm our brand image and, as a result, adversely impact our sales and results of operations. Maintaining and enhancing our brand may require us to make substantial investments and these investments may not achieve the desired goals. If we fail to successfully promote and maintain our brand or if we incur excessive expenses in this effort, our business and operating results could be adversely affected.

To remain competitive and stimulate customer demand, we must successfully manage frequent product introductions and transitions.

We believe that we must continually develop and introduce new products, enhance our existing products and effectively stimulate customer demand for new and upgraded products. Our research and development efforts are complex and require us to incur substantial research and development expense. Our research and development expense was $8.6 million, $36.1 million, $73.7 million and $28.7 million for 2011, 2012, 2013 and the three months ended March 31, 2014, respectively, and we anticipate that research and development expense will increase in the future. We may not be able to achieve an acceptable return, if any, on our research and development efforts. Further, any failure to complete product transitions effectively could harm our brand.

The success of new product introductions depends on a number of factors including, but not limited to, timely and successful research and development, market and customer acceptance, the effective forecasting and management of product demand, purchase commitments and inventory levels, the management of manufacturing and supply costs, and the risk that new products may have quality or other defects in the early stages of introduction. For example, in order to launch our HERO3 line of capture devices in time for the 2012 holiday shopping season, we implemented a compressed design and manufacturing cycle. As a result, our initial production run of HERO3 Black edition capture devices suffered from a number of design issues, part shortages and manufacturing problems, which reduced the number of units we were able to ship for the 2012 holiday season. Moreover, because of the compressed development schedule, our HERO3 capture devices required a subsequent firmware update to address certain issues, which resulted in negative publicity for us. In the future, if we do not successfully manage product transitions, especially during the holiday shopping season, our revenue and business may be harmed.

The introduction of new products or product enhancements may shorten the life cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of even a successful product introduction, and may cause customers to defer purchasing our existing products in anticipation of the new products and potentially lead to challenges in managing inventory of existing products. We also provide price protection to some of our retailers as a result of our new product introductions. If we fail to effectively manage new product introductions, our revenue and profitability may be harmed.

 

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Any material disruption of our information systems could adversely affect our operating results.

We are increasingly dependent on information systems to operate our ecommerce website, process transactions, respond to customer inquiries, manage our supply chain and inventory, ship goods on a timely basis and maintain cost-efficient operations. Any material disruption or slowdown of our systems, including a disruption or slowdown caused by our failure to successfully upgrade our systems, system failures, viruses, computer “hackers” or other causes, could cause delays in our supply chain or cause information, including data related to customer orders, to be lost or delayed which could result in delays in the delivery of merchandise to our stores and customers or lost sales, especially if the disruption or slowdown occurred during the holiday season. Any of these events could reduce demand for our products, impair our ability to complete sales through our ecommerce channels and cause our revenue to decline. If changes in technology cause our information systems to become obsolete, or if our information systems are inadequate to handle our growth, we could lose customers or our business and operating results could be adversely affected.

In particular, we are heavily reliant on our software-as-a-service, or SaaS, enterprise resource planning systems to conduct our order and inventory management and financial processes. As we expand our operations, we expect to utilize additional systems and service providers that may also be essential to managing our business. Although the systems and services that we require are typically available from a number of providers, it is time consuming and costly to qualify and implement these relationships. Therefore, our ability to manage our business would suffer if one or more of our providers suffer an interruption in their business, or experience delays, disruptions or quality control problems in their operations, or we have to change or add systems and services. We may not be able to control the quality of the systems and services we receive from third-party service providers, which could impair our ability to implement appropriate internal controls over financial reporting and may impact our business, operating results and financial condition.

We are highly dependent on our Chief Executive Officer.

Our future success depends in significant part on the continued service of our Chief Executive Officer, Nicholas Woodman. Mr. Woodman is critical to the strategic direction and overall management of our company as well as our research and development process. Mr. Woodman is an at-will employee and there are no vesting restrictions on any of the Class B common stock that he owns, although he holds 3,000,000 RSUs subject to vesting restrictions. The loss of Mr. Woodman could adversely affect our business, financial condition and operating results.

We depend on key personnel to operate our business, and many members of our current management team are new. If we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

In addition to the continued services of Mr. Woodman, we believe that our future success is highly dependent on the contributions of our executive officers, as well as our ability to attract and retain highly skilled and experienced sales, research and development and other personnel in the United States and abroad. Some of our executive management team, including our President, Chief Financial Officer, General Counsel, Senior Vice President of Software and Services, Vice President of Communications and Vice President of People, joined us recently and these changes in our management team may be disruptive to our business.

 

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All of our employees, including our executive officers, are free to terminate their employment relationship with us at any time, and their knowledge of our business and industry may be difficult to replace. If one or more of our executive officers or key employees leaves, we may not be able to fully integrate new personnel or replicate the prior working relationships, and our operations could suffer. Qualified individuals are in high demand, and we may incur significant costs to attract them. Many of the companies with which we compete for experienced personnel also have greater resources than we do. Competition for qualified personnel is particularly intense in the San Francisco Bay Area, where our headquarters are located. If we are unable to attract and retain highly skilled personnel, we may not be able to achieve our strategic objectives, and our business, financial condition and operating results could be adversely affected.

If we do not effectively maintain and further develop our sales channels, including developing and supporting our retail sales channel and distributors, our business could be harmed.

As a consumer-facing company, we depend upon effective sales channels to reach the consumers who are the ultimate purchasers of our capture devices. In the United States, we primarily sell our products directly through a mix of retail channels, including big box, mid-market and specialty retailers, and we reach certain U.S. markets through distributors. In international markets, we primarily sell through distributors who in turn sell to local retailers. We depend on retailers to provide adequate and attractive space for our products and POP displays in their stores. We further depend on our retailers to employ, educate and motivate their sales personnel to effectively sell our products. If our retailers do not adequately display our products, choose to promote competitors’ products over ours or do not effectively explain to customers the advantages of our products, our sales could decrease and our business could be harmed. Similarly, our business could be adversely affected if any of our large retail customers were to experience financial difficulties, or change the focus of their businesses in a way that deemphasized the sale of our products. We are also investing heavily in providing new retailers with POP displays and expanding the footprint of our POP displays in existing stores, and there can be no assurance that this investment will lead to increased sales.

We depend on our distributors to reach certain market segments in the United States and to reach our international retailers. Our distributors generally offer products from several different manufacturers. Accordingly, we are at risk that these distributors may give higher priority to selling other companies’ products. If we were to lose the services of a distributor, we might need to find another distributor in that area, and there can be no assurance of our ability to do so in a timely manner or on favorable terms. Further, our distributors build inventories in anticipation of future sales, and if such sales do not occur as rapidly as they anticipate, our distributors will decrease the size of their future product orders. We are also subject to the risks of our distributors encountering financial difficulties, which could impede their effectiveness and also expose us to financial risk if they are unable to pay for the products they purchase from us. Any reduction in sales by our current distributors, loss of key distributors or decrease in revenue from our distributors could adversely affect our revenue, operating results and financial condition.

A small number of retailers and distributors account for a substantial portion of our revenue, and if our relationships with any of these retailers or distributors were to be terminated or the level of business with them significantly reduced, our business could be harmed.

Our ten largest customers, measured by the revenue we derive from them, accounted for 44%, 42%, 51% and 51% of our revenue for 2011, 2012, 2013 and the three months ended March 31, 2014, respectively. One retailer accounted for 15%, 15%, 17% and 13% of our revenue for 2011,

 

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2012, 2013 and the three months ended March 31, 2014, respectively. One distributor accounted for 10% of our revenue for the three months ended March 31, 2014. The loss of a small number of our large customers, or the reduction in business with one or more of these customers, could have a significant adverse impact on our operating results. While we have agreements with these large customers, these agreements do not require them to purchase any meaningful amount of our products.

If we encounter problems with our distribution system, our ability to deliver our products to the market and to meet customer expectations could be harmed.

We rely on a select number of third-party distribution facilities for substantially all of our product distribution. Our distribution facilities include computer controlled and automated equipment, which means their operations may be vulnerable to computer viruses or other security risks, the proper operation of software and hardware, electronic or power interruptions or other system failures. Further, because substantially all of our products are distributed from only a few locations, our operations could be interrupted by labor difficulties, extreme or severe weather conditions, or floods, fires or other natural disasters near our distribution centers. If we encounter problems with our distribution system, our ability to meet customer expectations, manage inventory, complete sales and achieve our objectives for operating efficiencies could be harmed.

We are subject to international business uncertainties.

Revenue from outside the United States comprised 35%, 47%, 49% and 53% of our revenue in 2011, 2012, 2013 and the three months ended March 31, 2014, respectively, and we expect this portion to increase in the future. Further, our supply chain partners have operations in countries including China, Singapore and the Netherlands. We intend to expand our relationships in these countries and may establish additional relationships in other countries to grow our operations. Operating in foreign countries requires significant resources and management attention, and we have limited experience entering new geographic markets. We cannot be assured that our international efforts will be successful. International sales and operations may be subject to risks such as:

 

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difficulties in staffing and managing foreign operations;

 

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burdens of complying with a wide variety of laws and regulations;

 

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adverse tax effects and foreign exchange controls making it difficult to repatriate earnings and cash;

 

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political and economic instability;

 

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terrorist activities and natural disasters;

 

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trade restrictions;

 

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differing employment practices and laws and labor disruptions;

 

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the imposition of government controls;

 

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lesser degrees of intellectual property protection;

 

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tariffs and customs duties and the classifications of our goods by applicable governmental bodies;

 

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a legal system subject to undue influence or corruption; and

 

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a business culture in which illegal sales practices may be prevalent.

 

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The occurrence of any of these risks could negatively affect our international business and consequently our business, operating results and financial condition.

We may be subject to product liability or warranty claims that could result in significant direct or indirect costs, or we could experience greater returns from retailers than expected, which could harm our business and operating results.

We generally provide a 12-month warranty on all of our products, except in the European Union, or EU, where we provide a two-year warranty on all of our products. The occurrence of any material defects in our products could make us liable for damages and warranty claims in excess of our current reserves. In addition, we could incur significant costs to correct any defects, warranty claims or other problems, including costs related to product recalls. Any negative publicity related to the perceived quality of our products could affect our brand image, decrease retailer, distributor and customer demand, and adversely affect our operating results and financial condition. Also, while our warranty is limited to repairs and returns, warranty claims may result in litigation, the occurrence of which could adversely affect our business and operating results.

Our intellectual property rights and proprietary rights may not adequately protect our products.

Our commercial success will depend substantially on our ability to obtain patents and other intellectual property rights and maintain adequate legal protection for our products in the United States and other countries. We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that these assets are covered by valid and enforceable patents, trademarks, copyrights or other intellectual property rights, or are effectively maintained as trade secrets. As of the date of this filing, we have 42 issued patents and 72 patent applications pending in the United States and 15 corresponding issued patents and 12 patent applications pending in foreign jurisdictions. Our issued U.S. patents will expire between 2024 and 2032 and our issued foreign patents will expire between 2022 and 2038. We apply for patents covering our products, services, technologies and designs, as we deem appropriate. We may fail to apply for patents on important products, services, technologies or designs in a timely fashion, or at all. We do not know whether any of our patent applications will result in the issuance of any patents. Even if patents are issued, they may not be sufficient to protect our products, services, technologies, or designs. Our existing and future patents may not be sufficiently broad to prevent others from developing competing products, services technologies, or designs. No consistent policy regarding the breadth of patent claims has emerged to date in the United States and we expect the landscape for patent protection for our products, services technologies, and designs to continue to be uncertain. Intellectual property protection and patent rights outside of the United States are even less predictable. As a result, the validity and enforceability of patents cannot be predicted with certainty. Moreover, we cannot be certain whether:

 

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we were the first to conceive of or invent the inventions covered by each of our issued patents and pending patent applications;

 

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we were the first to reduce to practice inventions covered by each of our issued patents and pending patent applications;

 

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we were the first to file patent applications for these inventions;

 

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others will independently develop similar or alternative products, technologies, services or designs or duplicate any of our products, technologies, services or designs;

 

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any patents issued to us will provide us with any competitive advantages, or will be challenged by third parties;

 

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we will develop additional proprietary products, services, technologies or designs that are patentable; or

 

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the patents of others will have an adverse effect on our business.

The patents we own or license and those that may be issued to us in the future may be challenged, invalidated, rendered unenforceable or circumvented, and the rights granted under

any issued patents may not provide us with proprietary protection or competitive advantages. Moreover, third parties could practice our inventions in territories where we do not have patent protection or in territories where they could obtain a compulsory license to our technology where patented. Such third parties may then try to import products made using our inventions into the United States or other territories. Additional uncertainty may result from potential passage of patent legislation by the U.S. Congress, legal precedent by the U.S. Federal Circuit Courts and Supreme Court as they determine legal issues concerning the scope and construction of patent claims and inconsistent interpretation of patent laws by the lower courts. Accordingly, we cannot ensure that any of our pending patent applications will result in issued patents, or even if issued, predict the breadth, validity and enforceability of the claims upheld in our and other companies’ patents.

We have registered and applied to register certain of our trademarks in several jurisdictions worldwide. In some jurisdictions where we have applied to register our trademarks, other applications or registrations exist for the same, similar or otherwise related products or services. If we are not successful in arguing that there is no likelihood of confusion between our marks and the marks that are the subject of the other applications or registrations owned by third parties, our applications may be denied, preventing us from obtaining trademark registrations and adequate protection for our marks in the relevant jurisdictions, which could impact our ability to build our brand identity and market our products and services in those jurisdictions. Whether or not our application is denied, third parties may claim that our trademarks infringe their rights. As a result, we could be forced to pay significant settlement costs or cease the use of these trademarks and associated elements of our brand in the United States or other jurisdictions.

Even in those jurisdictions where we are able to register our trademarks, competitors may adopt or apply to register similar trademarks to ours, may register domain names that mimic ours or incorporate our trademarks, or may purchase keywords that are identical or confusingly similar to our brand names as terms in Internet search engine advertising programs, which could impede our ability to build our brand identity and lead to confusion among potential customers of our products and services. We believe that other companies have copied some of our trademarks for use in the marketplace. We have sent demand letters in a number of these instances, but there can be no assurance that we are aware of all such instances or that we will prevail should such letters be ineffective. If we are not successful in proving that we have prior rights in our marks and arguing that there is a likelihood of confusion between our marks and the marks of these third parties, our inability to prevent these third parties from continuing to use our marks or confusingly similar marks may negatively impact the strength, value and effectiveness of our brand names and our ability to market our products and prevent consumer confusion.

The laws of certain countries do not protect intellectual property and proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be unable to protect our products, services, technologies and designs adequately against

 

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unauthorized third-party copying, infringement or use, which could adversely affect our competitive position. For instance, we are aware of cameras that have been designed and labeled to appear similar to our products, and are available for sale in countries within Asia, Europe and, to a lesser extent, the United States. To protect or enforce our intellectual property rights, we may initiate proceedings or litigation against third parties. Such proceedings or litigation may be necessary to protect our trade secrets or know-how, products, technologies, designs, brands, reputation, likeness, authorship works or other intellectual property rights. Such proceedings or litigation also may be necessary to determine the enforceability, scope and validity of the proprietary rights of others. Any proceedings or lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. Additionally, we may provoke third parties to assert claims against us. These claims could invalidate or narrow the scope of our own intellectual property rights. We may not prevail in any proceedings or lawsuits that we initiate and the damages or other remedies awarded, if any, may be commercially valuable. The occurrence of any of these events may adversely affect our business, financial condition and operating results.

Our business may suffer if it is alleged or determined that our technology or another aspect of our business infringes the intellectual property rights of others.

The markets in which we compete are characterized by the existence of a large number of patents and trade secrets and also by litigation based on allegations of infringement or other violations of intellectual property rights. Moreover, in recent years, individuals and groups have purchased patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. From time to time, third parties have claimed that we are infringing upon their intellectual property rights or have offered licenses to us in respect of technology they own that may be infringed upon by our products, and we expect to continue to receive such claims or offers in the future. We are currently in receipt of letters of this nature in respect of which we have reached no resolution with the third-party sender. Also, third parties may make infringement claims against us that relate to technology developed and owned by one of our suppliers for which our suppliers may or may not indemnify us. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations and determining the scope of these obligations could require additional litigation. Claims of intellectual property infringement against us or our suppliers might require us to redesign our products, rebrand our services, enter into costly settlement or license agreements, pay costly damage awards or face a temporary or permanent injunction prohibiting us from marketing or selling our products or services. If we cannot or do not license the infringed intellectual property on reasonable terms or at all, or substitute similar intellectual property from another source, our revenue and operating results could be adversely impacted. Additionally, our customers, distributors and retailers may not purchase our offerings if they are concerned that they may infringe third-party intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand and cause us to incur significant expenses. The occurrence of any of these events may have an adverse effect on our business, financial condition and operating results.

If we are unable to anticipate consumer preferences and successfully develop attractive products, we might not be able to maintain or increase our revenue and profitability.

Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. If we are unable to

 

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introduce new products or novel technologies in a timely manner or our new products or technologies are not accepted by consumers, our competitors may introduce more attractive products, which could hurt our competitive position. Our new products might not receive consumer acceptance if consumer preferences shift to other products, and our future success depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower revenue and excess inventory levels.

As we continually seek to enhance our products, we may incur additional costs to incorporate new or revised features. We might not be able to, or determine that it is not in our interests to, raise prices to compensate for these additional costs. For example, our gross profit declined as a percentage of revenue in 2012 and 2013 compared to the prior year periods due, in part, to the additional costs of incorporating new functionality into our newest generation of products.

If we encounter issues with our manufacturers, our business, brand and results of operations could be harmed and we could lose sales.

We do not have internal manufacturing capabilities and rely primarily on two contract manufacturers, Chicony Electronics Co. Ltd. and Sky Light Digital Limited/Sky Light Industrial Limited, to manufacture our products. We cannot be certain that we will not experience operational difficulties with our manufacturers, including reductions in the availability of production capacity, errors in complying with product specifications, insufficient quality control, failures to meet production deadlines, increases in manufacturing costs and increased lead times. Additionally, our manufacturers may experience disruptions in their manufacturing operations due to equipment breakdowns, labor strikes or shortages, component or material shortages, cost increases or other similar problems. Further, in order to minimize their inventory risk, our manufacturers might not order components from third-party suppliers with adequate lead time, thereby impacting our ability to meet our demand forecast. Therefore, if we fail to manage our relationship with our manufacturers effectively, or if they experience operational difficulties, our ability to ship products to our retailers and distributors could be impaired and our competitive position and reputation could be harmed.

In the event that we receive shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards, and we are not able to obtain replacement products in a timely manner, we risk revenue losses from the inability to sell those products, increased administrative and shipping costs, and lower profitability. Additionally, if defects are not discovered until after customers purchase our products, our customers could lose confidence in the technical attributes of our products and our business could be harmed.

We do not control our contract manufacturers or suppliers, or require them to comply with a formal code of conduct, and actions that they might take could harm our reputation and sales.

We do not control our contract manufacturers or suppliers, including their labor, environmental or other practices, or require them to comply with a formal code of conduct. Though we conduct periodic audits of our contract manufacturers’ and suppliers’ compliance with applicable laws and good industry practices, these audits may not be frequent or thorough enough to detect non-compliance. A violation of labor, environmental or other laws by our contract manufacturers or suppliers, or a failure of these parties to follow ethical business practices, could lead to negative publicity and harm our reputation. In addition, we may choose to seek alternative manufacturers or suppliers if these violations or failures were to occur. Identifying and qualifying new manufacturers or suppliers can be time consuming and we might not be able to substitute

 

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suitable alternatives in a timely manner or at an acceptable cost. Other consumer products companies have faced significant criticism for the actions of their manufacturers and suppliers, and we could face such criticism ourselves. Any of these events could adversely affect our brand, harm our reputation, reduce demand for our products and harm our ability to meet demand if we need to identify alternative manufacturers or suppliers.

Our growth depends in part on our penetrating additional consumer markets, and we may not be successful in doing so.

Our initial growth has largely been fueled by the adoption of our products by people looking to self-capture images of themselves participating in exciting physical activities. We believe that our future growth depends not only on continuing to reach this core demographic, but also broaden our customer base to include a more diverse group of consumers seeking to capture themselves, family members and things around them in their daily lives. While we are investing in sales and marketing activities to reach this expanded market, we cannot be assured that we will be successful in doing so. If we are not successful in penetrating additional consumer markets, we might not be able to grow our market share and revenue.

We plan to continue to invest in the further development of a content management platform and the acquisition and distribution of content, and we might not be successful in doing so.

We believe that enabling consumers to easily manage, share and enjoy their GoPro content will increase consumer interest in our products, and we intend to continue to invest in improving our software offerings and the further development of our content management platform to assist consumers with these tasks. The development of these software offerings and other tools needed for these purposes requires different skills from our historical core focus of developing capture devices.

We are investing to scale GoPro as a media entity and develop new revenue opportunities by increasing production of GoPro originally produced content while simultaneously increasing the aggregation and redistribution of our customers’ “best of” UGC. Additionally, we are investing to develop and distribute the GoPro Channel on more partner platforms such as Xbox Live and Virgin America. The execution of this business strategy requires different skills from our historical core focus of developing capture devices.

To achieve our goals, we have recently hired personnel with what we believe are requisite skills and experience to execute on these plans, and we continue to seek additional personnel with these skills. We cannot be assured of our ability to organize, manage and execute these relatively new functions within our business. If we are not successful, we may not achieve our goals of facilitating greater consumer use of their content and scaling GoPro as a media entity, and we might not recover the investments we make in these efforts, which could adversely affect our business and operating results.

We may acquire other businesses or receive offers to be acquired, which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our operating results.

As part of our business strategy, we may selectively make investments in or acquire other companies, products or technologies. We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by users or investors. In addition,

 

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if we fail to integrate successfully such acquisitions, or the technologies associated with such acquisitions, into our company, the revenue and operating results of the combined company could be adversely affected. Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expenses and adversely impact our business, financial condition, operating results and cash flows. We may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could affect our financial condition or the value of our capital stock. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our stockholders. If we incur more debt it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to manage our operations. In addition, our future operating results may be impacted by performance earnouts or contingent bonuses. Furthermore, acquisitions may require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional stock-based compensation expense and the recording and subsequent amortization or impairments of amounts related to certain purchased intangible assets, any of which could negatively impact our future results of operations. We may also record goodwill in connection with an acquisition and incur goodwill impairment charges in the future. In the future, if our acquisitions do not yield expected revenue, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.

Failure to obtain new, and maintain existing, high-quality event, athlete and celebrity sponsorships could harm our business.

Establishing relationships with high profile sporting events, athletes and celebrity personalities to evaluate, promote and establish product credibility with consumers, including entering into sponsorship and licensing agreements, has and will continue to be a key element of our marketing strategy. However, as competition in the camera and video recorder markets has increased, the costs of obtaining and retaining event, athlete and celebrity sponsorships and licensing agreements have increased. If we are unable to maintain our current associations with our event, athlete and celebrity partners, or to do so at a reasonable cost, we could lose the benefits of these relationships, and we may be required to modify and substantially increase our marketing investments. In addition, actions taken by endorsers of our products that harm their reputations could also harm our brand image with consumers. The failure to correctly identify high impact events, promising athletes or other appealing personalities to use and endorse our products, or poor performance by our endorsers, could adversely affect our brand and result in decreased sales of our products.

If we are unable to maintain or acquire rights to include intellectual property owned by others in the content distributed by us, our marketing, sales or future business strategy could be affected or we could be subject to lawsuits relating to our use of this content.

The distribution of GoPro content helps to market our brand and our products. If we cannot continue to acquire rights to distribute UGC or acquire rights to use and distribute music, athlete and celebrity names and likenesses or other content for our original productions or for our GoPro Studio Edit Templates, our marketing efforts could be diminished, our sales could be harmed and our future content strategy could be adversely affected. In addition, third-party content providers may allege that we have violated their intellectual property rights. If we are unable to obtain sufficient rights, successfully defend our use of or otherwise alter our business practices on a timely basis in response to claims of infringement, misappropriation, misuse or other violation

 

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of third-party intellectual property rights, our business may be adversely affected. As a distributor of content, we face potential liability for negligence, copyright, or trademark infringement or other claims based on the nature and content of materials that we distribute. If we are found to be liable for infringement, then our business may suffer.

If our customers are not satisfied with our technical support or software updates, they may choose not to purchase our products, either of which would adversely impact our business and operating results.

Our business relies, in part, on our customers’ satisfaction with the technical support and software updates we provide to support our products. If we fail to provide technical support services that are responsive, satisfy our customers’ expectations and resolve issues that they encounter with our products, customers may choose not to purchase additional products and we may face brand and reputational harm, which could adversely affect our operating results.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or similar anti-bribery laws in other jurisdictions in which we operate.

The global nature of our business and the significance of our international revenue create various domestic and local regulatory challenges and subject us to risks associated with our international operations. The U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act 2010, or the U.K. Bribery Act, and similar anti-bribery and anticorruption laws in other jurisdictions generally prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business, directing business to another, or securing an advantage. In addition, U.S. public companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. Under the FCPA, U.S. companies may be held liable for the corrupt actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives. As such, if we or our intermediaries fail to comply with the requirements of the FCPA or similar legislation, governmental authorities in the United States and elsewhere could seek to impose substantial civil and/or criminal fines and penalties which could have a material adverse effect on our business, reputation, operating results and financial condition.

We operate in areas of the world that experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery and anticorruption laws may conflict with local customs and practices. Our global operations require us to import and export to and from several countries, which geographically expands our compliance obligations. In addition, changes in such laws could result in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition and results of operations. We cannot be assured that our employees or other agents will not engage in prohibited conduct and render us responsible under the FCPA or the U.K. Bribery Act. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-bribery or anticorruption laws (either due to acts or inadvertence of our employees, or due to the acts or inadvertence of others), we could suffer criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

We are subject to governmental export and import controls and economic sanctions laws that could subject us to liability and impair our ability to compete in international markets.

The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies. Our products are subject to U.S. export controls, including the Commerce Department’s Export Administration Regulations and

 

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various economic and trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls, and exports of our products must be made in compliance with these laws. Furthermore, U.S. export control laws and economic sanctions prohibit the provision of products and services to countries, governments, and persons targeted by U.S. sanctions. Even though we take precautions to prevent our products from being provided to targets of U.S. sanctions, our products, including our firmware updates, could be provided to those targets or provided by our customers despite such precautions. Any such provision could have negative consequences, including government investigations, penalties and reputational harm. Our failure to obtain required import or export approval for our products could harm our international and domestic sales and adversely affect our revenue.

In 2014, we determined that we may have shipped some products to international customers that, prior to shipment, may have required either a one-time product review or application for an encryption registration number in lieu of such product review. We have since acquired the appropriate encryption registration number. We also recently determined that we provided controlled technology to our offshore manufacturing partners without the required export licenses and have submitted an export license application for the export of controlled technology to our offshore manufacturing partners. We have made an initial voluntary submission to the Commerce Department’s Bureau of Industry and Security to report these potential violations and are in the process of preparing a supplemental disclosure.

We also discovered in 2014 potential sanctions violations involving transactions with sanctioned parties, the provision of support services to persons in an embargoed country, and firmware updates to persons in several embargoed countries. Upon learning of these transactions and associated export control requirements, we promptly initiated an internal investigation and are taking remedial measures to prevent similar export control violations from occurring in the future. We have made an initial voluntary submission to the U.S. Department of Treasury’s Office of Foreign Assets Control to report these potential violations and are preparing a supplemental or update disclosure.

While we do not expect the subject matters of our voluntary submissions to have a material effect on our business or operating results, they could result in penalties, costs, and restrictions on export privileges.

Our effective tax rate and the intended tax benefits of our corporate structure and intercompany arrangements depend on the application of the tax laws of various jurisdictions and on how we operate our business.

The application of the tax laws of various jurisdictions, including the United States, to our international business activities is subject to interpretation and depends on operating our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methods for valuing technology, intercompany arrangements, including our transfer pricing, or our current or historical tax positions, including with respect to research and development tax credits and our prior status as an S corporation. Any such challenge could be costly and time consuming to defend and may increase our worldwide effective tax rate, and consequently adversely affect our financial position and results of operations. In order to effectively structure and execute our international operations we will need to continue to hire, train and manage qualified personnel. If our new hires underperform, or if we are unsuccessful in hiring, training, managing and integrating these new employees, our business may be adversely affected.

 

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Our corporate structure includes legal entities located in jurisdictions with income tax rates lower than the U.S. statutory tax rate. Our intercompany arrangements result in income earned by such entities in accordance with arm’s-length principles and commensurate with functions performed, risks assumed and ownership of valuable corporate assets. We believe that income taxed in certain foreign jurisdictions at a lower rate relative to the U.S. statutory rate will have a beneficial impact on our worldwide effective tax rate.

Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm’s-length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. In addition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In particular, there is uncertainty in relation to the U.S. tax legislation in terms of the future corporate tax rate but also in terms of the U.S. tax consequences of income derived from intellectual property held in foreign jurisdictions.

Our existing corporate structure and intercompany arrangements have been implemented in a manner that we believe complies with current tax laws. However, our tax liabilities may be adversely affected if such structure and arrangements are challenged by a taxing authority or we are unable to appropriately adapt the manner in which we operate our business or if tax laws change.

An economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products.

Our products are discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general market conditions, macroeconomic conditions and other factors such as consumer confidence, the availability and cost of consumer credit, levels of unemployment and tax rates. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products. Consumer demand for our products may not reach our sales targets, or may decline, when there is an economic downturn or economic uncertainty. Our sensitivity to economic cycles and any related fluctuation in consumer demand could adversely affect our business, financial condition and operating results.

We have previously identified a material weakness in our internal control over financial reporting, and if we are unable to maintain effective internal controls, we may not be able to produce timely and accurate financial statements, and we or our independent registered public accounting firm may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price.

Prior to this offering, we were a private company and were not required to test our internal controls on a systematic basis. Our independent registered public accounting firm will not be

 

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required to formally attest to the effectiveness of our internal control over financial reporting until the later of (1) the year following our first annual report required to be filed with the SEC, or (2) the date we are no longer an “Emerging Growth Company” as defined in the recently enacted Jumpstart our Business Startups Act of 2012, or JOBS Act, if we take advantage of the exemptions contained in the JOBS Act. We anticipate that after the completion of this offering and upon the expiration of available exemptions, pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, we will be required to evaluate and determine the effectiveness, provide a management report and be subject to attestation of our internal control over financial reporting, beginning with our annual report for the fiscal year ending December 31, 2015.

In connection with the preparation of our financial statements for the years ended December 31, 2011 and 2012, we, in conjunction with our independent registered public accounting firm, identified a material weakness in the design and operating effectiveness of our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness primarily comprised deficiencies related to a lack of technical accounting skills, monitoring activities and a lack of adequate review processes and controls within our accounting and finance organization. During 2013, we took certain actions that remediated the material weakness, which included hiring management level personnel with technical accounting expertise, designing adequate review and monitoring procedures in our accounting and finance organization, and identifying and implementing improved processes and controls.

Further, we are in the process of designing and implementing the system of internal control over financial reporting required to comply with our future obligations and to strengthen our overall control environment. This initiative will be time consuming, costly, and might place significant demands on our financial and operational resources, as well as our IT systems.

Our current efforts to design and implement an effective control environment may not be sufficient to remediate or prevent future material weaknesses or significant deficiencies from occurring. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and all instances of fraud will be detected. If we identify future material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to assert that our internal control over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, if and when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, our financial performance may suffer.

We have experienced rapid growth over the last several years, which has placed a strain on our managerial, operational, research and development, sales and marketing, administrative and

 

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financial infrastructure. For example, we increased our total number of full-time employees from 49 as of December 31, 2010 to 718 as of March 31, 2014. We have also established operations in other countries. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, operational, research and development, sales and marketing, administrative, financial and other resources.

Our success will depend in part upon our ability to manage our growth effectively. To do so, we must continue to increase the productivity of our existing employees and to hire, train and manage new employees as needed. To manage domestic and international growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting processes and procedures, and implement more extensive and integrated financial and business information systems. These additional investments will increase our operating costs, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. Moreover, if we fail to scale our operations or manage our growth successfully, our business, financial condition and operating results could be adversely affected.

Consumers may be injured while engaging in activities that they self-capture with our products, and we may be exposed to claims, or regulations could be imposed, which could adversely affect our brand, operating results and financial condition.

Consumers use our cameras and accessories to self-capture their participation in a wide variety of physical activities, including extreme sports, which in many cases carry the risk of significant injury. We may be subject to claims if consumers are injured while using our products. Although we maintain insurance to help protect us from the risk of any such claims, such insurance may not be sufficient or may not to apply to all situations. Similarly, proprietors of establishments at which consumers engage in challenging physical activities could seek to ban the use of our products in their facilities to limit their own liability. In addition, if lawmakers or governmental agencies were to determine that the use of our products increased the risk of injury to all or a subset of our customers, they may pass laws or adopt regulations that limit the use of our products or increase our liability associated with the use of our products. Any of these events could adversely affect our brand, operating results or financial condition.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s discussion and analysis of financial condition and results of operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, sales incentives, stock-based compensation expense, POP displays, excess and obsolete inventory

 

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write-downs, warranty reserves, long-lived assets and accounting for income taxes including deferred tax assets and liabilities.

Our credit facility provides our lenders with a first-priority lien against substantially all of our assets and contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our financial condition.

In December 2012, we entered into a senior secured credit agreement, including a $120.0 million term loan that we expect to repay with the proceeds of this offering and a $50.0 million revolving credit facility that we expect to retain. Our credit agreement contains a number of restrictive covenants, and the terms of our credit facility may restrict our current and future operations, particularly our ability to respond to certain changes or to take future actions.

A failure by us to comply with the covenants or payment requirements specified in our credit agreement could result in an event of default under the agreement, which would give the lenders the right to terminate their commitments to provide additional loans under our revolving credit facility and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, the lenders would have the right to proceed against the collateral we granted to them, which consists of substantially all our assets. If the debt under our credit facility were to be accelerated, we may not have sufficient cash or be able to sell sufficient collateral to repay this debt, which would have an immediate material adverse affect on our business, results of operations and financial condition.

We are exposed to increased regulatory oversight and incur increased costs as a result of being a public company.

As a public company, we are required to satisfy the listing requirements and rules of the NASDAQ Stock Market and incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will incur costs associated with our public company reporting requirements and corporate governance requirements, including additional directors and officers liability insurance and requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the NASDAQ Stock Market. These rules and regulations have increased, and will continue to increase, our legal and financial compliance costs and have made, and will continue to make, certain activities more time consuming and costly. Further, we have incurred costs in connection with hiring additional accounting, financial and compliance staff with appropriate public company experience and technical accounting knowledge. Any of these expenses could harm our business, operating results and financial condition.

We use open source software in our platform that may subject our technology to general release or require us to re-engineer our solutions, which may cause harm to our business.

We use open source software in connection with our services. From time to time, companies that incorporate open source software into their products have faced claims challenging the ownership of open source software and/or compliance with open source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute or make available open source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose the source code or that would otherwise breach the terms of an open

 

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source agreement, such use could nevertheless occur and we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our applications, discontinue sales in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business, financial condition or operating results.

Any significant disruption to our ecommerce business could result in lost sales.

Our sales through our ecommerce channel have been growing. Sales through gopro.com generally have higher profit margins and provide us useful insight on the sales impact of certain of our marketing campaigns. Online sales are subject to a number of risks. System interruptions or delays could cause potential customers to fail to purchase our products and could harm our brand. The operation of our direct to consumer ecommerce business through gopro.com depends on the ability to maintain the efficient and uninterrupted operation of online order-taking and fulfillment operations. Our ecommerce operations subject us to certain risks that could have an adverse effect on our operating results, including risks related to the computer systems that operate our website and related support systems, such as system failures, viruses, computer hackers and similar disruptions. If we are unable to continually add software and hardware, effectively upgrade our systems and network infrastructure and take other steps to improve the efficiency of our systems, system interruptions or delays could occur that adversely affect our operating results.

We utilize third party vendors for our customer-facing ecommerce technology, order management system and fulfillment in the United States and internationally. We depend on our technology vendors to manage “up-time” of the front-end ecommerce store, manage the intake of our orders, and export orders for fulfillment. In the future, we could begin to run all or a greater portion of our ecommerce components ourselves rather than use third party vendors. Any failure on the part of our third party ecommerce vendors or in our ability to transition third party services effectively could result in lost sales and harm our business.

Failure to adequately protect customer data could harm our brand and our reputation in the marketplace.

Changing regulations and laws governing the Internet, data privacy, data protection and ecommerce transactions (including taxation, pricing and electronic communications) could impede the growth of our ecommerce business, increase our cost of doing business and limit our ability to collect and use information collected from our customers. Further, new regulations limiting our ability to collect, use and disclose customer data, or imposing additional requirements with respect to the retention and security of customer data, could limit our marketing activities and could adversely affect our business and financial condition.

In our ecommerce services, we process, store and transmit customer data. We also collect customer data through certain marketing activities. Failure to prevent or mitigate data loss or other security breaches, including breaches of our vendors’ technology and systems, could expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in litigation or potential liability for us and otherwise harm our business. Further, we are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet, ecommerce and electronic devices. Existing and future laws and regulations, or new interpretations of these laws, may adversely affect our ability to conduct our ecommerce business.

 

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If we fail to comply with environmental requirements, our business, financial condition, operating results and reputation could be adversely affected.

We are subject to various environmental laws and regulations including laws governing the hazardous material content of our products and laws relating to the collection of and recycling of electrical and electronic equipment. Examples of these laws and regulations include the EU Restrictions of Hazardous Substances Directive, or the RoHS Directive, and the EU Waste Electrical and Electronic Equipment Directive, or the WEEE Directive, as well as the implementing legislation of the EU member states. Similar laws and regulations have been passed or are pending in China, South Korea, Norway and Japan and may be enacted in other regions, including in the United States, and we are, or may in the future be, subject to these laws and regulations.

The RoHS Directive and the similar laws of other jurisdictions ban the use of certain hazardous materials such as lead, mercury and cadmium in the manufacture of electrical equipment, including our products. Although we have policies and procedures in place requiring our contract manufacturers and major component suppliers to comply with the RoHS Directive requirements, we cannot assure you that our manufacturers and suppliers consistently comply with these requirements. In addition, if there are changes to these or other laws (or their interpretation) or if new similar laws are passed in other jurisdictions, we may be required to re-engineer our products to use components compatible with these regulations. This re-engineering and component substitution could result in additional costs to us or disrupt our operations or logistics.

The WEEE Directive requires electronic goods producers to be responsible for the collection, recycling and treatment of such products. Changes in interpretation of the directive may cause us to incur costs or have additional regulatory requirements to meet in the future in order to comply with this directive, or with any similar laws adopted in other jurisdictions. Our failure to comply with past, present and future similar laws could result in reduced sales of our products, substantial product inventory write-offs, reputational damage, penalties and other sanctions, which could harm our business and financial condition. We also expect that our products will be affected by new environmental laws and regulations on an ongoing basis. To date, our expenditures for environmental compliance have not had a material impact on our results of operations or cash flows and, although we cannot predict the future impact of such laws or regulations, they will likely result in additional costs and may increase penalties associated with violations or require us to change the content of our products or how they are manufactured, which could have a material adverse effect on our business and financial condition.

New regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.

As a public company, we will be subject to new requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, that will require us to diligence, disclose and report whether or not our products contain conflict minerals. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of the materials used in the manufacture of components used in our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of conflict minerals that may be used or necessary to the production of our products and, if applicable, potential changes to products, processes or sources of supply as a consequence of such verification

 

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activities. It is also possible that we may face reputational harm if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to alter our products, processes or sources of supply to avoid such materials.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. In particular, we have not included all of the executive compensation related information that would be required in this prospectus if we were not an emerging growth company. In addition, for so long as we are an emerging growth company, which can last, at most, until the first fiscal year following the fifth anniversary of this offering, we will not be required to:

 

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have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and

 

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submit certain executive compensation matters to shareholder advisory votes, such as “say on pay” and “say on frequency.”

Although we intend to rely on certain exemptions provided in the JOBS Act, the exact implications of the JOBS Act for us are still subject to interpretations and guidance by the SEC and other regulatory agencies. Also, as our business grows, we may no longer satisfy the condition of an emerging growth company. We will remain an emerging growth company until the first fiscal year following the fifth anniversary of this offering, although if the market value of our Class A and Class B common stock that is held by non-affiliates exceeds $700.0 million as of June 30th of any year before the end of that five-year period, we would cease to be an emerging growth company as of the following December 31st. If we have more than $1.0 billion in annual revenue in a fiscal year, we would cease to be an emerging growth company as of the end of that fiscal year, and if we issue more than $1.0 billion in non-convertible debt over a three-year period, we would also cease to be an emerging growth company immediately. We are currently evaluating and monitoring developments with respect to these new rules and we cannot assure you that we will be able to enjoy part or all of the benefits from the JOBS Act. We have irrevocably elected not to avail ourselves of the JOBS Act accommodation allowing for delayed adoption of new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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

In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions or unforeseen circumstances and may determine to engage in equity or debt financings or enter into credit facilities for other reasons. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities, our existing stockholders could suffer significant dilution. Any debt financing obtained by us in the future

 

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could involve restrictive covenants relating to our capital raising activities and other 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 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.

Catastrophic events or political instability could disrupt and cause harm to our business.

Our headquarters is located in the San Francisco Bay Area of California, an area susceptible to earthquakes. A major earthquake or other natural disaster, fire, act of terrorism or other catastrophic event in California or elsewhere that results in the destruction or disruption of any of our critical business operations or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be harmed.

Our key manufacturing, supply and distribution partners have global operations including in China, Singapore and the Netherlands as well as the United States. Political instability or catastrophic events in any of those countries could adversely affect our business in the future, our financial condition and operating results.

Risks related to this offering

There has been no prior market for our Class A common stock, our stock price may be volatile or may decline regardless of our operating performance, an active public trading market may not develop or be sustained following this offering, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our Class A common stock prior to this offering. The initial public offering price for our Class A common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our Class A common stock following this offering. If you purchase shares of our Class A common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active market for our Class A common stock may not develop upon the closing of this offering or, if it does develop, it may not be sustainable. The trading prices of the securities of newly public companies have historically been highly volatile. The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

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actual or anticipated fluctuations in our revenue and other operating results;

 

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

 

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

 

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

 

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

 

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lawsuits threatened or filed against us; and

 

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

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many 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 our business and adversely affect our business.

Sales of substantial amounts of our Class A common stock in the public markets, or the perception that they might occur, could reduce the price that our Class A common stock might otherwise attain and may dilute your voting power and your ownership interest in us.

After the completion of the offering, based on 115,027,871 shares outstanding as of June 5, 2014 and after giving effect to the sale of 17,800,000 shares in this offering by us and the selling stockholders, the issuance of 2,476,548 shares of our Class B common stock upon the exercise of outstanding stock options by certain selling stockholders in connection with this offering and the contribution back to us by Mr. Woodman of 658,443 shares of our Class B common stock in respect of stock options exercised by a certain selling stockholder, we will have 125,745,976 outstanding shares of our Class A and Class B common stock. This number includes all the shares of our Class A common stock that we and the selling stockholders are selling in this offering, which may be resold immediately in the public market.

Subject to certain exceptions, we, all of our directors and officers and substantially all of our stockholders and option holders have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of Class A or Class B common stock without the permission of the underwriters for a period of 180 days from the date of this prospectus, subject to extension in some circumstances. See “Shares eligible for future sale—Lock-up agreements” for additional information. After the lock-up agreements pertaining to this offering expire, we and our locked-up security holders will be able to sell our shares in the public market, subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. Sales of a substantial number of such shares upon expiration, or early release, of the lock-up (or the perception that such sales may occur) could cause our share price to fall.

The market price of the shares of our Class A common stock could decline as a result of sales of a substantial number of our shares in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

The dual class structure of our common stock will have the effect of concentrating voting control with our Chief Executive Officer and other directors and their affiliates; this will limit or preclude your ability to influence corporate matters.

Our Class B common stock has 10 votes per share, and our Class A common stock, which is the stock we are offering in this offering, has one vote per share. Stockholders who hold shares of Class B common stock will hold approximately 98.4% of the voting power of our outstanding capital stock following this offering. Our executive officers and directors and their affiliates will hold approximately 72.8% of the outstanding voting power, with Mr. Woodman, our Chief Executive Officer, holding approximately 47.7% after his sale of 3,562,892 shares of Class A common stock in this offering, and, therefore, assuming no material sales of such shares, they will be able to control all matters submitted to our stockholders, including the election of

 

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directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

We intend to use a portion of our net proceeds that we receive from this offering for the repayment of our term loan under our credit facility, which had an outstanding balance of $111.0 million as of March 31, 2014. Our management will have broad discretion in the application of the remaining net proceeds that we receive from this offering, including applications for working capital, possible acquisitions and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

If securities 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 Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We currently do not have and may never obtain research coverage by securities analysts. If no securities analysts commence coverage of our company, the trading price for our stock would be negatively impacted. In the event we obtain securities analyst coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A common stock if the market price of our Class A common stock increases. Our credit agreement contains a prohibition on the payment of cash dividends on our capital stock.

If you purchase shares of our Class A common stock in this offering, you will experience substantial and immediate dilution.

If you purchase shares of our Class A common stock in this offering, you will experience substantial and immediate dilution of $20.44 in the net tangible book value per share after giving effect to this offering, based on an assumed initial public offering price of $22.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus, because the price that you pay will be substantially greater than the net tangible book value per share of the Class A common stock that you acquire. This dilution is due in large part to the fact that our earlier stockholders paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of options to purchase Class A or Class B common stock under our equity incentive plans or under

 

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equity awards granted outside our equity incentive plan, if we issue Class A or Class B common stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our capital stock. See “Dilution” for further information.

Delaware law and provisions in our restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of this offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our Class A common stock.

Following the closing of this offering, our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of this offering will contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors, or otherwise adversely affect the rights of the holders of our Class A and Class B common stock, including the following:

 

Ÿ  

initially our board of directors will not be classified, but at such time as all shares of our Class B common stock have been converted into shares of our Class A common stock, our board of directors will be classified into three classes of directors with staggered three-year terms;

 

Ÿ  

so long as any shares of our Class B common stock are outstanding, special meetings of our stockholders may be called by the holders of 10% of the outstanding voting power of all then outstanding shares of stock, a majority of our board of directors, the chairman of our board of directors, our chief executive office or our president, and thereafter only the chairman of our board of directors, our chief executive officer, our president or a majority of our board of directors will be authorized to call a special meeting of stockholders;

 

Ÿ  

our stockholders will only be able to take action at a meeting of stockholders and not by written consent;

 

Ÿ  

vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;

 

Ÿ  

directors may be removed from office with or without cause so long as our board of directors is not classified, and thereafter directors may be removed from office only for cause;

 

Ÿ  

our restated certificate of incorporation provides for a dual class common stock structure in which holders of our Class B common stock will have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;

 

Ÿ  

our restated certificate of incorporation will authorize undesignated preferred stock, the terms of which may be established, and shares of which may be issued, by our board of directors without stockholder approval and which may contain voting, liquidation, dividend and other rights superior to those of our Class A and Class B common stock; and

 

Ÿ  

advance notice procedures will apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.

For information regarding these and other provisions, see “Description of capital stock.”

 

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Special note regarding forward-looking statements and industry data

This prospectus contains forward looking statements that are based on our beliefs and assumptions regarding future events and circumstances, including statements regarding our strategies, our opportunities, developments in the markets in which we are active, our relationships with our customers, contract manufacturers, component suppliers and distributors and other matters. These statements are principally contained in the sections titled “Prospectus summary,” “Risk factors,” “Use of proceeds,” “Management’s discussion and analysis of financial condition and results of operations,” “Business,” and “Shares eligible for future sale.” Forward looking statements include statements that are not historical facts and can be identified by words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “continue,” “should,” “would,” “could,” “potentially,” “will” or “may,” or other similar words and phrases.

Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These risks, uncertainties and factors include those we discuss in this prospectus in the section titled “Risk factors.” You should read these risk factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. It is not possible for us to predict all risks that could affect us, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements we may make. Moreover, new risks emerge from time to time.

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 publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this prospectus and the documents we reference in this prospectus, and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part, with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

In this prospectus, we refer to metrics related to our presence on third-party social media services, such as the number of “likes” on our Facebook page and the number of users who have shared videos on YouTube with “GoPro” in the title. These social media services generally have policies in place to discourage duplicative user accounts or artificial activity designed to inflate such metrics. We are unable to independently verify the metrics provided by these social media services. We are also unable to determine whether these figures include individuals with multiple accounts on one service, deactivated or inactive accounts, or multiple views, “likes” or similar actions by the same user. We have relied on the calculations and analysis conducted by these services to present metrics that, as closely as possible, reflect genuine users and legitimate user activity on their social media services.

This prospectus also contains estimates and other statistical data that we obtained from industry publications, surveys, forecasts and reports. These industry publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. This information involves a number of

 

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assumptions and limitations, and you are cautioned not to give undue weight to these estimates. Although we have not independently verified the accuracy or completeness of the data contained in these industry publications and reports, based on our industry experience we believe that the publications are reliable and the conclusions contained in the publications and reports are reasonable.

 

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Use of proceeds

We estimate that we will receive net proceeds from the sale of the 8,900,000 shares of Class A common stock that we are selling in this offering of $183.1 million, based on an assumed initial public offering price of $22.50 per share, the midpoint of the 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. We will also receive proceeds of $1.7 million from the exercise of stock options by certain selling stockholders in connection with this offering. We will not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders.

Each $1.00 increase or decrease in the assumed initial public offering price would increase or decrease, as applicable, the net proceeds to us by $8.4 million, assuming the number of shares Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions.

The principal purposes of this offering are to repay our term loan under our credit facility, for general corporate purposes including working capital, to create a public market for our Class A common stock and to facilitate our future access to the public equity markets. At March 31, 2014, the outstanding balance of the term loan was $111.0 million and bore interest at the rate of 2.75% per annum. The term loan has scheduled quarterly principal repayments with the remaining balance due on December 21, 2015. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—Credit facility” for additional information regarding our term loan.

We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies or assets. However, we have no present commitments or agreements to enter into any acquisitions or make any investments.

Following the repayment of our term loan, our management will have significant flexibility in applying the remaining net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of these net proceeds. Pending the uses described above, we intend to invest the net proceeds from this offering in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. The goal with respect to the investment of these net proceeds will be capital preservation and liquidity so that these funds are readily available to fund our operations.

 

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Dividend policy

On December 19, 2012, we declared a cash dividend pursuant to which each holder of our common stock and redeemable convertible preferred stock as of December 21, 2012 received $1.050965 for every share of our common stock then held by such stockholder (with each stockholder of redeemable convertible preferred stock being treated as holding the number of shares of common stock then issuable upon conversion of all shares of redeemable convertible preferred stock held by such stockholder). We do not currently intend to pay any cash dividends on our Class A common stock or Class B common stock for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our Class A common stock or Class B common stock will be at the discretion of our board of directors and will depend upon, among other factors, our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors may deem relevant. In addition, our credit agreement restricts our ability to pay dividends.

 

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Capitalization

The following table sets forth our capitalization as of March 31, 2014:

 

Ÿ  

on an actual basis;

 

Ÿ  

on a pro forma basis to reflect the conversion of all outstanding shares of our redeemable convertible preferred stock into 30,523,036 shares of our common stock in connection with the closing of this offering;

 

Ÿ  

on a pro forma as adjusted basis to further reflect (i) the application of a portion of the proceeds of this offering to repay in full the outstanding balance of our term loan, which was $111.0 million at March 31, 2014, (ii) the redesignation of our currently outstanding common stock as Class B common stock, (iii) the issuance of 2,476,548 shares of our Class B common stock upon the exercise of outstanding stock options with an aggregate exercise price of $1.7 million by certain selling stockholders in connection with this offering and the contribution back to us by a stockholder of 658,443 shares of our Class B common stock in respect of stock options exercised by a certain selling stockholder, (iv) the conversion by the selling stockholders of 8,900,000 shares of our Class B common stock into the same number of shares of our Class A common stock in connection with the closing of this offering, (v) the sale by us of 8,900,000 shares of our Class A common stock in this offering at an assumed initial public offering price of $22.50 per share, the midpoint of the 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 and (vi) the filing and effectiveness of our restated certificate of incorporation in connection with the closing of this offering.

The unaudited pro forma and pro forma as adjusted information below is illustrative only, and total stockholders’ equity and total capitalization following the completion of this offering will be adjusted based on the actual offering price and other terms of our offering determined at pricing. You should read this table together with the section titled “Management’s discussion and analysis of financial condition and results of operations” and our financial statements, related notes and other financial information appearing elsewhere in this prospectus.

 

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       As of March 31, 2014  
(in thousands, except share amounts) (unaudited)    Actual     Pro forma     Pro forma
as adjusted(1)
 

 

 

Long-term debt, including current portion

     110,666        110,666          

Redeemable convertible preferred stock, $0.0001 par value, 36,000,000 shares authorized, 30,523,036 shares issued and outstanding; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted

     77,213                 

Stockholders’ equity:

      

Preferred stock, $0.0001 par value; no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

                     

Common stock, $0.0001 par value, 150,000,000 shares authorized, 81,899,442 shares issued and outstanding, actual; 112,422,478 shares issued and outstanding, pro forma; no shares authorized or issued and outstanding, pro forma as adjusted

     8        11          

Class A common stock, $0.0001 par value, no shares authorized or issued and outstanding, actual; no shares issued and outstanding, pro forma; 655,000,000 shares authorized, 17,800,000 shares issued and outstanding, pro forma as adjusted

                   2   

Class B common stock, $0.0001 par value, no shares authorized or issued and outstanding, actual; no shares issued and outstanding, pro forma; 150,000,000 shares authorized, 105,340,583 shares issued and outstanding, pro forma as adjusted

                   10   

Additional paid-in capital

     19,218        96,428        281,221   

Accumulated deficit

     (8,835     (8,835     (9,886 )(2) 
  

 

 

 

Total stockholders’ equity

     10,391        87,604        271,347   
  

 

 

 

Total capitalization

   $ 198,270      $ 198,270      $ 271,347   

 

 

 

(1)   Each $1.00 increase or decrease in the assumed initial public offering price of $22.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, our cash, working capital, total assets and total stockholders’ equity by $8.4 million, assuming 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. If the underwriters exercise in full their option to purchase additional shares, we would have 20,470,000 shares of Class A common stock issued and outstanding.
(2)   Pro forma as adjusted accumulated deficit includes charges to reflect the accelerated amortization of the debt discount and issuance costs to interest expense due to the repayment of the term loan.

The number of shares of our Class A and Class B common stock to be outstanding after this offering is based on (i) 112,422,478 shares of common stock outstanding as of March 31, 2014, (ii) the exercise of stock options for the purchase of 2,476,548 shares of Class B common stock by certain selling stockholders and the conversion of such shares into the same number of shares of Class A common stock for sale in this offering and (iii) the contribution of 658,443 shares of Class B common stock by Mr. Woodman to us in respect of stock options exercised by a certain selling stockholder and excludes:

 

Ÿ  

27,798,919 shares of Class B common stock issuable upon the exercise of stock options outstanding as of March 31, 2014 with a weighted average exercise price of $3.24 per share (other than the shares to be sold in this offering by certain selling stockholders upon the

 

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exercise of stock options) and 570,000 shares of Class B common stock issuable pursuant to RSUs outstanding as of March 31, 2014 under our 2010 Plan;

 

Ÿ  

The effect of the contribution back to us of a number of shares of Class B common stock equal to the number of shares we issue upon exercise of an outstanding option for the purchase of 6,584,427 shares of Class B common stock (other than those shares of Class B common stock contributed back to us in respect of stock options exercised by a certain selling stockholder); see “Certain relationships and related person transactions - Equity grants and contribution agreement;”

 

Ÿ  

3,063,915 shares of Class B common stock issuable upon the exercise of stock options granted after March 31, 2014 with a weighted average exercise price of $18.24 per share and 4,750,379 shares of Class B common stock issuable upon settlement of RSUs granted after March 31, 2014;

 

Ÿ  

398,121 shares of Class B common stock subject to a right of repurchase by us outstanding as of March 31, 2014;

 

Ÿ  

13,470,229 shares to be reserved for future issuance under our 2014 Plan, which will become effective on the date immediately prior to the date of this prospectus. Upon completion of this offering, any remaining shares available for issuance under our 2010 Plan will be added to the shares reserved under of 2014 Plan and we will cease granting awards under our 2010 Plan; and

 

Ÿ  

3,367,557 shares to be reserved for future issuance under our ESPP, which will become effective on the date of this prospectus.

Our 2014 Plan and ESPP also provide for automatic annual increases in the number of shares reserved under the plans each year, as more fully described in “Executive compensation—Employee benefit plans.”

 

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Dilution

If you invest in our Class A common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the net tangible book value of our Class A and Class B common stock per share immediately after this offering. As of March 31, 2014, our pro forma net tangible book value was $67.5 million, or $0.60 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of our outstanding shares of Class A and Class B common stock, after giving effect to the conversion of all outstanding shares of our redeemable convertible preferred stock into shares of our common stock in connection with the closing of this offering.

After giving further effect to (i) the application of a portion of the proceeds of this offering to repay in full the outstanding balance of our term loan, which was $111.0 million as of March 31, 2014, (ii) the redesignation of our currently outstanding common stock as Class B common stock, (iii) the issuance of 2,476,548 shares of our Class B common stock upon the exercise of outstanding stock options with an aggregate exercise price of $1.7 million by certain selling stockholders in connection with this offering and the contribution back to us by a stockholder of 658,443 shares of our Class B common stock in respect of options exercised by a selling stockholder, (iv) the conversion by the selling stockholders of 8,900,000 shares of our Class B common stock into the same number of shares of our Class A common stock immediately prior to the completion of this offering, (v) the sale by us of 8,900,000 shares of our Class A common stock in this offering at an assumed initial public offering price of $22.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (vi) the filing and effectiveness of our restated certificate of incorporation in connection with the closing of this offering, our pro forma as adjusted net tangible book value as of March 31, 2014 would have been $254.3 million or $2.06 per share. This represents an immediate increase in pro forma net tangible book value of $1.46 per share to existing stockholders and an immediate dilution of $20.44 per share to new investors purchasing shares of Class A common stock at the initial public offering price. The following table illustrates this per share dilution:

 

Assumed initial public offering price per share of our Class A common stock

            $ 22.50   

Pro forma net tangible book value per share as of March 31, 2014

   $ 0.60      

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

     1.46      
  

 

 

    

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

        2.06   
     

 

 

 

Dilution per share to new investors

      $ 20.44   

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $22.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value per share after this offering by $0.07 per share and the dilution to new investors by $0.93 per share, assuming 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.

 

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The following table summarizes, as of March 31, 2014, on the pro forma as adjusted basis described above, the difference between our existing stockholders and the purchasers of shares of Class A common stock in this offering with respect to the number of shares of Class A common stock purchased from us, the total consideration paid to us and the average price paid per share paid to us, based on an assumed initial public offering price of $22.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting the 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

     114,240,583         92.8%       $ 25,012,709         11.1%       $ 0.22   

New investors

     8,900,000         7.2            200,250,000         88.9            22.50   
  

 

 

 

Total

     123,140,583         100.0%       $ 225,262,709         100.0%      

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $22.50 per share would increase or decrease, total consideration paid by new investors by $8.9 million and increase or decrease the percent of total consideration paid to us by new investors by 0.4%, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

The foregoing table does not reflect any sales by existing stockholders in this offering. The sale of 8,900,000 shares of Class A common stock to be sold by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to 105,340,583 shares, or 85.5% of the total shares outstanding, and will increase the number of shares held by investors participating in this offering to 17,800,000 shares, or 14.5% of the total shares outstanding.

If the underwriters exercise in full their option to purchase additional shares, the number of shares of Class A and Class B common stock held by existing stockholders after the completion of this offering and after giving effect to the sale by the selling stockholders of 11,570,000 shares of Class A common stock in this offering will be 102,670,583, or 83.4% of the total shares outstanding after this offering, and the number of shares of Class A common stock held by new investors will be 20,470,000, or 16.6% of the total shares outstanding after this offering.

The number of shares of our Class A and Class B common stock to be outstanding after this offering are based on (i) 112,422,478 shares of common stock outstanding as of March 31, 2014, (ii) the exercise of options for the purchase of 2,476,548 shares of Class B common stock by certain selling stockholders and the conversion of such shares into the same number of shares of Class A common stock for sale in this offering and (iii) the contribution of 658,443 shares of Class B common stock by Mr. Woodman to us in respect of stock options exercised by a certain selling stockholder and excludes:

 

Ÿ  

27,798,919 shares of Class B common stock issuable upon the exercise of stock options outstanding as of March 31, 2014 with a weighted average exercise price of $3.24 per share (other than the shares to be sold in this offering by certain selling stockholders upon the exercise of stock options) and 570,000 shares of Class B common stock issuable pursuant to RSUs outstanding as of March 31, 2014, under our 2010 Plan;

 

Ÿ  

the effect of the contribution back to us of a number of shares of Class B common stock equal to the number of shares we issue upon exercise of an outstanding option for the purchase of 6,584,427 shares of Class B common stock (other than those shares of Class B common stock

 

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contributed back to us in respect of stock options exercised by a certain selling stockholder); see “Certain relationships and related person transactions—Equity grants and contribution agreement;”

 

Ÿ  

3,063,915 shares of Class B common stock issuable upon the exercise of stock options with a weighted average exercise price of $18.24 per share granted after March 31, 2014 and 4,750,379 shares of Class B common stock issuable upon settlement of RSUs granted after March 31, 2014;

 

Ÿ  

398,121 shares of Class B common stock subject to a right of repurchase by us outstanding as of March 31, 2014;

 

Ÿ  

13,470,229 shares of Class A common stock to be reserved for future issuance under our 2014 Plan, which will become effective on the date immediately prior to the date of this prospectus; Upon completion of this offering, any remaining shares available for issuance under our 2010 Plan will be added to the shares reserved under of 2014 Plan and we will cease granting awards under our 2010 Plan; and

 

Ÿ  

3,367,557 shares of Class A common stock to be reserved for future issuance under our ESPP, which will become effective on the date of this prospectus.

Our 2014 Plan and ESPP also provide for automatic annual increases in the number of shares reserved under the plans each year, as more fully described in “Executive compensation—Employee benefit plans.”

 

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Selected consolidated financial data

You should read the selected consolidated financial data below in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

The following table presents selected consolidated financial data. We derived the consolidated statements of operations data for 2011, 2012 and 2013 and the balance sheet data as of December 31, 2012 and 2013 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the consolidated statements of operations data for 2010 from our audited consolidated financial statements that are not included in this prospectus, and have reclassified certain operating expenses for 2010 and have now included $0.7 million (unaudited) in sales and marketing expenses that was previously classified in general and administrative expenses, to conform with current presentation. The consolidated statements of operations data for the three months ended March 31, 2013 and 2014 and the consolidated balance sheet data as of March 31, 2014 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary to state fairly the financial information set forth in those financial statements. Our historical results are not necessarily indicative of the results to be expected in the future, and our interim results should not necessarily be considered indicative of results we expect for the full year.

 

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Consolidated statements of operations data:    Year ended December 31,     Three months ended
March 31,
 
(in thousands, except per share amounts)    2010     2011      2012     2013     2013     2014  

 

   

 

 

   

 

 

 

Revenue

   $ 64,464      $ 234,238       $ 526,016      $ 985,737      $ 255,057      $ 235,716   

Cost of revenue(1)

     31,719        111,683         298,530        623,953        165,628        139,202   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     32,745        122,555         227,486        361,784        89,429        96,514   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

             

Research and development(1)

     1,394        8,644         36,115        73,737        12,012        28,739   

Sales and marketing(1)

     13,860        64,375         116,855        157,771        35,673        41,341   

General and administrative(1)

     5,634        10,757         20,899        31,573        6,988        9,878   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     20,888        83,776         173,869        263,081        54,673        79,958   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     11,857        38,779         53,617        98,703        34,756        16,556   

Other income (expense), net

     (29     12         (407     (7,374     (1,694     (1,625
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     11,828        38,791         53,210        91,329        33,062        14,931   

Income tax expense

     248        14,179         20,948        30,751        10,027        3,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 11,580      $ 24,612       $ 32,262      $ 60,578      $ 23,035      $ 11,049   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

             

Basic

     67,207        73,481         74,226        81,018        80,768        81,582   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     73,160        78,551         74,226        98,941        98,457        100,783   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders(2):

             

Basic

   $ 0.17      $ 0.26       $ 0.07      $ 0.54      $ 0.21      $ 0.10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.16      $ 0.24       $ 0.07      $ 0.47      $ 0.18      $ 0.08   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per share attributable to common stockholders (unaudited)(2):

             

Basic

          $ 0.54        $ 0.10   
         

 

 

     

 

 

 

Diluted

          $ 0.47        $ 0.08   
         

 

 

     

 

 

 

Pro forma weighted-average shares used to compute net income per share attributable to common stockholders (unaudited)(2):

             

Basic

            111,541          112,105   
         

 

 

     

 

 

 

Diluted

            129,464          131,306   
         

 

 

     

 

 

 

Supplemental pro forma net income per share attributable to common stockholders (unaudited)(2):

             

Basic

          $ 0.54        $ 0.10   
         

 

 

     

 

 

 

Diluted

          $ 0.47        $ 0.09   
         

 

 

     

 

 

 

Supplemental pro forma weighted-average shares used to compute net income per share attributable to common stockholders (unaudited)(2):

             

Basic

            116,474          117,038   
         

 

 

     

 

 

 

Diluted

            134,397          136,239   
         

 

 

     

 

 

 

Other financial information:

             

Adjusted EBITDA(3)

   $ 12,748      $ 52,873       $ 75,288      $ 133,726      $ 40,923      $ 28,627   

 

   

 

 

   

 

 

 

(footnotes appear on following page)

 

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

 

     Year ended December 31,      Three months ended
March 31,
 
(in thousands)    2010      2011      2012      2013      2013      2014  

 

    

 

 

    

 

 

 

Cost of revenue

   $ 10       $ 122       $ 333       $ 690       $ 220       $ 168   

Research and development

     73         261         1,452         3,003         441         1,401   

Sales and marketing

     323         7,690         6,335         5,670         1,204         1,414   

General and administrative

     268         902         1,036         1,524         230         1,054   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 674       $ 8,975       $ 9,156       $ 10,887       $ 2,095       $ 4,037   

 

    

 

 

    

 

 

 

 

(2)   See Note 8 of our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our historical basic and diluted net income per share attributable to common stockholders and our pro forma and supplemental pro forma unaudited basic and diluted net income per share.

 

     December 31,     March 31,  
(in thousands)    2012     2013     2014  

 

  

 

 

   

 

 

   

 

 

 

Consolidated balance sheet data:

      

Cash

   $ 36,485      $ 101,410      $ 111,215   

Working capital

     69,618        57,446        66,999   

Total assets

     246,665        439,671        355,200   

Total indebtedness

     129,395        113,612        110,666   

Redeemable convertible preferred stock

     77,138        77,198        77,213   

Total stockholders’ equity (deficit)

     (79,741     (5,366     10,391   

 

  

 

 

   

 

 

   

 

 

 

 

(3)   See “Prospectus summary—Summary consolidated financial data – Adjusted EBITDA” for additional information and a reconciliation of net income to adjusted EBITDA.

 

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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 our consolidated financial statements, related notes and other financial information appearing elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as a result of a variety of factors, including but not limited to, those discussed in “Risk factors” and elsewhere in this prospectus.

Overview

GoPro is transforming the way consumers capture, manage, share and enjoy meaningful life experiences. We do this by enabling people to capture compelling, immersive photo and video content of themselves participating in their favorite activities.

We were founded in 2004 to address the limitations of traditional cameras. In 2004, we shipped our first product, a wrist-mounted, waterproof, film-based capture device, and in 2006 we shipped our first digital capture device, the Digital HERO. We introduced our first HD capture device in 2009, the HD HERO, and we introduced our current HERO3+ family of capture devices in late 2013. We also sell mountable and wearable accessories that enable professional quality capture at affordable prices.

We have continued to enhance our product offering by providing software solutions that address the pain points of managing, editing and sharing content. GoPro Studio enables our customers to easily edit and share simple or complex videos. The GoPro App enables customers to easily and wirelessly manage and share content from our HERO capture devices.

Since we launched our first HD camera in 2009, we have experienced rapid growth. In 2011, 2012, 2013 and the three months ended March 31, 2014, we generated revenue of $234.2 million, $526.0 million, $985.7 million and $235.7 million and reported net income of $24.6 million, $32.3 million, $60.6 million and $11.0 million, respectively. Substantially all of our revenue has been generated from the sale of cameras and accessories.

Our sales strategy initially targeted independent specialty retailers focused on action sports markets, which we believe helped to establish the authenticity of our brand. We now sell our products both directly and through distribution. Our direct channel includes big box, mid-market and independent specialty retailers, as well as our website. We use our distribution channel to sell internationally and into certain specialty markets. As of March 31, 2014, our products were sold to customers in more than 100 countries and through more than 25,000 retail outlets. Sales outside of the United States represented 35%, 47%, 49% and 53% of our revenue for 2011, 2012, 2013 and the three months ended March 31, 2014, respectively.

We believe consumer demand for compelling content, combined with our self-capture technology and the popularity of social media, create a significant media opportunity for GoPro. GoPro programming, a combination of GoPro originally produced content and “best of” UGC, has developed a growing audience. To scale this, we have built a team of production professionals who regularly produce content based on inspiring stories from around the world, captured exclusively with our capture devices. In addition, we actively curate and redistribute,

 

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with permission, UGC as GoPro-branded content through the GoPro Network, which includes the GoPro Channels on Facebook, Instagram, Twitter, Virgin America, Xbox Live and YouTube.

We face potential challenges that could limit our ability to take advantage of these opportunities, including the risk that we may not be able to continue to develop and introduce new products and attract new customers. We do not expect to sustain or increase our revenue growth rates. In addition, we rely on a small number of retailer and distributor customers for a significant portion of our revenue. For 2011, 2012, 2013 and the three months ended March 31, 2014, one retailer accounted for 15%, 15%, 17% and 13% of our revenue, respectively.

We rely on contract manufacturers for the production of our cameras and accessories. All of the components that go into the manufacture of our cameras and accessories are sourced from third-party suppliers, and some of these suppliers are the sole source for important components. We utilize third-party logistics providers for product fulfillment.

Key business metrics

In addition to the measures presented in our consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.

 

       Year ended December 31,      Three months ended
March 31,
 
(in thousands)    2011      2012      2013      2013      2014  

 

    

 

 

    

 

 

 

Key business metrics:

              

Units shipped

     1,145         2,316         3,849         954         852   

Adjusted EBITDA

   $ 52,873       $ 75,288       $ 133,726       $ 40,923       $ 28,627   

 

    

 

 

    

 

 

 

 

Ÿ  

Units shipped.     Units shipped represents the number of individual packaged camera units that are shipped during a reporting period, net of any returns. Packaged camera units include a waterproof housing, a battery, selected mounts and other accessories which vary by model. We monitor units shipped on a daily basis as it is a key indicator of revenue trends for a reporting period. We use units shipped to help optimize our fulfillment operations and shipment allocations in order to better maintain operating efficiencies and improve customer satisfaction.

 

Ÿ  

Adjusted EBITDA.     Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted after excluding the impact of: provision (benefit) for income taxes, interest income, interest expense, depreciation and amortization, POP display amortization and stock-based compensation. We use adjusted EBITDA as a key measure to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. See “Prospectus summary—Summary consolidated financial data—Adjusted EBITDA” for additional information and a reconciliation of net income to adjusted EBITDA.

 

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Factors affecting performance

We believe that our future success will be dependent on many factors, including those further discussed below. While these areas represent opportunities for us, they also represent challenges and risks that we must successfully address in order to continue the growth of our business and improve our results of operations.

 

Ÿ  

Investing in research and development.     We believe that our performance is significantly dependent on the investments we make in research and development and that we must continually develop and introduce innovative new products, enhance existing products and effectively stimulate customer demand for existing and future products. If we fail to innovate and enhance our product offerings, our brand, market position and revenue may be adversely affected. Further if our research and development efforts are not successful, we will not recover the investments that we make in this aspect of our business.

 

Ÿ  

Investing in sales and marketing.     We intend to continue to invest significant resources in our marketing, advertising and brand management efforts. Sales and marketing investments will often occur in advance of any sales benefits from these activities, and it may be difficult for us to determine if we are efficiently allocating our resources in this area.

 

Ÿ  

Leveraging media content.     We expect to increase our investment in the development of the GoPro Network and its related content. We believe we have significant opportunities to establish new revenue streams from these investments. However, we do not have significant experience deriving revenue from the distribution of GoPro content, and we cannot be assured that these investments will result in increased revenue or profitability.

 

Ÿ  

Expanding into new vertical markets and growing internationally.     Our long-term growth will depend in part on our continued ability to expand our customer base and increase revenue from international markets. We intend to expand into new vertical markets and to increase our presence globally through the active promotion of our brand, the formation of strategic partnerships, the introduction of new products and the growth of our international sales channel.

 

Ÿ  

Seasonality.     Historically, we have experienced the highest levels of revenue in the fourth quarter of the year, coinciding with the holiday shopping season in the United States and Europe. Accordingly, we have historically introduced our newest generation of product offerings just prior to this peak season. Given the significant seasonality of our sales, timely and effective product introductions and forecasting for this season are critical to our operations.

Components of our results of operations and financial condition

Revenue

Our revenue is comprised of product revenue, net of returns and sales incentives:

 

Ÿ  

Product revenue.     Product revenue is derived from the sale of our HERO line of cameras and accessories directly to retailers and through gopro.com, as well as through our network of domestic and international distributors.

 

Ÿ  

Returns and sales incentives.     Our standard terms and conditions of sale do not allow for product returns and we generally do not allow product returns other than under warranty. However, we have entered into contracts with certain large retailers and distributors with terms and conditions that allow for limited product returns rights. Upon shipment of our

 

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product to customers with such rights, we reduce revenue equal to the estimated future returns related to the current period product revenue. Additionally, we offer price protection discounts to certain customers when new capture devices are released. We record price protection discounts, as a reduction in revenue, based on shipments subject to price protection. Discounts recorded are based on an evaluation of inventory held by the customer at the time the price protection offer is extended.

See “—Critical accounting policies” for a more detailed discussion of our revenue recognition policy.

Cost of revenue

Our cost of revenue is comprised of the following:

 

Ÿ  

manufacturing costs of our products payable to third-party contract manufacturers;

 

Ÿ  

third-party logistics costs;

 

Ÿ  

costs to procure components directly from our suppliers;

 

Ÿ  

inbound and outbound freight costs and duties;

 

Ÿ  

costs associated with the repair of products under warranty;

 

Ÿ  

write-downs of inventory carrying value to adjust for excess and obsolete inventory and periodic physical inventory counts; and

 

Ÿ  

certain allocated costs related to manufacturing management, facilities, information technology support and other expenses associated with internal logistics support, including stock-based compensation.

We outsource our manufacturing, warehouse operations and order fulfillment activities to third parties. Our product costs will vary directly with volume and based on the costs of underlying product components as well as the prices we are able to negotiate with our contract manufacturers. Shipping costs will fluctuate with volume as well as with the method of shipping chosen in order to meet customer demand. As a global company with suppliers centered in Asia and customers located worldwide, we have used, and may in the future use, air shipping to deliver our products directly to retail stores and distribution centers. Air shipping is more costly than sea or ground shipping or other delivery options. We primarily use air shipping to meet the demand of our products during peak shopping seasons and new product launches.

Gross profit and gross profit margin

Our gross profit and gross profit margin have been, and may in the future be, influenced by several factors including: product, channel and geographical revenue mix; changes in product costs related to the release of different camera models; component, contract manufacturing and supplier pricing; and foreign currency exchange. Although we primarily procure and sell our products in U.S. dollars, our suppliers incur many costs, including labor costs, in other currencies. To the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our future average selling prices and unit costs. Gross profit and gross profit margin may fluctuate over time based on the factors described above.

 

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Operating expenses

We classify our operating expenses into three categories: research and development, sales and marketing and general and administrative.

 

Ÿ  

Research and development.     Research and development expense consists primarily of personnel related costs, which include salaries and stock-based compensation, in addition to costs attributable to product design, test, patent, facilities and information technology. Over time, we expect our research and development expense to increase in absolute dollars as we continue to make significant investments in developing new products, applications, functionality and other offerings. Research and development expense may fluctuate as a percentage of revenue, notably in the fourth quarter of our fiscal year when we have historically experienced our highest levels of revenue.

 

Ÿ  

Sales and marketing.     Sales and marketing expense consists primarily of advertising and marketing promotions of our products, including POP display amortization, personnel related costs, which include salaries and stock-based compensation, commissions, trade show and event costs, sponsorship costs, professional services, facilities, information technology and travel. Over time, we expect our sales and marketing expense to increase in absolute dollars as we continue to actively promote our products . Sales and marketing expense may fluctuate as a percentage of revenue, notably in the fourth quarter of our fiscal year when we have historically experienced our highest levels of revenue.

 

Ÿ  

General and administrative.     General and administrative expense consists of personnel related costs, which include salaries and stock-based compensation, as well as the costs of professional services, facilities, information technology and other administrative expenses. We expect our general and administrative expense to increase in absolute dollars following the completion of this offering due to the anticipated growth of our business and related infrastructure as well as accounting, insurance, investor relations and other costs associated with becoming a public company. General and administrative expense may fluctuate as a percentage of revenue, notably in the fourth quarter of our fiscal year when we have historically experienced our highest levels of revenue.

Other income (expense), net

Other income (expense), net consists of interest expense associated with our debt financing arrangements and sales of accounts receivable, amortization of debt issuance costs, interest income earned on our cash balances, foreign currency exchange gains (losses) related to the remeasurement of certain assets and liabilities of our foreign subsidiaries that are denominated in currencies other than the functional currency of the subsidiary and foreign exchange transactions gains and losses. We do not utilize derivatives to hedge our foreign exchange risk as we believe the risk to be immaterial to our results of operations.

Income tax expense

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Additionally, certain of our international earnings are also taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of

 

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adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service, or IRS, and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.

Statements of operations

The following table sets forth the components of our consolidated statements of operations for each of the periods presented:

 

       Year ended December 31,     Three months ended
March 31,
 
(in thousands)    2011      2012     2013     2013     2014  

 

   

 

 

   

 

 

 

Revenue

   $ 234,238       $ 526,016      $ 985,737      $ 255,057      $ 235,716   

Cost of revenue(1)

     111,683         298,530        623,953        165,628        139,202   
  

 

 

   

 

 

   

 

 

 

Gross profit

     122,555         227,486        361,784        89,429        96,514   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

           

Research and development(1)

     8,644         36,115        73,737        12,012        28,739   

Sales and marketing(1)

     64,375         116,855        157,771        35,673        41,341   

General and administrative(1)

     10,757         20,899        31,573        6,988        9,878   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     83,776         173,869        263,081        54,673        79,958   
  

 

 

   

 

 

   

 

 

 

Operating income

     38,779         53,617        98,703        34,756        16,556   

Other income (expense), net

     12         (407     (7,374     (1,694     (1,625
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     38,791         53,210        91,329        33,062        14,931   

Income tax expense

     14,179         20,948        30,751        10,027        3,882   
  

 

 

   

 

 

   

 

 

 

Net income

   $ 24,612       $ 32,262      $ 60,578      $ 23,035      $ 11,049   

 

  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

  

   

Cost of revenue

   $ 122       $ 333      $ 690      $ 220      $ 168   

Research and development

     261         1,452        3,003        441        1,401   

Sales and marketing

     7,690         6,335        5,670        1,204        1,414   

General and administrative

     902         1,036        1,524        230        1,054   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation expense

   $

8,975

      $

9,156

     $ 10,887      $ 2,095      $ 4,037   

 

   

 

 

   

 

 

 

 

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The following table sets forth the components of our consolidated statements of operations for each of the periods presented as a percentage of revenue:

 

       Year ended December 31,      Three months ended
March 31,
 
         2011          2012          2013          2013          2014  

 

 

Revenue

     100%         100%         100%         100%         100%   

Cost of revenue

     48%         57%         63%         65%         59%   
  

 

 

 

Gross profit

     52%         43%         37%         35%         41%   
  

 

 

 

Operating expenses:

              

Research and development

     4%         7%         7%         5%         12%   

Sales and marketing

     27%         22%         16%         13%         18%   

General and administrative

     4%         4%         4%         3%         4%   
  

 

 

 

Total operating expenses

     35%         33%         27%         21%         34%   
  

 

 

 

Operating income

     17%         10%         10%         14%         7%   

Other income (expense), net

                     (1)%         (1)%         (1)%   
  

 

 

 

Income before income taxes

     17%         10%         9%         13%         6%   

Income tax expense

     6%         4%         3%         4%         1%   
  

 

 

 

Net income

     11%         6%         6%         9%         5%   

 

 

Comparison of the three months ended March 31, 2013 and 2014

Revenue

 

       Three months ended
March 31,
     Change  
(dollars in thousands)    2013      2014      $     %  

 

 

Revenue

   $ 255,057       $ 235,716       $ (19,341     (8)%   

 

 

Revenue for the three months ended March 31, 2014 decreased 8% to $235.7 million from $255.1 million for the three months ended March 31, 2013. Units shipped in the three months ended March 31, 2014 decreased 11% to 0.9 million from 1.0 million in 2013. Revenue and units shipped for the three months ended March 31, 2013 were impacted by production delays of our HERO3 Black edition capture device in the fourth quarter of 2012. These production delays correspondingly delayed shipments until the first quarter of 2013, which resulted in revenues in the first quarter of 2013 that did not reflect the traditional seasonality in our business. The three months ended March 31, 2014 were not similarly affected. Partially offsetting the decrease in revenue due to the decrease in units shipped in the three months ended March 31, 2014 was a 3% increase in the average selling price of units shipped. Our revenue decreased in each of our primary geographical regions of the Americas, Asia Pacific and EMEA (Europe, the Middle East and Africa) in the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Cost of revenue, gross profit and gross profit margin

 

       Three months ended
March,
     Change  
(dollars in thousands)    2013      2014      $     %  

 

 

Cost of revenue

   $ 165,628       $ 139,202       $ (26,426     (16)%   

Gross profit

   $ 89,429       $ 96,514       $ 7,085        8%   

Gross profit margin

     35%         41%      

 

 

 

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Gross profit margin increased to 41% in the three months ended March 31, 2014 from 35% in the three months ended March 31, 2013 primarily due to lower product costs for our HERO3+ capture devices introduced in the fourth quarter of 2013 compared to our previous generation HERO3 capture devices, coupled with a 3% increase in average selling prices of units shipped. HERO3+ product costs were approximately 10% less than those of the HERO3 in the three months ended March 31, 2013. This was partially offset by an increase in other costs of revenue, which contributed to a 1% reduction in margin primarily due to higher freight, duty and rework costs. We expect gross profit margin to fluctuate over time based on product mix, changes in product costs related to the release of different capture device models and changes in average selling price.

Operating expenses

 

       Three months ended
March 31,
     Change  
(dollars in thousands)            2013      2014      $      %  

 

 

Research and development

   $ 12,012       $ 28,739       $ 16,727         139%   

Sales and marketing

     35,673         41,341         5,668         16%   

General and administrative

     6,988         9,878         2,890         41%   
  

 

 

    

 

 

    

 

 

    

Total operating expenses

   $ 54,673       $ 79,958       $ 25,285         46%   

 

 

Research and development expense increased $16.7 million, or 139%, for the three months ended March 31, 2014 compared to the three months ended March 31, 2013, due primarily to a $8.3 million increase in personnel related costs associated with an increase in headcount of 139 employees to support our broadened product portfolio, a $5.1 million increase in consulting and outside professional service costs, a $1.5 million increase in facility and information technology support costs to support our overall growth and a $1.1 million increase in equipment costs.

Sales and marketing expense increased $5.7 million, or 16%, for the three months ended March 31, 2014 compared to the three months ended March 31, 2013, due primarily to a $3.8 million increase in personnel related costs associated with an increase in headcount of 99 employees and a $1.6 million increase in advertising and promotional activity costs.

General and administrative expense increased $2.9 million, or 41%, for the three months ended March 31, 2014 compared to the three months ended March 31, 2013, due primarily to a $2.7 million increase in personnel related costs associated with an increase in headcount of 58 employees.

Other income (expense), net

 

       Three months ended
March 31,
    Change  
(dollars in thousands)            2013     2014     $     %  

 

 

Interest expense

   $ (1,333   $ (1,348   $ (15     1%   

Interest income

     1        12        11        1,100%   

Other expense

     (276     (262     14        (5)%   

Realized foreign exchange loss, net

     (86     (27     59        (69)%   
  

 

 

   

 

 

   

 

 

   

Total other income (expense), net

   $ (1,694   $ (1,625   $ 69        (4)%   

 

 

Interest expense for the three months ended March 31, 2014 remained relatively flat compared to the three months ended March 31, 2013.

 

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Income tax expense

 

       Three months ended
March 31,
     Change  
(dollars in thousands)            2013      2014      $     %  

 

 

Income tax expense

   $ 10,027       $ 3,882       $ (6,145     (61)%   

Effective tax rate

     30.3%         26.0%        

 

 

Income tax expense for the three months ended March 31, 2014 was $3.9 million compared to $10.0 million for the three months ended March 31, 2013. Our effective tax rate for the three months ended March 31, 2014 was lower than for the three months ended March 31, 2013 and the federal statutory rate of 35%, primarily due to the expansion of our operations into international jurisdictions that have lower overall statutory tax rates.

Comparison of the years ended December 31, 2011, 2012 and 2013

Revenue

 

       Year ended December 31,      Change 2012
vs. 2011
     Change 2013
vs. 2012
 
(dollars in thousands)    2011      2012      2013      $      %      $      %  

 

 

Revenue

   $ 234,238       $ 526,016       $ 985,737       $ 291,778         125%       $ 459,721         87%   

 

 

2013 compared to 2012

Revenue for 2013 increased 87% to $985.7 million from $526.0 million for 2012. Units shipped in 2013 increased 66% to 3.8 million from 2.3 million in 2012, primarily due to an increase in demand for our HERO3 products released in the fourth quarter of 2012 and our HERO3+ products released in the fourth quarter of 2013. Further contributing to the increase in revenue in 2013 was a 19% increase in the average selling price of units shipped. The increase in average selling price from 2012 to 2013 was primarily driven by a shift in product mix to the HERO3 and HERO3+ Black edition capture devices, which have higher price points compared to our HERO2 capture devices. Our 2013 revenue also increased compared to 2012 as a result of an increase in accessories we shipped outside of units shipped. Our revenue grew in each of our primary geographical regions of the Americas, Asia Pacific and EMEA in 2013.

2012 compared to 2011

Revenue for 2012 increased 125% to $526.0 million from $234.2 million for 2011. Units shipped in 2012 increased 102% to 2.3 million units from 1.1 million in 2011 primarily due to an increase in demand for our HERO2 capture devices released in the fourth quarter of 2011 and our HERO3 capture devices released in the fourth quarter of 2012. Revenue for 2012 also increased compared to 2011 due to an increase in accessories we shipped outside of units shipped. Further contributing to the increase in revenue in 2012 was a 14% increase in our average selling price of units shipped for 2012 compared to 2011 due to higher average selling price for our HERO3 Black edition capture devices. Our revenue grew in each of our primary geographic regions in 2012.

 

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Cost of revenue, gross profit and gross profit margin

 

       Year ended December 31,      Change 2012
vs. 2011
     Change 2013
vs. 2012
 
(dollars in thousands)    2011      2012      2013              $              %              $              %  

 

 

Cost of revenue

   $ 111,683       $ 298,530       $ 623,953       $ 186,847         167%       $ 325,423         109%   

Gross profit

   $ 122,555       $ 227,486       $ 361,784       $ 104,931         86%       $ 134,298         59%   

Gross profit margin

     52%         43%         37%         

 

 

2013 compared to 2012

Gross profit margin decreased to 37% in 2013 from 43% in 2012 due primarily to higher product costs for our HERO3 capture devices introduced in the fourth quarter of 2012 compared to our previous generation HERO2 capture devices. HERO3 product costs were approximately 67% greater than those of the HERO2, while average selling prices of units shipped increased approximately 19%. This increase in product costs was due primarily to the inclusion of additional features and functionality in our HERO3 capture devices. Our HERO3+ capture devices, introduced in October 2013, included lower product costs and partially offset the HERO3 cost increase in the fourth quarter of 2013 as customers transitioned to our new product line. The average cost for the HERO3+ capture device decreased approximately 3% compared to the HERO3 capture device.

2012 compared to 2011

Gross profit margin decreased to 43% in 2012 from 52% in 2011, primarily due to higher product costs associated with additional features and functionality included in our HERO3 capture devices introduced in the fourth quarter of 2012. The average product costs of our HERO3 capture device, introduced in the fourth quarter of 2012, represented more than a 60% increase in the average cost of the HERO and HERO2 capture devices sold in 2011. This increase in product costs was partially offset by the 14% increase in the average selling price of units shipped for 2012 compared to 2011.

Operating expenses

 

       Year ended December 31,      Change 2012
vs. 2011
     Change 2013
vs. 2012
 
(dollars in thousands)    2011      2012      2013      $      %      $      %  

 

 

Research and development

   $ 8,644       $ 36,115       $ 73,737       $ 27,471         318%       $ 37,622         104%   

Sales and marketing

     64,375         116,855         157,771         52,480         82%         40,916         35%   

General and administrative

     10,757         20,899         31,573         10,142         94%         10,674         51%   
  

 

 

       

 

 

    

Total operating expenses

   $ 83,776       $ 173,869       $ 263,081       $ 90,093         108%       $ 89,212         51%   

 

 

2013 compared to 2012

Research and development expense increased $37.6 million, or 104%, for 2013 compared to 2012, due primarily to a $20.3 million increase in personnel related costs associated with an increase in headcount of 127 employees, a $9.7 million increase in facility and information technology support costs associated with an expansion of our corporate offices and a $6.1 million increase in consulting and outside professional service costs.

 

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Sales and marketing expense increased $40.9 million, or 35%, for 2013 compared to 2012, due primarily to a $21.3 million increase in advertising and promotional activities, a $6.8 million increase in personnel related costs associated with an increase in headcount of 95 employees, a $5.0 million increase in facility and information technology support costs associated with an expansion of our corporate offices, a $3.9 million increase in consulting and outside professional services costs and a $1.0 million increase in sales commissions.

General and administrative expense increased $10.7 million, or 51%, for 2013 compared to 2012, due primarily to a $5.2 million increase in personnel related costs associated with an increase in headcount of 62 employees, a $2.6 million increase in professional, consulting and temporary services to support our overall growth and a $2.3 million increase in facility and information technology support costs associated with an expansion of our corporate offices.

2012 compared to 2011

Research and development expense increased $27.5 million, or 318%, for 2012 compared to 2011, primarily due to a $11.7 million increase in personnel related costs associated with an increase in headcount of 87 employees, an $8.2 million increase in consulting and outside professional services, a $5.4 million increase in facility and information technology support costs associated with an expansion of our corporate offices and a $1.8 million increase in prototype material costs.

Sales and marketing expense increased $52.5 million, or 82%, for 2012 compared to 2011, primarily due to a $33.4 million increase in advertising and promotional activities to increase brand awareness, a $13.6 million increase in personnel related costs associated with an increase in headcount of 61 employees and a $6.9 million increase in consulting and outside professional service costs, largely in connection with marketing and customer support activities. We also increased our facility and information technology support costs associated with an expansion of our corporate offices by $6.5 million. Selling expense, which principally consists of internal and external sales commissions, increased $4.1 million from 2011. Partially offsetting these increases in 2012 was a $13.0 million charge included in sales and marketing expense for 2011 related to an agreement between our Chief Executive Officer and an employee, to share proceeds from a sale of equity securities. See “Certain relationships and related person transactions—Share of proceeds from sale of equity securities” for further description of this transaction.

General and administrative expense increased $10.1 million, or 94%, for 2012 compared to 2011, due primarily to a $3.1 million increase in personnel related costs associated with an increase in headcount of 29 employees, a $3.1 million increase in facility and information technology support costs associated with an expansion of our corporate offices and a $3.0 million increase in consulting and outside professional service costs to support our growth.

Other income (expense), net

 

       Year ended
December 31,
    Change 2012 vs.
2011
     Change 2013 vs.
2012
 
(dollars in thousands)    2011     2012     2013     $     %      $     %  

 

 

Interest expense

   $ (32   $ (392   $ (6,020   $ (360     1,125%       $ (5,628     1,436%   

Interest income

     44        46        2        2        5%         (44     (96)%   

Realized foreign exchange loss, net

            (61     (322     (61     100%         (261     428%   

Other income (expense), net

                   (1,034                    (1,034     100%   
  

 

 

      

 

 

   

Total other income (expense), net

   $ 12      $ (407   $ (7,374   $ (419     (3,492)%       $ (6,967     1,712%   

 

 

 

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2013 compared to 2012

Interest expense for 2013 was $6.0 million compared to $0.4 million for 2012, primarily due to increased debt balances under our credit facility. Other expense in 2013 consisted primarily of banking and commission fees related to our standby letter of credit. See “Liquidity and capital resources—Credit facility.”

2012 compared to 2011

Other income (expense), net, was ($0.4 million) for 2012 compared to $12,000 in 2011. The increase in net expense was primarily due to interest expense associated with our credit facility entered into in December 2012.

Income tax expense

 

       Year ended December 31,     Change 2012
vs.  2011
     Change 2013
vs. 2012
 
(dollars in thousands)    2011     2012    

2013

    $      %      $      %  

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Income tax expense

   $ 14,179      $ 20,948      $ 30,751      $   6,769              48%         $ 9,803         47%   

Effective tax rate

     36.6     39.4     33.7           

 

   

 

 

    

 

 

    

 

 

    

 

 

 

2013 compared to 2012

Income tax expense for 2013 was $30.8 million compared to $20.9 million for 2012. Our effective income tax rate was 33.7% for 2013 compared to 39.4% for 2012. Our effective tax rate for 2013 was lower than for 2012 and the federal statutory rate of 35% primarily due to the expansion of our operations into international jurisdictions that have lower overall statutory tax rates and the extension of our 2012 federal research credit in 2013 of $0.7 million.

2012 compared to 2011

Our income tax expense was $20.9 million for 2012 compared to $14.2 million for 2011. Our effective income tax rate was 39.4% for 2012 compared to 36.6% for 2011. Our effective tax rate increased in 2012 compared to 2011 primarily due to tax benefits related to our S corporation status during the first two months of 2011.

Backlog

We do not believe that our backlog is meaningful as of any particular date or indicative of future sales, as our customers can change or cancel orders with limited or no penalty and limited advance notice prior to shipment.

 

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Unaudited quarterly results of operations

The following table sets forth our unaudited quarterly consolidated results of operations for each of the nine quarterly periods ended March 31, 2014. These unaudited quarterly results of operations have been prepared on the same basis as our audited consolidated financial statements and, in our opinion, reflect all normal recurring adjustments necessary for the fair statement of the results of operations for these periods. You should read the following tables in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of the results of operations for a full year or any future periods.

 

      Three months ended  
(in thousands)   March 31,
2012
    June 30,
2012
    Sept. 30,
2012(2)
    Dec. 31,
2012(3)
    March 31,
2013
    June 30,
2013
    Sept. 30,
2013
   

Dec. 31,

2013(4)

    March 31,
2014
 

 

   

 

 

   

 

 

 

Consolidated statement of operations data:

               

Revenue

  $ 87,642      $ 122,290      $ 82,055      $ 234,029      $ 255,057      $ 177,082      $ 192,146      $ 361,452      $ 235,716   

Cost of revenue(1)

    43,463        58,847        46,580        149,640        165,628        120,242        128,135        209,948        139,202   
 

 

 

   

 

 

 

Gross profit

    44,179        63,443        35,475        84,389        89,429        56,840        64,011        151,504        96,514   
 

 

 

   

 

 

 

Operating expenses:

           

Research and development(1)

    5,567        7,329        10,929        12,290        12,012        16,687        19,587        25,451        28,739   

Sales and marketing(1)

    21,436        23,947        26,764        44,708        35,673        39,065        37,413        45,620        41,341   

General and administrative(1)

    3,812        5,156        5,009        6,922        6,988        7,044        7,683        9,858        9,878   
 

 

 

   

 

 

 

Total operating expenses

    30,815        36,432        42,702        63,920        54,673        62,796        64,683        80,929        79,958   
 

 

 

   

 

 

 

Operating income (loss)

    13,364        27,011        (7,227     20,469        34,756        (5,956     (672     70,575        16,556   

Other income (expense), net

    (32     (83     (68     (224     (1,694     (1,697     (1,759     (2,224     (1,625
 

 

 

   

 

 

 

Income (loss) before income taxes

    13,332        26,928        (7,295     20,245        33,062        (7,653     (2,431     68,351        14,931   

Income tax (benefit) expense

    5,293        11,697        (4,586     8,544        10,027        (2,568     (1,330     24,622        3,882   
 

 

 

   

 

 

 

Net income (loss)

  $ 8,039      $ 15,231      $ (2,709   $ 11,701      $ 23,035      $ (5,085   $ (1,101   $ 43,729      $ 11,049   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

       

Cost of revenue

  $ 67      $ 73      $ 83      $ 110      $ 220      $ 157      $ 153      $ 160      $ 168   

Research and development

    213        212        338        689        441        556        740        1,266        1,401   

Sales and marketing

    745        920        1,880        2,790        1,204        1,454        1,419        1,593        1,414   

General and administrative

    81        93        115        747        230        365        408        521        1,054   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation expense

  $ 1,106      $ 1,298      $ 2,416      $ 4,336      $ 2,095      $ 2,532      $ 2,720      $ 3,540      $ 4,037   

 

   

 

 

   

 

 

 

 

(2)   Includes a charge of $1.0 million related to the modification of stock options, which was recorded to sales and marketing expense.
(3)   Includes compensation costs of $2.6 million recognized upon a sale of shares from several employees to the Chief Executive Officer, of which $0.3 million was recorded to research and development, $1.7 million was recorded to sales and marketing and $0.6 million was recorded to general and administrative expense.
(4)   Includes a cash charge of $0.3 million related to certain provisions and benefits in the separation agreement of our former Chief Financial Officer, who resigned in December 2013 due to health reasons. This charge was recorded to general and administrative expense.

 

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The following table sets forth the components of our unaudited consolidated statements of operations for each of the periods presented as a percentage of revenue:

 

      Three months ended  
(percentage of revenue)   March 31,
2012
    June 30,
2012
    Sept. 30,
2012
    Dec. 31,
2012
    March 31,
2013
    June 30,
2013
    Sept. 30,
2013
    Dec. 31,
2013
    March 31,
2014
 

 

   

 

 

 
                   

Revenue

    100%        100%        100%        100%        100%        100%        100%        100%        100%   

Cost of revenue

    50%        48%        57%        64%        65%        68%        67%        58%        59%   
 

 

 

   

 

 

 

Gross profit

    50%        52%        43%        36%        35%        32%        33%        42%        41%   
 

 

 

   

 

 

 

Operating expenses:

                 

Research and development

    6%        6%        13%        5%        5%        9%        10%        7%        12%   

Sales and marketing

    24%        20%        33%        19%        13%        22%        19%        12%        18%   

General and administrative

    5%        4%        6%        3%        3%        4%        4%        3%        4%   
 

 

 

   

 

 

 

Total operating expenses

    35%        30%        52%        27%        21%        35%        33%        22%        34%   
 

 

 

   

 

 

 

Operating income (loss)

    15%        22%        (9)%        9%        14%        (3)%        —%        20%        7%   

Other income (expense), net

    —%        —%        —%        —%        (1)%        (1)%        (1)%        (1)%        (1)%   
 

 

 

   

 

 

 

Income (loss) before income taxes

    15%        22%        (9)%        9%        13%        (4)%        (1)%        19%        6%   

Income tax (benefit) expense

    6%        10%        (6)%        4%        4%        (1)%        —%        7%        1%   
 

 

 

   

 

 

 

Net income (loss)

    9%        12%        (3)%        5%        9%        (3)%        (1)%        12%        5%   

 

   

 

 

 

Quarterly trends

Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, including seasonal factors and economic cycles that influence consumer retail product purchase trends.

Generally, we have experienced the highest levels of revenue in the fourth quarter of the year, which coincides with the winter holiday shopping season in the United States and Europe and the period in which we have historically introduced the newest generation of our product offerings. Revenue in the first quarter of 2013 was greater than the fourth quarter of 2012 due to the delay in the introduction of our HERO3 Black edition capture device in the fourth quarter of 2012.

Gross profit margin decreased from the third quarter of 2012 through the second quarter of 2013 primarily due to higher product costs of our HERO3 capture devices compared to our HERO2 capture devices. Gross profit margin was higher in the fourth quarter of 2013 and the first quarter of 2014 primarily due to a decrease in the product costs of our HERO3+ capture devices compared to our HERO3 capture devices and, to a lesser extent, an increase in the average selling price of units shipped compared to prior periods.

Operating expense increased for the quarterly periods presented due primarily to increased personnel related expenses, advertising and promotional expenses and corporate infrastructure costs to support the growth of the company. For the three months ended December 31, 2012, sales and marketing expense reflected advertising and promotional activities to increase awareness of the GoPro brand and our product offerings associated with the launch of our HERO3 capture devices. For the three months ended March 31, 2014, research and development expense increased due primarily to an increase in personnel related costs associated with an increase in headcount and to an increase in consulting and outside professional service costs.

Our business is both positively and negatively affected by the behavior of consumers, economic conditions, competitive pressures and our operational decisions and related timelines, which

 

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includes the release of new products and accessories, as well as newer generations of our product offerings. Consequently, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

The following table sets forth the key business metrics for each of the periods presented:

 

      Three months ended  
(in thousands)   March 31,
2012
    June 30,
2012
    Sept. 30,
2012
    Dec. 31,
2012
    March 31,
2013
    June 30,
2013
    Sept. 30,
2013
   

Dec. 31,

2013

    March 31,
2014
 

 

   

 

 

 

Adjusted EBITDA(1)

  $ 17,353      $ 32,469      $ (2,544   $ 28,010      $ 40,923      $ 2,341      $ 8,606      $ 81,856      $ 28,627   

Units shipped

    425        549        335        1,007        954        653        822        1,420        852   

 

   

 

 

 

 

(1)   The following is a reconciliation of adjusted EBITDA.

 

    Three months ended  
(in thousands)   March 31,
2012
    June 30,
2012
    Sept. 30,
2012
    Dec. 31,
2012
    March 31,
2013
    June 30,
2013
    Sept. 30,
2013
   

Dec. 31,

2013

    March 31,
2014
 

 

   

 

 

 

Net income (loss)

  $ 8,039      $ 15,231      $ (2,709   $ 11,701      $ 23,035      $ (5,085   $ (1,101   $ 43,729      $ 11,049   

Income tax (benefit) expense

    5,293        11,697        (4,586     8,544        10,027        (2,568     (1,330     24,622        3,882   

Interest income and expense

    32        67        43        204        1,332        1,369        1,428        1,889        1,335   

Depreciation and amortization

    545        699        1,136        1,595        2,209        3,207        3,092        3,526        3,811   

POP display amortization

    2,338        3,477        1,156        1,630        2,225        2,886        3,797        4,550        4,513   

Stock-based compensation

    1,106        1,298        2,416        4,336        2,095        2,532        2,720        3,540        4,037   
 

 

 

   

 

 

 

Adjusted EBITDA

  $ 17,353      $ 32,469      $ (2,544   $ 28,010      $ 40,923      $ 2,341      $ 8,606      $ 81,856      $ 28,627   

 

   

 

 

 

Liquidity and capital resources

 

       December 31,      March 31,  
(in thousands)    2012      2013      2014  

 

    

 

 

 

Cash

   $ 36,485       $ 101,410       $ 111,215   

 

    

 

 

 

As of March 31, 2014, our principal sources of liquidity were our cash balances totaling $111.2 million and $30.0 million available under our credit facility term loan and revolving credit facility, respectively. Our operations have been financed primarily through cash flow from operating activities, the private sale of equity securities, and short- and long-term borrowings. Since inception, we have raised $20.0 million in equity capital and at March 31, 2014 had $111.0 million of principal amount of indebtedness outstanding.

We believe our existing cash balances, cash flow from operations and liquidity available from our credit facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and the foreseeable future. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. In the event additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

 

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Credit facility

On December 21, 2012, in order to effect a dividend to our stockholders, we entered into a $170.0 million credit facility consisting of a $120.0 million three-year term loan facility, or term loan, and a $50.0 million four-year revolving credit facility, or our revolving credit facility. At the closing of our credit facility, the entire amount of the term loan and $10.0 million of our revolving credit facility were drawn down, and $20.0 million was committed to a standby letter of credit. We received net proceeds of $127.6 million, net of $2.4 million of debt issuance and lender costs. The debt issuance and lender costs allocated to the term loan are being amortized to interest expense over the contractual term of our term loan using the effective interest method. Costs allocated to our revolving credit facility are deferred and amortized using the straight-line method over the four-year contractual term of our revolving credit facility. Borrowings under our credit facility are collateralized by substantially all of our assets and are subject to customary representations, warranties and covenants. Proceeds from this offering will be utilized to fully pay off outstanding balances under our term loan.

Our $120.0 million term loan has scheduled quarterly principal repayments, due on the last day of each quarter, of $1.5 million per quarter in 2013, $3.0 million per quarter in 2014 and $6.0 million per quarter for the first three quarters of 2015, with the remaining balance due on December 21, 2015. Our excess cash flow, as defined in the credit facility, for 2013 triggered a contractual principal prepayment obligation of $48.5 million, which amount has been classified as a current liability as of December 31, 2013 and March 31, 2014. In April 2014, we amended the credit facility agreement to extend the due date for this contractual principal prepayment from April 2014 to December 2014. Our $50.0 million revolving credit facility matures on December 21, 2016, and we can repay and re-borrow principal amounts under and during the term of our revolving credit facility. Of the $50.0 million available under our revolving credit facility, as of December 31, 2013 and March 31, 2014, $20.0 million is committed to a standby letter of credit, and there was no balance outstanding. In April 2014, the $20.0 million standby letter of credit was terminated.

Borrowings under the credit facility bear interest at a rate per annum equal to an applicable margin plus, at our option, either: (i) a base rate determined by reference to the highest of: (a) a rate of interest publicly announced by JPMorgan Chase Bank, N.A. as its prime rate; (b) 0.5% per annum above the federal funds effective rate; and (c) the LIBOR rate for an interest period of one month plus 1.00%; or (ii) a LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing adjusted for certain reserve requirements. The applicable margin for borrowings ranges from 3.00% to 3.75% with respect to base rate loans and from 2.00% to 2.75% with respect to LIBOR rate loans, in each case, based on our consolidated leverage ratio. As of March 31, 2014, the interest rate on our term loan was 2.75%.

Our short term liquidity could be impacted in part by our ability to maintain compliance with covenants in the credit agreement. The agreement contains an acceleration clause for certain events related to our creditworthiness, including, among other things, our failure to maintain a financial leverage ratio below certain thresholds specified in the agreement and maintain a consolidated interest coverage ratio. As of December 31, 2012 and 2013 and March 31, 2014, we were in compliance with all financial covenants.

 

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The following table sets forth the major components of our consolidated statements of cash flows data for the periods presented:

 

       Year ended December 31,     Three months ended
March 31,
 
(in thousands)    2011     2012     2013     2013     2014  

 

 

Net cash provided by operating activities

   $ 15,229      $ 8,366      $ 102,477      $ 31,125      $ 17,714   

Net cash used for investing activities

     (9,909     (17,795     (21,237     (5,844     (4,701

Net cash provided by (used for) financing activities

     20,343        16,816        (16,315     (11,516     (3,208
  

 

 

 

Net increase in cash

   $ 25,663      $ 7,387      $ 64,925      $ 13,765      $ 9,805   

 

 

Cash flows from operating activities

Cash flows from operating activities consist of net income adjusted for certain non-cash items, including depreciation and amortization, deferred income taxes, stock-based compensation expense and excess tax benefits from stock-based compensation, as well as the effect of changes in working capital and other activities.

Cash provided by operating activities of $17.7 million in the three months ended March 31, 2014 decreased from $31.1 million in the three months ended March 31, 2013, due primarily to a $12.0 million decrease in net income and a $2.7 million decrease in cash related to changes in operating assets and liabilities, partially offset by a $1.3 million increase in non-cash expense items, primarily consisting of depreciation and amortization and stock-based compensation expense. Changes in cash flows related to operating assets and liabilities primarily consisted of a $111.6 million decrease in cash due to the timing of payments associated with our accounts payable and accrued liabilities, partially offset by a $54.0 million increase in cash due to timing of accounts receivable collections and the factoring of certain receivables in the three months ended 2014 and a $48.6 million increase in cash due to utilization of inventory in the three months ended March 31, 2014 compared to an increase in inventory in the three months ended March 31, 2013.

Cash provided by operating activities of $102.5 million in 2013 increased from $8.4 million cash provided by operating activities in 2012, due to a $54.9 million increase in cash related to changes in operating assets and liabilities, a $28.3 million increase in net income and a $10.9 million increase in non-cash expense items, primarily consisting of depreciation and amortization, stock-based compensation expense, excess tax benefits from stock-based compensation and inventory-related write-offs. Changes in cash flows related to operating assets and liabilities primarily consisted of a $67.4 million increase in cash due to the timing of payments associated with our accounts payable and accrued liabilities, as well as a $10.4 million increase in cash due to timing of accounts receivable collections and the factoring of certain receivables in 2013. This was partially offset by a $11.9 million decrease in cash due to increased inventory purchases in preparation of the launch of our HERO3+ capture devices and a $6.8 million decrease in cash due to increased expenditures for other assets.

Cash provided by operating activities of $8.4 million for 2012 decreased from $15.2 million in 2011. The decrease in cash provided by operating activities resulted from a $19.5 million decrease in cash related to changes in operating assets and liabilities partially offset by increases in net income of $7.7 million and non-cash expense items of $5.0 million, primarily consisting of depreciation and amortization, stock-based compensation expense, inventory-related write-offs and deferred taxes. Changes in cash flows related to operating assets and liabilities primarily

 

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consisted of a $33.9 million decrease in cash due to timing of accounts receivable collections and a $31.0 million decrease in cash due to increased inventory purchases to meet the growing demand for our products. These were partially offset by a $42.9 million increase in cash due to the timing of payments associated with our accounts payable and accrued expenses related to inventory purchases and a $2.7 million increase in deferred revenue.

Cash flows from investing activities

Cash used in investing activities of $4.7 million in the three months ended March 31, 2014 decreased from cash used for investing activities of $5.8 million in the three months ended March 31, 2013 due to $1.1 million of reduced expenditures on property and equipment.

Cash used in investing activities of $21.2 million in 2013 increased $4.0 million from cash used for investing activities of $17.8 million in 2012. The increase was primarily due to purchases of property and equipment of $18.3 million and cash used in the acquisition of General Things, Inc. net of cash acquired of $2.9 million.

Cash used in investing activities of $17.8 million in 2012 increased $7.9 million from cash used for investing activities of $9.9 million in 2011. This increase was comprised of increases in purchases of property and equipment of $15.8 million offset by a reduction in acquisition spending of $8.0 million.

Cash flows from financing activities

Our financing activities used cash of $3.2 million in the three months ended March 31, 2014. Cash flow used in financing activities in the three months ended March 31, 2014 consisted primarily of repayments of long-term debt of $3.0 million.

Our financing activities used cash of $16.3 million in 2013. Cash flow used in financing activities in 2013 consisted primarily of repayments of long-term debt and repayments of our revolving credit facility of $46.0 million, partially offset by borrowings under the revolving credit facility of $30.0 million.

Our financing activities provided cash of $16.8 million during 2012. Cash flow provided by financing activities consisted primarily of the issuance of an aggregate of $137.6 million of long-term and revolving credit facility (net of issuance costs), a tax benefit of $4.2 million upon exercise of non-qualified stock options and proceeds from the issuance of common stock upon exercise of stock options of $2.8 million. These were partially offset by a cash dividend of $117.4 million and repayment of $10.4 million of indebtedness under our revolving credit facility and notes payable.

Our financing activities provided net cash of $20.3 million during 2011. Cash flow provided by financing activities consisted primarily of issuance of preferred stock of $19.7 million and a stockholder cash contribution of $6.1 million, partially offset by cash distributions of $5.1 million to stockholders to cover income taxes arising from S corporation earnings.

 

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Contractual obligations

The following table summarizes our contractual obligations as of December 31, 2013:

 

(in thousands)    Total      1 year
(fiscal
2014)
     2-3 years
(fiscal
2015
and
2016)
     4-5 years
(fiscal
2017 and
2018)
     More than
5 years
(beyond
fiscal
2018)
 

 

 

Term loan principal and interest(1)

   $ 118,606       $ 63,652       $ 54,954       $       $   

Operating leases(2)

     32,243         7,681         13,368         10,614         580   

Sponsorship commitments(3)

     34,423         18,526         15,596         301           

License financing arrangement(4)

     3,600         3,600                           

Other contractual commitments(5)

     4,365         1,896         2,469                   

Capital equipment purchase commitments(6)

     3,607         3,607                           
  

 

 

 

Total contractual cash obligations

   $ 196,844       $ 98,962       $ 86,387       $ 10,915       $ 580   

 

 

 

(1)   Interest payments were calculated using the applicable rate as of December 31, 2013. See Note 9 of our consolidated financial statements included elsewhere in this prospectus.

 

(2)   We lease our facilities under long-term operating leases, which expire at various dates through May 2019. The lease agreements frequently include leasehold improvement incentives, escalating lease payments, renewal provisions and other provisions which require us to pay taxes, insurance, maintenance costs or defined rent increases.

 

(3)   We sponsor sporting events and athletes as part of our marketing efforts. In many cases, we enter into multi-year agreements with event organizers and athletes.

 

(4)   In August 2013, we entered into a license agreement with the Santa Clara Stadium Authority which gave us rights during the agreement term to season tickets for a National Football League team. The cost of the license was $4.0 million, of which $3.6 million remains to be paid as of December 31, 2013 and was recorded as a short-term liability.

 

(5)   In 2013, we purchased software licenses and engaged outside consultants to assist with upgrading or implementing our financial and IT systems, which require payments over multiple years.

 

(6)   We enter into contracts to acquire equipment for tooling and molds as part of our manufacturing operations. In addition, we incur purchase commitments related to the manufacturing of our POP displays by third parties. We have revised the previously disclosed amount for capital equipment purchase commitments as of December 31, 2013 to correct this amount.

As of March 31, 2014, our sponsorship commitments decreased to $22.1 million, as we amended a sponsorship agreement that would have expired in 2015, to expire in 2014. Our capital equipment purchase commitments increased to $8.3 million as of March 31, 2014. In addition, as of March 31, 2014, we fully repaid the license financing arrangement with the Santa Clara Stadium Authority.

We subcontract with other companies to manufacture our products. During the normal course of business, we and our contract manufacturers procure components based upon a forecasted production plan. If we cancel all or part of the orders, we may be liable to our suppliers and contract manufacturers for the cost of the unutilized component orders or components purchased by our contract manufactures. Our consolidated financial position and results of operations could be negatively impacted if we are required to compensate our suppliers or contract manufacturers for any liabilities incurred due to these purchase contract commitments.

The table above excludes the liability for uncertain tax positions of $8.6 million as of December 31, 2013, due to the uncertainty of when the related tax settlements will become due. As of March 31, 2014, the liability for uncertain tax positions was $9.1 million.

Sale of receivables

During 2013 and the three months ended March 31, 2014, we sold accounts receivable, without recourse, of $71.1 million and $31.3 million, respectively, from a retail customer to a third-party

 

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banking institution. Factoring fees of $0.6 million and $0.3 million in 2013 and the three months ended March 31, 2014, respectively, related to this sale were included in interest expense.

Off-balance sheet arrangements

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

Critical accounting policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.

Revenue recognition

Revenue is derived from the sale of our capture devices, as well as the related implied post contract support, or PCS. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Evidence of an arrangement consists of an order from our retailers, online customers or distributors. We consider delivery to have occurred once title and risk of loss has been transferred. Customer deposits are included in accrued liabilities on the Consolidated balance sheets and are recognized as revenue when all the criteria for recognition of revenue are met.

Our standard terms and conditions of sale do not allow for product returns other than under warranty. However, we grant limited rights to return product for certain large retailers and distributors. Estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by customer class. Upon recognition, we reduce revenue and cost of sales for the estimated returns. Return trends are influenced by product life cycle status, new product introductions, market acceptance of products, sales levels, product sell-through, the type of customer, seasonality, product quality issues, operational policies and procedures and other factors. Return rates can fluctuate over time, but are sufficiently predictable to allow us to estimate expected future product returns. Actual returns in any future period could differ from our estimates, which could impact the revenue that we report.

For customers who purchase products directly from our website, transfer of risk of loss is determined to be upon delivery to the customer’s address. We defer those sales made to customers who purchase products from our website in the last four days of the reporting period for which we estimate delivery to occur in the following period. We use estimates to determine when shipments are delivered based on third-party metrics for average transit time. Additionally, we provide a 30-day money back guarantee for web-based sales for which we reduce revenue by an estimate of potential future product returns related to the web-based sales, based on analyses of historical return trends and seasonality. Estimates for web-based sale returns and estimates to derive web sale shipment delivery dates may differ from actual results.

 

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Our products include multiple elements. We have determined our multiple element arrangements generally include two separate units of accounting: the first element is the hardware component (camera and accessories) and the embedded firmware essential to the functionality of the camera delivered at the time of sale. The second element is the implied right for the customer to receive PCS included with the purchase of our products. PCS includes the right to receive, on a when and if available basis, future unspecified firmware upgrades and features as well as bug fixes, email and telephone support.

We account for each element separately and allocate fees from the arrangement based on the relative selling price of each element. Revenue allocated to an undelivered element is recognized over an estimated service period. We recognize revenue for delivered elements only when all contractual obligations have been completed.

We use best estimate of the selling price, or BESP, to determine allocation of revenue. BESP reflects our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. We believe that BESP is the most appropriate methodology for determining the allocation of revenue for multiple element arrangements.

We have allocated revenue between our multiple elements using the relative selling price method which is based on the BESP for all deliverables. Revenue allocated to the delivered hardware and the related essential software is recognized at the time of sale provided the conditions for recognition of revenue have been met. Revenue allocated to PCS is deferred and recognized on a straight-line basis over the estimated term of the support period, which is estimated to be one year based on historical experience. As of December 31, 2012 and 2013 and March 31, 2014, deferred implied PCS revenue was $3.8 million, $6.4 million and $7.4 million, respectively.

Sales incentives

We offer sales incentives through various programs, consisting primarily of cooperative advertising and marketing development fund programs. We record cooperative advertising and marketing development fund programs with customers as a reduction to revenue unless we receive an identifiable benefit in exchange for credits claimed by the customer and can reasonably estimate the fair value of the identifiable benefit received, in which case we will record it as a marketing expense. In addition, we offer price protection discounts to certain customers when new capture device models are released and the customer has remaining inventory of the older models. We estimate price protection discounts, which are recorded as a reduction of revenue, by evaluating inventory held by the customer subject to price protection. We record reductions to revenue for sales incentives when the related revenue is recognized.

Inventories

Inventories consist of finished goods and component parts, which are purchased from contract manufacturers. Inventories are stated at the lower of average cost or market on a first-in, first-out basis. Our assessment of market value requires the use of estimates regarding the net realizable value of our inventory balances, including an assessment of excess or obsolete inventories. We determine excess and obsolete inventories based on an estimate of the future demand for our products within a specified time horizon, generally 12 months. The estimates used for future demand are also used for near-term capacity planning and inventory purchases and are consistent with revenue forecast assumptions. If our demand forecast is greater than actual demand, we may be required to record an excess inventory charge, which would decrease

 

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gross profit. Any write-downs taken establish a new cost basis for the underlying inventory. For all periods presented, inventories were predominantly comprised of finished goods.

POP displays

We sponsor a program to provide retailers with POP displays in order to facilitate the marketing of our products within retail stores. The POP displays contain a video display that broadcast video images taken by GoPro cameras with product placement available on the POP display for our cameras and accessories. We generally provide these POP displays to customers free of charge. The costs of the POP displays, less any fees charged to customers, are capitalized as a long-term asset, and the net cost is recognized over the expected period of the benefit provided by these assets, which is generally 24 months. POP display amortization included in sales and marketing expense were $3.6 million, $8.6 million, $13.5 million and $4.5 million for 2011, 2012, 2013 and the three months ended March 31, 2014, respectively.

Warranty

We generally provide 12-month warranty coverage on all of our products except in the EU where we provide a two-year warranty. Our warranty provides for repair or replacement of the associated products during the warranty period. We establish a liability for estimated product warranty costs at the time product revenue is recognized. The warranty obligation is affected by product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual product failure rates, use of materials or other costs differ from our estimates, additional warranty liabilities could be required, which would reduce our gross profit.

Income taxes

We utilize the asset and liability method of accounting for income taxes, which requires the recognition of deferred tax assets and liabilities for expected future consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities using enacted tax rates. We make estimates, assumptions and judgments to determine our provision for income taxes and also for deferred tax assets and liabilities and any valuation allowances recorded against our deferred tax assets. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believes that recovery is not likely, we establish a valuation allowance.

The calculation of our current provision for income taxes involves the use of estimates, assumptions and judgments while taking into account current tax laws, our interpretation of current tax laws and possible outcomes of future tax audits. We have established reserves to address potential exposures related to tax positions that could be challenged by tax authorities. Although we believe our estimates, assumptions and judgments to be reasonable, any changes in tax law or our interpretation of tax laws and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

The calculation of our deferred tax asset balance involves the use of estimates, assumptions and judgments while taking into account estimates of the amounts and type of future taxable income. Actual future operating results and the underlying amount and type of income could differ materially from our estimates, assumptions and judgments thereby impacting our financial position and results of operations.

 

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We include interest and penalties related to unrecognized tax benefits within income tax expense. We have not incurred any interest or penalties related to unrecognized tax benefits in any of the periods presented.

We have adopted ASC 740-10 “Accounting for Uncertainty in Income Taxes” that prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in our income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Goodwill, acquired intangible assets and other long-lived assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but we perform an annual qualitative assessment of our goodwill during the fourth quarter of each calendar year to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, we perform a two-step process. The first step involves comparing the fair value of our reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the purpose of impairment testing, we have determined that we have one reporting unit. There has been no impairment of goodwill for any periods presented.

Our long-lived assets consist of property and equipment and acquired intangible assets. Acquired intangible assets with definite lives are amortized on a straight-line basis over the remaining estimated economic life of the underlying products and technologies. We review our definite lived long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Recoverability of an asset group is measured by comparing its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value. There has been no impairment of long-lived assets for any periods presented.

Stock-based compensation

We account for stock-based compensation activity using the fair value method, which requires the measurement and recognition of compensation expense for all share-based payment awards based on estimated fair values. This method requires companies to estimate the fair value of stock-based compensation on the date of grant using an option pricing model. We use the Black-Scholes option pricing model to measure stock-based compensation. The Black-Scholes model determines the fair value of share-based payment awards based on the fair value of the underlying common stock on the date of grant and is affected by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the fair value of the underlying common stock, expected volatility over the term of the awards and actual and projected employee stock option exercise behaviors. In addition, we are

 

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required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The assumptions used in calculating the fair value of the stock-based awards represent management judgment. As a result, if factors change and different assumption are used, the stock-based compensation expense could be materially different in the future. Compensation expense relating to employee stock awards is recorded on a straight-line basis.

Stock awards issued to non-employees are accounted for at fair value. We believe that the fair value of the awards is more reliably measured than the fair value of services received. We record compensation expense based on the then-current fair values of the stock awards at each financial reporting date. Compensation recorded during the service period is adjusted in subsequent periods for changes in the stock award’s fair value until the earlier of the date at which the non-employee’s performance is complete or a performance commitment is reached, which is generally when the stock option award vests. Compensation expense relating to non-employee stock awards is recorded on a straight-line basis.

Determining the fair value of stock-based awards on the grant date requires the use of estimates and assumptions, including the fair value of our common stock, exercise price of the stock option, expected volatility, expected life, risk-free interest rate and dividend rate. We estimate the expected volatility of our stock options by taking the average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of the options. Since we have undergone significant operational and structural changes, the historical exercise data do not provide a reasonable basis upon which to estimate expected life. As a result, we used the simplified method, as provided under SAB Topic 14.D, “Share-Based Payment,” to calculate the expected term estimate based on the options vesting term and contractual terms. The risk-free interest rate is the estimated average interest rate based on U.S. Treasury zero-coupon notes with terms consistent with the expected life of the awards. The expected dividend yield is zero as we do not anticipate paying any recurring cash dividends in the foreseeable future and the prior dividend event is viewed as a one-time capital event. We estimate the forfeiture rate of our stock-based awards based on an analysis of our actual forfeitures, analysis of employee turnover and other factors. The impact from a forfeiture rate adjustment would be recognized in full in the period in which the forfeiture rate changes and, if the actual number of future forfeitures differs from our prior estimates, we may be required to record adjustments to stock-based compensation expense in future periods.

As of March 31, 2014, the aggregate intrinsic value of vested stock options, unvested stock options, unvested RSUs and unvested restricted stock awards was $457.7 million, $77.6 million, $12.8 million and $8.8 million, respectively, based on an assumed initial public offering price of $22.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. The amount of unearned stock-based compensation related to unvested stock options at December 31, 2013 and March 31, 2014 was $22.8 million and $32.6 million, respectively. As of each of December 31, 2013 and March 31, 2014, the weighted-average period over which the unearned stock-based compensation expense related to stock options is expected to be recognized was 1.0 year. The amount of unearned stock-based compensation currently estimated to be expensed with respect to unvested RSUs at March 31, 2014 was $4.7 million. As of March 31, 2014, the weighted-average period over which the unearned stock-based compensation with respect to unvested RSUs is expected to be recognized was 4.2 years. The amount of unearned stock-based compensation currently estimated to be expensed with respect to unvested restricted stock awards at December 31, 2013 and March 31, 2014 was $7.4 million and $6.2 million, respectively. As of December 31, 2013 and March 31, 2014, the weighted-average period over which the unearned

 

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stock-based compensation with respect to unvested restricted stock awards is expected to be recognized was 1.4 years and 1.6 years, respectively.

 

       Years ended December 31,      Three months ended
March 31,
 
     2011      2012      2013      2013      2014  

 

    

 

 

    

 

 

 

Expected life (years)

     5.0–6.1             5.1–6.1             5.3–6.1             5.9-6.1             5.4-6.3       

Risk-free interest rate

     1.1%–2.4%         0.8%–2.4%         0.8%–2.4%         1.0%–1.2%         1.8%–2.0%   

Volatility

     56%–59%         56%–60%         56%–60%         56%         55%–56%   

Dividend yield

     0%         0%         0%         0%         0%   

 

 

We have granted options to purchase shares of common stock as follows:

 

Grant date    Number
of options
granted
     Option
exercise
price
     Fair value of
common stock
per share(1)
     Fair value of
common stock
options per
share(2)
     Grant date
fair value
 

 

 
                                 (in thousands)  

February 2012

     171,450       $ 1.90       $ 3.16       $ 2.08       $ 357   

June 2012

     608,550         2.96         8.30         6.27         3,817   

October 2012

     531,700         8.30         8.30         4.44         2,361   

November 2012

     76,650         8.30         12.13         7.57         580   

February 2013

     782,950         13.72         13.72         7.22         5,653   

March 2013

     126,000         13.72         15.40         8.51         1,072   

April 2013

     162,650         15.40         15.40         8.36         1,359   

June 2013

     499,200         15.40         15.59         8.31         4,310   

July 2013

     143,300         15.59         15.59         8.71         1,248   

September 2013

     338,300         15.59         16.19         9.28         3,139   

October 2013

     499,200         16.19         16.19         9.01         4,498   

December 2013

     354,800         16.19         16.22         9.10         3,228   

January 2014

     1,148,650         16.22         16.22         8.84         10,151   

March 2014

     422,209         16.39         16.39         8.68         3,666   

May 1, 2014

     247,622         16.39         18.40         10.14         2,511   

May 30, 2014

     309,600         18.40         18.40         9.58         2,966   

June 2014

     2,506,693         18.40         18.40         9.58         24,023   

 

 

 

(1)   The fair value of common stock per share utilized for financial reporting purposes.

 

(2)   The weighted average grant date fair value of the options granted determined by utilizing the Black-Scholes option pricing model used to record stock-based compensation expense.

We have granted restricted stock awards and RSUs as follows:

 

Grant date   

Number

of restricted

stock awards

granted

    

Number

of RSUs

granted

    

Fair value of

common stock

per share(1)

    

Grant date

fair value

 

 

  

 

 

    

 

 

    

 

 

    

 

 

 
                          (in thousands)  

October 2013

     430,000          $ 16.19       $ 6,962   

January 2014

        300,000         16.22         4,866   

June 2014

        4,750,379         18.40         87,407   

 

  

 

 

    

 

 

    

 

 

    

 

 

 
(1)   The fair value of common stock per share utilized for financial reporting purposes.

 

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Common stock valuations

Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of fair value of our common stock, including the following:

Company specific factors

 

Ÿ  

actual and forecasted operating and financial performance based on management’s estimate;

 

Ÿ  

the status of research and development;

 

Ÿ  

independent third-party valuations;

 

Ÿ  

market adoption and success of our products;

 

Ÿ  

the development of customer relationships;

 

Ÿ  

consumer and industry recognition;

 

Ÿ  

the hiring of key personnel;

 

Ÿ  

the amount and pricing of preferred stock financings with outside investors in arms-length transactions;

 

Ÿ  

the rights and preferences of preferred stock relative to common stock;

 

Ÿ  

the amount and pricing of common stock transactions with outside investors in arms-length transactions;

 

Ÿ  

the historical lack of a public market of our common and preferred stock; and

 

Ÿ  

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

General economic factors

 

Ÿ  

industry trends and competitive environment;

 

Ÿ  

trends in consumer spending, including consumer confidence;

 

Ÿ  

overall economic indicators, including gross domestic product, employment, inflation and interest rates; and

 

Ÿ  

the general economic outlook.

Our common stock valuations utilize a market approach which bases the valuation of our common stock on multiples of revenue or EBITDA for a group of publicly traded companies that we believe are similar to us in terms of size, product market, liquidity, financial leverage, revenue, profitability, growth and other factors. Multiples of revenue or EBITDA from the select group of publicly traded companies are calculated and applied to our business metrics, typically one year forward looking revenue or EBITDA. Prior sales of the company shares are included in the market approach and involve examining any historical transactions related to the sale of our redeemable convertible preferred stock. The market value approach has been applied consistently over the valuation periods noted below.

 

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Once a total equity value is computed, we allocate value to each class of stock using either the Option Pricing Model, or OPM, or the Probability Weighted Expected Return Method, or PWERM. The OPM treats common stock and convertible preferred stock as call options on an enterprise value, with exercise prices based on the liquidation preference of the preferred stock. The common stock is modeled as a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred stock is liquidated. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM include an initial public offering, or IPO, as well as non-IPO market based outcomes. Determining the fair value of the enterprise using the PWERM requires us to develop assumptions and estimates for both the probability of an IPO liquidity event and non-IPO outcomes, as well as the values we expect those outcomes could yield. We apply significant judgment in developing these assumptions and estimates, primarily based upon the enterprise value we determined using the market approach, our knowledge of the business and our reasonable expectations of discrete outcomes occurring.

Over time, as certainty developed regarding possible discrete events, including an IPO, we transitioned the methodology we used to allocate our enterprise value from an OPM to a PWERM. We used an OPM through the valuations as of March 31, 2012, and a PWERM since the valuation as of June 30, 2012.

A brief narrative of the specific factors considered by our board of directors in determining the fair value of our common stock as of the date of grant, is set forth below.

February 2012 .    Our board of directors granted stock options in February 2012 with an exercise price of $1.90 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $1.90 per share based on a number of factors, including market acceptance of the HERO2 and our continued profitability and revenue growth. Our board of directors also considered a contemporaneous third-party valuation as of December 31, 2011. The valuation utilized a market approach of comparable companies in our industry. It applied the market factors to our forward-looking revenue and adjusted EBITDA and allocated enterprise value between each class of stock based on an OPM. The aggregate enterprise value was allocated to each class of stock utilizing an OPM with the following assumptions: a time to a liquidity event of two years, a volatility of 57% and a risk-free interest rate of 0.25%. The time to a liquidity event was determined based upon the expected time frame for us to achieve our business strategy, the volatility was based on the historical volatility of a group of comparable publicly traded companies over a two-year period and the risk-free interest rate was based on the yield of a U.S. Treasury bond at the time of grant over a two-year period. A 25% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in two years.

Subsequent to June 2012, we utilized internal valuation models to calculate the fair value of these options for financial reporting purposes. We evaluated and adjusted the market factors applied to our forward-looking revenue and adjusted EBITDA. As a result of our evaluation, we determined the fair value of our common stock for financial reporting purposes to be $3.16.

June 2012 .    Our board of directors granted stock options in June 2012 with an exercise price of $2.96 per share. For these stock option grants, our board of directors determined the fair value of

 

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our common stock on the date of grant to be $2.96 per share based on a number of factors, including improvements in the U.S. economy, and our research and development efforts. Our board of directors also considered a contemporaneous third-party valuation as of March 31, 2012. The valuation utilized a market approach of comparable companies in our industry. It applied market factors to our forward-looking revenue and adjusted EBITDA and allocated enterprise value between each class of stock based on an OPM. The aggregate enterprise value was allocated to each class of stock utilizing an OPM with the following assumptions: a time to a liquidity event of two years, a volatility of 59% and risk-free interest rate of 0.33%. The time to a liquidity event remained consistent with the December 31, 2011 valuation based on information known as of March 31, 2012, volatility was based on the historical volatility of a group of comparable publicly traded companies over a two-year period and the risk-free interest rate was based on the yield of a U.S. Treasury bond at the time of grant over a two year period. A 25% discount for lack of marketability was applied to the resulting value of our common stock, which was consistent with the valuation as of December 31, 2011.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense was based on a number of factors, including the contemporaneous third-party valuation as of June 30, 2012 and other factors that existed at the date of grant. Due to the proximity of the June 2012 grants to the valuation as of June 30, 2012, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $8.30 per share.

October and November 2012 .    Our board of directors granted stock options in October and November 2012 with an exercise price of $8.30 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $8.30 per share based on a number of factors, including continued growth in the U.S. economy and an improved financial outlook due to record revenue in the second quarter of 2012 and our continued progress on development of our next generation of capture devices. Our board of directors also considered a contemporaneous third-party valuation as of June 30, 2012. The valuation used a market approach and changed our group of comparable companies from those in our industry to technology and retail companies with similar revenue and earnings growth that had recently completed an initial public offering of stock to the public, which we refer to as our group of comparable companies. It applied the new comparable group market factors to our forward looking revenue and EBITDA to determine our enterprise value. As a result, the set of comparable companies utilized in the valuation had a slightly higher revenue multiple. During this time, as certainty developed regarding possible discrete events, including an IPO, the method of allocating enterprise value between each class of stock was changed to a PWERM from an OPM. The PWERM estimates common equity value based on current estimates of an IPO or merger or sale scenario. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 30% probability of IPO in the second quarter of 2013, 60% probability of IPO in the fourth quarter of 2013 and a 10% probability of merger or sale in late 2013. A 20% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in 1.4 years.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense was based on a number of factors, including the contemporaneous third-party valuation as of November 30, 2012 and other factors that existed at the date of grant. Due to the proximity of the November 2012 grants to the valuation as of November 30, 2012, the fair value of the underlying common stock used to calculate the fair value

 

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of these options on the grant date for financial statement purposes was determined to be $12.13 per share. The valuation as of November 30, 2012 was determined using the market approach of comparable high tech companies with similar revenue and earnings growth that had recently had an initial public offering of stock to the public. It applied the comparable group market factors to our forward looking revenue and allocated the enterprise value to each class of stock using the PWERM method. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 30% probability of IPO in the second quarter of 2013, 60% probability of IPO in the fourth quarter of 2013 and a 10% probability of merger or sale in late 2013. A 15% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in 0.9 years.

February and March 2013 .    Our board of directors granted stock options in February and March 2013 with an exercise price of $13.72 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $13.72 per share based on a number of factors, including market acceptance of the HERO3, acquisition of a credit facility and issuance of a cash dividend in December 2012, a sale of stock by stockholders to a third-party investor in an arms-length transaction for approximately $200.0 million in December 2012, as well as high revenue growth in the fourth quarter of 2012. Our board of directors also considered a contemporaneous third-party valuation as of December 31, 2012. The valuation used a market approach of our group of comparable companies. It applied the comparable group market factors to our forward looking revenue and allocated enterprise value between each class of stock using the PWERM method. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 30% probability of IPO in the second quarter of 2013, 60% probability of IPO in the fourth quarter of 2013 and a 10% probability of merger or sale in late 2013. A 15% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in 0.8 years.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense was based on a number of factors, including the contemporaneous third-party valuation as of March 31, 2013 and other factors that existed at the date of grant. Due to the proximity of the March 2013 grants to the valuation as of March 31, 2013, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $15.40 per share.

April and June 2013 .    Our board of directors granted stock options in April and June 2013 with an exercise price of $15.40 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $15.40 per share based on a number of factors, including our research and development efforts. Our board of directors also considered a contemporaneous third-party valuation as of March 31, 2013. The valuation used a market approach of our group of comparable companies. It applied the comparable group market factors to our forward looking revenue and allocated enterprise value between each class of stock using the PWERM method. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 90% probability of IPO in the fourth quarter of 2013 and a 10% probability of merger or sale in late 2013. A 12% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event occurring in 0.8 years.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense for the June 2013 grants was based on a number of factors, including the contemporaneous third party valuation as of June 30, 2013 and other

 

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factors that existed at the date of grant. Due to the proximity of the June 2013 grants to the valuation as of June 30, 2013, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $15.59 per share.

July and September 2013 .    Our board of directors granted stock options in July and September 2013 with an exercise price of $15.59 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $15.59 per share based on a number of factors, including our research and development efforts and our updated assessment of timing to liquidity. Our board of directors also considered a contemporaneous third-party valuation as of June 30, 2013. The valuation used a market approach of our group of comparable companies. It applied the comparable group market factors to our forward looking revenue and allocated enterprise value between each class of stock using the PWERM method. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 45% probability of IPO in the fourth quarter of 2013, 50% probability of IPO in the first quarter of 2014 and a 5% probability of merger or sale in late 2013. A 5% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in 0.6 years.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense for September 2013 grants was based on a number of factors, including the contemporaneous third party valuation as of September 30, 2013 and other factors that existed at the date of grant. Due to the proximity of the September 2013 grants to the valuation as of September 30, 2013, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $16.19 per share.

The valuation as of September 30, 2013 was determined using the market approach of our group of comparable companies. It applied the comparable group market factors to our forward looking revenue and allocated the enterprise value to each class of stock using the PWERM method. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 55% probability of IPO in the first quarter of 2014, 30% probability of IPO in the second quarter of 2014, and a 15% probability of merger or sale in early 2014. A 5% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in 0.6 years.

October and December 2013 .    Our board of directors granted stock options in October and December 2013 with an exercise price of $16.19 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $16.19 per share based on a number of factors, including our research and development efforts and our updated assessment of timing to liquidity. Our board of directors also considered a contemporaneous third-party valuation as of September 30, 2013.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense for the December 2013 grants was based on a number of factors, including the contemporaneous third-party valuation as of December 31, 2013 and other factors that existed at the date of grant. Due to the proximity of the December 2013 grants to the valuation as of December 31, 2013, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $16.22 per share. The valuation as of December 31, 2013 was determined using the market

 

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approach of our group of comparable companies. It applied the comparable group market factors to our forward looking revenue and allocated the enterprise value to each class of stock using the PWERM method. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 25% probability of IPO in the second quarter of 2014, 55% probability of IPO in the third quarter of 2014, and a 20% probability of merger or sale in early 2014. A 5% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in 0.7 years.

January 2014.     Our board of directors granted stock options in January 2014 with an exercise price of $16.22 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $16.22 per share based on a number of factors, including our recent performance, research and development efforts and our updated assessment of timing to liquidity. Our board of directors also considered a contemporaneous third-party valuation as of December 31, 2013.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense for the January 2014 grants was based on a number of factors, including the contemporaneous third-party valuation as of December 31, 2013 and other factors that existed at the date of grant. Due to the proximity of the January 2014 grants to the valuation as of December 31, 2013, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $16.22 per share.

March 2014 and May 1, 2014.     Our board of directors granted stock options in March 2014 and on May 1, 2014 with an exercise price of $16.39 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $16.39 per share based on a number of factors, including our research and development efforts and our updated assessment of timing to liquidity. Our board of directors also considered a contemporaneous third-party valuation as of February 28, 2014. The valuation used a market approach of our group of comparable companies. It applied the comparable group market factors to our forward looking revenue and allocated enterprise value between each class of stock using the PWERM method. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 60% probability of IPO in the second quarter of 2014, 30% probability of IPO in the third quarter of 2014 and a 10% probability of merger or sale in late 2014. A 5% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in 0.6 years.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense for the March 2014 grants was based on a number of factors, including the contemporaneous third-party valuation as of February 28, 2014 and other factors that existed at the date of grant. Due to the proximity of the March 2014 grants to the valuation as of February 28, 2014, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $16.39 per share. The fair value of the common stock for purposes of calculating the related stock-based compensation expense for the May 1, 2014 grants was based on a number of factors, including the contemporaneous third-party valuation as of May 28, 2014 and other factors that existed at the date of grant. Due to the proximity of the May 1, 2014 grants to the valuation as of May 28, 2014, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $18.40 per share.

 

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May  30, 2014 and June 2014 . Our board of directors granted stock options on May 30, June 2 and June 3, 2014 with an exercise price of $18.40 per share. For these stock option grants, our board of directors determined the fair value of our common stock on the date of grant to be $18.40 per share based on a number of factors, including our continued progress toward an initial public offering. Our board of directors also considered a contemporaneous third-party valuation as of May 28, 2014. The valuation used a market approach of our group of comparable companies. It applied the comparable group market factors to our forward looking revenue and allocated enterprise value between each class of stock using the PWERM method. The expected equity values for the different scenarios in the PWERM model were weighted as follows: 40% probability of IPO in the second quarter of 2014, 40% probability of IPO in the third quarter of 2014, 15% probability of IPO in the fourth quarter of 2014 and a 5% probability of merger or sale in late 2014. A 5% discount for lack of marketability was applied to the resulting value of our common stock, which was based on a liquidity event happening in 0.3 years.

For financial reporting purposes, the fair value of the common stock for purposes of calculating the related stock-based compensation expense for the May 30, 2014 and June 2014 grants was based on a number of factors, including the contemporaneous third-party valuation as of May 28, 2014 and other factors that existed at the date of grant. Due to the proximity of the May 30, 2014 and June 2014 grants to the valuation as of May 28, 2014, the fair value of the underlying common stock used to calculate the fair value of these options on the grant date for financial statement purposes was determined to be $18.40 per share.

Upon completion of this offering, our common stock will be publicly traded and will therefore be subject to potentially significant fluctuations in the market price. Such fluctuations, if they occur, could impact the volatility used in the fair value calculations which could also impact our future stock-based compensation, as increased volatility would increase the fair value of the related awards granted in the future periods. In addition, increases and decreases in market price of our common stock will also increase and decrease the fair value of our stock-based awards granted in future periods.

Recent accounting pronouncements

In July 2013, the Financial Accounting Standards Board issued a new accounting standard update on the financial statement presentation of unrecognized tax benefits. The new guidance provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance 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 adopted the guidance on January 1, 2014. The guidance had no material impact to our financial position or results of operations in the first quarter of 2014.

On May 28, 2014, the Financial Accounting Standards Board issued a new accounting standard update on revenue from contracts with customers, which supercedes the revenue recognition requirements in Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the Codification. The new guidance adheres to the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance becomes effective for us on January 1,

 

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2017, with retrospective application permitted. Early application is not permitted. We are currently assessing the impact of this new guidance.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of 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 nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this accommodation allowing for delayed adoption of new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Quantitative and qualitative disclosures about market risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include foreign currency and interest rate risks as follows:

Foreign currency risk

To date, all of our product sales and inventory purchases have been denominated in U.S. dollars. We therefore have not had any foreign currency risk associated with these two activities. The functional currency of all of our entities is the U.S. dollar. Our operations outside of the United States incur a portion of their operating expenses in foreign currencies, principally the Hong Kong Dollar. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. However, we believe that the exposure to foreign currency fluctuation from operating expenses is immaterial at this time as the related costs do not constitute a significant portion of our total expenses. As we grow our operations, our exposure to foreign currency risk could become more significant. To date, we have not entered into any foreign currency exchange contracts and currently do not expect to enter into foreign currency exchange contracts for trading or speculative purposes.

Interest rate risk

We had cash totaling $36.5 million, $101.4 million and $111.2 million at December 31, 2012 and 2013 and March 31, 2014, respectively. Our cash consists of cash in bank accounts. The primary objectives of our investment activities are to preserve principal and provide liquidity without significantly increasing risk. Our cash is held for working capital purposes. We do not enter into investments for trading or speculative purposes.

We had outstanding term debt of $120.0 million, $114.0 million and $111.0 million at December 31, 2012 and 2013 and March 31, 2014, respectively. The interest rate is based on the six-month adjusted LIBOR plus 2.5%. The initial contractual interest rate is 3.06% and adjusts every six months. The term loan had scheduled quarterly principal repayments due on the last day of each quarter of $1.5 million per quarter in 2013, and provides for payments of $3.0 million per quarter in 2014 and $6.0 million for the first three quarters of 2015, with the remaining

 

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balance due on December 21, 2015. Our excess cash flows for 2013 triggered a contractual principal prepayment obligation of $48.5 million, which amount has been classified as a current liability as of December 31, 2013 and March 31, 2014. In April 2014, we amended our credit facility to extend the due date for this contractual principal prepayment from April 2014 to December 2014. A hypothetical 50 basis point increase in the LIBOR rate as of March 31, 2014, applied to our outstanding debt balance as of March 31, 2014, would have resulted in an approximately $0.4 million increase in our interest expense and a decline of 4% in our net income for the three months ended March 31, 2014.

 

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Business

Company overview

 

LOGO

GoPro is transforming the way consumers capture, manage, share and enjoy meaningful life experiences. We do this by enabling people to capture compelling, immersive photo and video content of themselves participating in their favorite activities. Our customers include some of the world’s most active and passionate people. The volume and quality of their shared GoPro content, coupled with their enthusiasm for our brand, are virally driving awareness and demand for our products. To date, we have generated substantially all of our revenue from the sale of our cameras and accessories and we believe that the growing adoption of our capture devices and the engaging content they enable, position GoPro to become an exciting new media company.

What began as an idea to help athletes document themselves engaged in their sport has become a widely adopted solution for people to document themselves engaged in their interests, whatever they may be. From extreme to mainstream, professional to consumer, GoPro has enabled the world to capture and share its passions, and the world, in turn, is enabling GoPro to become one of the most exciting and aspirational companies of our time.

Our business focus

Enabling engaging content is at the core of our business. We develop hardware and software solutions to alleviate consumer pain points associated with capturing, managing, sharing and enjoying engaging content.

Capture

Our capture devices enable professional quality capture and exceptional versatility at affordable prices. Our products’ small, lightweight, yet durable designs make them easy to use even in highly challenging situations. In addition, our remote control solutions and our seamless integration with mobile devices via the GoPro App, enable engaging self-capture during virtually any activity. As of March 31, 2014, there have been approximately 6.5 million downloads of the GoPro App.

Since launching our first HD capture device in July 2009, we have sold more than 8.5 million HD cameras, including more than 3.8 million in 2013. We sell our products in over 100 countries and through more than 25,000 retail stores. According to The NPD Group’s Retail Tracking Service,

 

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GoPro was the #1 selling camcorder (by dollars and units) and a top six selling camera accessory company (by dollars and units) in the United States in 2013. Also according to The NPD Group, our HERO cameras represented a 45% share of the U.S. camcorder market (by dollars) in 2013, up from an 11% share during December 2011 and our camera accessories represented a 4% share of the U.S. camera accessory market (by dollars) in 2013.

Manage

We seek to eliminate the pain point of managing content by making it easy for our customers to transfer footage from their cameras to a system that efficiently organizes their content and facilitates convenient editing and sharing. GoPro Studio and the GoPro App reflect the early stages of our content management platform strategy.

GoPro Studio enables our customers to quickly edit simple or complex videos and create videos from time-lapse photo sequences. In 2013, we introduced GoPro Edit Templates, which are based on GoPro’s own original video productions, to enable our customers to quickly produce engaging, professional-quality videos using their own footage. As of March 31, 2014, there had been more than 4.3 million downloads of GoPro Studio. During the first quarter of 2014, our customers in the aggregate exported, on average, more than 20,000 videos per day using GoPro Studio.

In addition to facilitating full camera control from a mobile device, the GoPro App enables a customer to easily and wirelessly copy footage from a GoPro camera to a mobile device for storage and sharing without a computer.

Share

By facilitating the capture, management and editing of engaging photos and videos, we are ultimately helping our customers share more compelling personal content. GoPro Studio and the GoPro App facilitate the posting of photos and videos directly to leading social networks and content platforms, including Facebook, Instagram, Twitter, Vimeo and YouTube. Thousands of GoPro customer photos and videos are shared daily, driving awareness and enthusiasm for our customers’ content, as well as for GoPro’s own brand and products. In 2013, our customers uploaded to YouTube approximately 2.8 years worth of video featuring “GoPro” in the title. Also on YouTube, in the first quarter of 2014, there was an average of 6,000 daily uploads and more than 1.0 billion views representing over 50.0 million watched hours of videos with “GoPro” in the title, filename, tags or description.

Enjoy

GoPro enables the production of entertaining and inspiring content, both in the form of our customers’ UGC, as well as GoPro originally produced content, that we collectively refer to as GoPro programming. This often features professional athletes, celebrities and entertainers, as well as everyday people engaged in their favorite activities.

 

LOGO

 

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We believe that increasing our customers’ enjoyment of their content enhances the value proposition of capturing and sharing their lives with our products. Also, having recognized the role GoPro content plays in attracting and exciting consumers, we are expanding the distribution of GoPro programming to engage and build relationships with even those consumers who do not own a GoPro capture device.

We distribute GoPro programming through what we refer to as the GoPro Network, a collection of GoPro Channels hosted on a variety of platforms, including the following:

 

Ÿ  

Facebook: over 7.2 million “likes;”

 

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Instagram: over 2.0 million followers;

 

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Twitter: over 950,000 followers; and

 

Ÿ  

YouTube: over 450 million video views, over 1.8 million subscribers and ranked #1 on the Brand Channel Leaderboard for January through March 2014.

 

LOGO

As of December 31, 2013, we had not derived revenue from the distribution of, or social engagement with, our content on the GoPro Network. However, we plan to pursue new revenue opportunities from the distribution of engaging GoPro content in the near term. For example, in the first quarter of 2014, we entered into an agreement with Microsoft to develop and launch the GoPro Channel on Xbox Live, a leading delivery system for IP video streams on connected televisions, that will provide us with access to advertising revenue, fees from third-party sponsorship of the GoPro Channel and the ability to sell our capture devices directly to consumers as they watch GoPro programming. We expect to begin earning revenue from GoPro Channel advertising and sponsorship opportunities on Xbox Live and GoPro Channel advertising on YouTube and Virgin America in the second quarter of 2014. We do not expect the revenue earned from these GoPro Channels to be material to us in 2014.

 

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The virtuous cycle

We believe our business focus results in a virtuous cycle and a self-reinforcing consumer acquisition model that fuels our growth. Our products in the hands of our customers enable compelling, authentic content that organically increases awareness for GoPro and drives demand for our products.

LOGO

As a result, we have achieved significant growth in recent periods. In 2011, 2012, 2013 and the three months ended March 31, 2014, we generated revenue of $234.2 million, $526.0 million, $985.7 million and $235.7 million and reported net income of $24.6 million, $32.3 million, $60.6 million and $11.0 million, respectively. To date, substantially all of our revenue has been generated from the sale of our capture devices.

The GoPro opportunity

We believe the following create an attractive market opportunity for GoPro.

Consumers want an easy way to self-capture engaging content

Before GoPro, if people wanted footage of themselves engaged in activities, they needed another person to hold and operate a camera. Furthermore, the camera operator needed to be skilled in order to obtain compelling content. Additionally, capturing high-quality content often required expensive, fragile and cumbersome camera equipment that was not accessible to everyone. Accordingly, it was not practical for people to document their experiences during their lives’ most enjoyable moments.

By eliminating the need for a third-party camera operator, GoPro has enabled a new era of convenient self-documentation. Our products’ high-performance features, ease of use and versatility, made available at affordable price points, provide a premium-quality self-capture solution that appeals to both consumers and professionals.

Consumers want a quick, easy way to manage, edit and share their content

The proliferation of social media and content sharing outlets like Facebook, Instagram, Twitter, Vimeo and YouTube reflects a growing consumer interest in sharing personal experiences. According to a Pew Research survey from October 2013, the percentage of American adult Internet users who upload or post videos online more than doubled from 14% in 2009 to 31% in 2013, and 71% of adults who post videos online do so on social networking sites. However,

 

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managing, editing and sharing engaging, high-quality content often requires substantial time, resources and skill. GoPro Studio and the GoPro App begin to address these pain points by offering intuitive, easy-to-use tools for managing, editing and sharing professional-grade footage. We see an opportunity to further develop these currently separate software solutions into an integrated and enhanced GoPro content management platform.

Consumers continue to replace traditional cameras with mobile devices

The rapid adoption of smartphones and tablets with photo and video capabilities has changed the camera landscape and negatively impacted the sales of traditional cameras and digital video camcorders. According to IDC, global shipments of digital cameras fell from 142.7 million units in 2011 to 76.2 million units in 2013, a decline of 47%, and global shipments of digital camcorders fell from 21.1 million units in 2011 to 14.1 million units in 2013, a decline of 33%.

We believe that the emergence of photo- and video-enabled mobile devices is creating further opportunities for GoPro. As mobile devices continue to displace traditional cameras and camcorders, we believe consumers will seek capture devices that offer differentiated capabilities, like GoPro products.

Moreover, we believe mobile devices complement our products. With the GoPro App, mobile devices can be used to remotely control GoPro cameras, thereby optimizing customers’ ability to self-capture high-quality content of themselves and their activities. The GoPro App also enables customers to manage and share their captured content without the need for a computer. Furthermore, smartphones and tablets expand consumers’ ability to access and enjoy GoPro content online.

Consumers want compelling content on demand

According to comScore (US, December 2012), there are over 38.5 billion videos streamed per month and, according to IDC’s 1H’13 research, by 2017, over 2.2 billion users worldwide will be watching streaming video over the Internet.

We believe consumer demand for compelling content combined with GoPro’s self-capture technology and the explosive popularity of social media create a significant media opportunity for GoPro. GoPro programming has developed a dedicated and growing audience. To continue to scale this audience, we have built a team of production professionals who regularly produce content based on inspiring stories from around the world, captured exclusively with our products. In addition, we actively curate and redistribute, with permission, our customers’ most compelling content as GoPro-branded content. We believe GoPro is well-positioned to become the first media company whose content is captured exclusively using its own hardware.

To date, the GoPro Channels on YouTube, exclusive of our customers’ own shared content on their personal YouTube channels, have generated over 450 million cumulative video views.

We will continue to expand our distribution of GoPro programming and the reach of the GoPro Network to new platforms such as Xbox Live. Our agreement with Microsoft provides us with access to advertising revenue streams and the ability to sell our capture devices directly to consumers as they are watching GoPro programming and, in exchange, Microsoft is entitled to receive a share of the revenues we generate from these activities. In addition, under the agreement, Microsoft will provide funds towards our development of the application through which Xbox Live will stream the GoPro Channel.

 

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Further, in 2014, we began providing Virgin America with content for a dedicated GoPro Channel available to passengers on Virgin America flights. We provide this content without charge.

What makes GoPro unique

By enabling the world to capture and share its passions, the world, in turn, has enabled GoPro to become one of the most exciting and aspirational companies of our time.

Category-defining self-capture devices

Our capture devices offer our customers, both consumers and professionals, exceptional capabilities that have earned us multiple awards, including a 2013 technical Emmy Award. Our cameras’ small, lightweight, yet durable designs make them easy to use even in highly challenging situations, and along with their affordable prices encourage adoption and experimentation that often leads to interesting content. In addition, our broad portfolio of mountable and wearable accessories enables multiple use cases and facilitates a differentiated self-capture experience than that of traditional cameras and smartphones.

Our products have been embraced by media professionals and are used in production by The Discovery Channel, ESPN and other networks. We believe this visible professional use of our capture devices further validates the quality of our products and appeal of our brand to consumers. We further believe we are increasingly lowering the barriers that separate professional from amateur capture.

Many of our customers purchase multiple units of our products. Unlike traditional cameras or smartphones, owning multiple GoPro capture devices enables our customers to capture their experiences from multiple perspectives simultaneously and create more interesting and professional-quality content.

 

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Professional media production team enhances product development

In addition to our core product development team, we leverage input from our in-house media production team to refine existing products and influence future product design. Our internal media production team regularly travels the world capturing GoPro originally produced content exclusively using our capture devices. We believe consistent use of our products and developmental feedback gives us a competitive advantage.

Passionate consumer- and content-supported business model

Our business model is supported by some of the world’s most active and influential consumers who use GoPro to capture and share their life experiences and interests. Their shared content excites and inspires others around the world to do the same, which we believe, leads to higher camera and accessory sales and, in turn, a massive volume of UGC. We believe this virtuous cycle, in which our customers’ content increases awareness of GoPro and demand for our products, is a meaningful differentiator for us.

Best-in-class marketing relationships

GoPro has established marketing relationships with more than 120 athletes, celebrities and entertainers, and sponsors more than 90 sporting events annually, including the X Games, Supercross and ASP world surfing championship events. We partner with athletes such as Olympic gold medal winning snowboarder Shaun White and 11-time world champion surfer Kelly Slater, as well as entertainers, such as Foo Fighters, Jane’s Addiction, Guy Fieri and Alton Brown, and producers of popular television shows. An increasing number of professionals are recognizing that GoPro allows them to capture performances in unique and compelling ways that engage and entertain their fans. This further validates our brand to consumers.

We also have promotional agreements with recreational destination resorts, such as all Vail Company resorts and the Whistler Blackcomb resort.

Validating the quality of our products and our growing role as a media brand, we are approached by professionals and organizations seeking to leverage GoPro as a media platform to distribute their own branded content captured with our products. For example, we regularly collaborate with Red Bull to capture content at Red Bull-sponsored events, which we then distribute across the GoPro Network to promote both Red Bull and its use of our products. Another example includes a production company wishing to promote an upcoming feature-length film by distributing trailers showcasing its film’s use of GoPro capture devices in production.

Differentiated sales strategy with specialty retailers

Since our first sale in 2004, our distribution strategy has focused on specialty retailers, including surf, ski and motorsports outlets, where we believe GoPro is often the only capture device sold. Our early, first-mover relationships with these retailers and their customers helped us establish a brand authenticity that remains a cornerstone of our business. This focus on the specialty retail channel has also enabled us to develop a high-touch, differentiated sales network of more than 25,000 stores globally that we believe is difficult to replicate.

Strong, global brand

Over the past 10 years, we have built a powerful brand that is emblematic of the pursuit and celebration of human passion. We believe consumers recognize GoPro as much for the experiential content sharing we enable as for the products we make.

 

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In defining the category of self-capture, GoPro has become a global standard. Our trademarks, “GoPro” and “Be a Hero,” are relevant and aspirational to consumers, as reflected in the variety of our customers’ shared content which spans from our roots in action sports to now include family, travel, music, science and other areas of human interest. The strength of our brand is further evidenced by our customers’ frequent tagging, titling and describing of their footage as “GoPro” content.

A company culture built around our vision

GoPro was founded by dedicated sports enthusiasts who wanted a better way to document and share their personal passions. As we have grown, we have remained focused on hiring employees who share this same ethos, whatever their personal interests may be. We have built a team focused on developing innovative solutions to the problems we encounter during our own self-capture pursuits, and we believe our employees’ shared passion, experience and vision represent an increasingly important competitive advantage.

Our strategy

We intend to expand our existing capture business and broaden our portfolio with content management, editing and sharing solutions to provide increased value to our customers, introduce new revenue streams and further differentiate us from competitors. Key components of our strategy include the following.

Continue to introduce innovative capture devices

We relentlessly pursue our goal of developing the world’s most versatile capture devices and enabling self-capture during any activity. To stay at the forefront of our industry, we are focused on continued product innovation and leadership. For example, we are developing custom sensor and digital signal processing technologies with our suppliers. Other areas of innovation include custom lens, audio, battery and accessory design. We may also leverage our brand strength and product expertise to opportunistically enter new device categories.

Develop seamless content management, editing and sharing solutions

We believe it is important to simplify the organizing, editing and sharing of engaging content and, to that end, we are developing an integrated content management platform. Our October 2013 acquisition of General Things, a web development firm, has provided us with additional software competencies to accelerate this process. Further, we may consider additional acquisitions of complementary technologies or businesses in the future. In addition, we may seek to leverage our content management platform as a new revenue stream.

Scale as a media brand

GoPro programming is a potent marketing tool which we believe, on its own, has significant value as a growing media asset. We are investing to scale GoPro as a media entity and develop new revenue opportunities by increasing production of GoPro originally produced content while simultaneously increasing the aggregation and redistribution of our customers’ “best of” UGC. Additionally, we are investing to develop, distribute and promote GoPro programming on additional partner platforms such as Virgin America and Xbox Live.

 

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Expand into new vertical markets

Leveraging the product development and sales and marketing strategies that have enabled us to be a leader in vertical markets such as skiing, surfing and motorsports, we are targeting new vertical markets including music and hunting and fishing. We continue to explore additional markets where we believe GoPro can authentically deliver meaningful solutions to consumers.

Grow internationally

We believe that international markets represent a significant growth opportunity for us. As of December 31, 2013, our products were sold in over 100 countries through more than 25,000 retail outlets. We plan to capitalize on the strength of our brand to increase our presence worldwide through additional retailers and strategic distribution partnerships.

Expand in-store brand and sales footprint

We invest heavily to produce GoPro-branded, video-enabled POP merchandising displays that we make available to nearly all of the retail outlets through which our products are sold. These displays showcase engaging GoPro content and attractively present our cameras and accessories. Having recognized our success in these stores, coupled with our expanding product portfolio, we are working with our retailers to further expand the footprint of our POP displays.

Extend strategic marketing relationships

We form relationships with marketing partners that use our products and services to promote their own brands and properties. For example, certain ASP world surfing championship events have used GoPro products to capture surfing competition from perspectives such as the surfer’s board and body, which enabled the ASP to provide its fans a more immersive and engaging viewing experience. Supercross similarly mounts GoPro capture devices to professional dirt bike racers’ helmets and uses the first-person perspectives to enhance its television broadcasts. As a result, GoPro benefits not only from the expanded brand awareness that traditionally comes with such marketing partnerships, but also being recognized as our partners’ technology enabler. We will continue developing and leveraging strategic marketing relationships to increase GoPro brand awareness.

Expand brand awareness through increased advertising

Notwithstanding the visibility we have garnered in the consumer markets where we have historically focused, we believe consumers in many other markets are not familiar with our brand and products. We believe this underscores a significant opportunity for GoPro to expand awareness through increased advertising on television, in print, online, and on billboards and other out of home advertising while continuing to scale our promotional marketing efforts and trade show presence.

Products

Cameras

Our core product is the HERO line of capture devices, the first HD version of which we introduced in 2009. Since then, we have focused on continued innovation and development of our products and subsequently launched the HERO2 camera in 2011, the HERO3 camera in 2012 and the HERO3+ camera in 2013. Our HERO3+ cameras capture video and photos in a small, easy-to-use

 

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form factor. They come bundled with a protective waterproof housing and select mounting accessories and have built-in Wi-Fi, providing connectivity with a smartphone or tablet to enable remote control and content viewing and sharing functionality. We offer the HERO3 and HERO3+ cameras in White, Silver and Black editions that we position as a “good, better, best” product line with increasingly better image quality, enhanced capture features and accessory bundles from model to model at different price points. The following table shows the key features and specifications of our HERO3 and HERO3+ cameras:

 

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We also sell accessories, both bundled and separately, that enhance the functionality and versatility of our cameras and enable our customers to self-capture their experiences during a variety of activities and from different viewpoints. In addition to our standard packages, we offer the HERO3+ Black edition camera in music- and surf-specific bundles, which each come packaged with accessories tailored for their respective markets.

Premium accessories

Our premium accessories include the Battery BacPac, Wi-Fi Remote and LCD Touch BacPac, which expand the features, versatility and convenience of our cameras.

 

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Mounts

We offer a large selection of mounts designed to enable consumers to capture content while engaged in a wide range of activities. This includes equipment-based mounts, such as the helmet, handlebar, roll bar and tripod mounts, as well as mounts that enable customers to wear the mount on their bodies, such as the wrist housing, chest harness and head strap. Most of our mounts are backward-compatible with our HERO, HERO2 and HERO3 cameras.

Other accessories

Other accessories include spare batteries, charging accessories, cables to connect our GoPro cameras to televisions and monitors, video transmitters, external microphones, flotation devices, dive filters, anti-fogging solutions and accessories for the Wi-Fi Remote.

The following table highlights select products in our accessories portfolio:

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We believe that providing software tools that help our customers manage, edit and share their GoPro content improves our value proposition and increases sales of our capture devices. We currently provide to consumers the following software applications at no charge:

GoPro Studio

GoPro Studio is a powerful video editing tool that allows our customers to create professional quality videos from their GoPro content. GoPro Studio includes GoPro Edit Templates, which are based on our own original video productions and enable our customers to quickly produce engaging, professional quality videos using their own footage. Additional features include easy playback and trimming of video clips, frame rate and image quality adjustments, conversion of time lapse photos into videos and the ability to export videos for convenient web sharing.

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GoPro App

The GoPro App allows customers to control their GoPro cameras remotely using a smartphone or tablet. Features include full control of all camera settings, content preview and playback directly from the camera on a smartphone or tablet, and access to GoPro’s Photo of the Day, Video of the Day and content feeds. The GoPro App enables customers to easily and wirelessly copy footage from their cameras to mobile devices for storage and sharing without a computer.

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Research and development

We are passionate about developing new and innovative products that inspire our consumers and enhance our brand. We are constantly innovating to deliver better performance, expanded functionality and increased convenience to enhance the appeal of our products. Our capture devices have earned us multiple awards, including a 2013 technical Emmy Award. We also have teams focused on software application development to facilitate convenient content management, editing and sharing. We strive to remain a market leader by consistently introducing innovative products that offer superior performance at affordable price points.

We have a user experience-driven approach to product development and our Chief Executive Officer leads product design. By engaging with customers and opinion leaders in our core markets around the world, our development team strives to introduce meaningful and empowering new features that expand the versatility and performance of our products.

In addition to our core product development team, we benefit from input received from our in-house media production team that regularly travels the world capturing GoPro originally produced content exclusively using our capture devices. We believe leveraging this content team to help refine existing products and influence future products gives us a competitive advantage.

Our engineering team, which supports the development of our capture devices, firmware and software, has grown from two to 176 engineers from 2010 to 2013. Our engineering team is divided into two main groups. The architecture group is responsible for developing technologies

 

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to support the concepts proposed by our product team. These core technologies include new Image Silicon Processors, or ISPs, new image sensors and lenses, as well as the core algorithms that enable the systems to operate and provide the performance and features. The implementation group integrates these innovations from the architecture group into our products.

Part of our development strategy involves co-developing the most significant components of our cameras with a technology partner. To further these efforts, some of our partners have dedicated employees to support our research and development initiatives.

With our acquisition of CineForm, Inc. in 2011, we began to build capabilities in software applications. In October of 2013, we acquired General Things, a digital design and software studio based in San Francisco, California. Prior to the acquisition, General Things had been our strategic partner since 2010, and was instrumental in helping us advance our business back-end and consumer-facing web development. With the combination of these acquisitions and organic growth, the GoPro software team has grown to more than 72 employees developing desktop, mobile and web-based applications.

Our research and development expense was $8.6 million, $36.1 million, $73.7 million and $28.7 million for 2011, 2012, 2013 and the three months ended March 31, 2014, respectively.

Manufacturing, logistics and fulfillment

While our products are designed in California, we currently outsource manufacturing to two manufacturers, Chicony and Sky Light. Both manufacturers are located in Shenzhen, China. Our operations team includes managers based in San Mateo, California, Shenzen, China, and Hong Kong who coordinate with our manufacturers’ engineering, manufacturing and quality control personnel to develop the requisite test and manufacturing processes and oversee manufacturing activities. We believe that using outsourced manufacturing enables greater scale and flexibility than establishing our own manufacturing facilities. We periodically evaluate the need and advisability of adding manufacturers to support our operations.

Our relationships with our manufacturers have evolved over time from an original design manufacturer, or ODM, arrangement, in which the manufacturer provided the firmware and design support, to an arrangement in which we design the products and develop the strategic test processes and firmware ourselves. We believe this transition has allowed us more control over the performance and quality of our products.

To date, we have derived most of our revenue through products manufactured by Chicony, though we regularly assess our manufacturing options and engage new contract manufacturers where appropriate. Under our agreement with Chicony, we own all tooling and equipment that we fund, product designs and other deliverables that are produced in accordance with the agreement. The Chicony agreement has an initial three-year term that ends in August 2014, and automatically renews annually unless either party provides 90 days prior notice. Additionally, the agreement may be terminated by either party in the event of breach, Chicony is entitled to terminate if we fail to submit a purchase order during any three-month period and we are permitted to terminate for convenience upon providing 180 days prior written notice.

We have established a strategic commodity team that manages the pricing and supply of the key components of our capture devices, including sensors, digital signal processors and lenses. A few key strategic parts are purchased from the supplier by us and then consigned to our manufacturers,

 

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while the vast majority of parts are procured directly by our contract manufacturers. We seek to use our commodity team to achieve competitive pricing on the largest value-add components, and leverage our contract manufacturers’ volume purchases for best pricing on common parts.

We have third-party fulfillment centers in Riverside and Fremont, California, Singapore, Hong Kong and Venray, Netherlands. These facilities are either full service postponement centers (both light assembly and warehouse/fulfillment) or warehouse/fulfillment only centers. Cameras are typically air freighted while accessories and packaging are typically shipped via ocean freighter from our manufacturers in China to these fulfillment centers, where the products are packaged for retail sale. This postponement strategy allows us to reduce shipping costs, reduce custom levies, customize products for local languages and improve inventory flexibility.

Sales channels and customers

We sell our products through more than 25,000 retailers in over 100 countries directly and through distributors. We are focused on building close relationships with our retailers and distributors, educating our partners’ sales forces about our products, working with them to merchandise our products in a compelling manner in-store, as well as providing consumers with informative and convenient ecommerce experiences at retail partner websites.

Direct sales

We sell directly to large and small retailers in the United States, and directly to consumers around the world through our retail and ecommerce channels, as follows. In 2013 and the three months ended March 31, 2014, our direct sales channel accounted for 52% and 47% of our revenue, respectively.

 

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Independent specialty retailers     We use a network of location-based independent manufacturer representatives to sell our products to independent specialty retailers focused on action sports markets. Our representatives provide highly personalized service to these retailers, including assisting with product mix planning, channel marketing and in-store merchandising, taking orders and providing clinics to educate retail sales personnel about GoPro products. We also have an internal, regionally focused sales team that provides a secondary level of service to both the manufacturer representatives and the independent specialty retailers. Independent specialty retailers generally carry our higher end products, targeting their core customers who we believe tend to be early adopters of new technologies. Our sales efforts began in the specialty retail channel and we believe we continue to often be the only capture device sold in these types of stores. Independent specialty retailers outside of the United States represent a similarly important sales channel for us, and we reach these customers indirectly through our network of international distributors.

 

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Big box retailers     We sell to large retailers with a national presence, including Amazon.com, Inc., Best Buy, Target Corporation and Wal-Mart, Inc. We support these retailers with a dedicated and experienced sales management team. We believe this enables us to build close relationships with these retailers and to reduce channel conflict. These retailers generally carry a varied subset of our products targeting their particular end-user customers. This helps us maintain in-store product differentiation between sales channels and protects our brand image in our core specialty retail markets. One retailer, Best Buy, accounted for 15%, 15%, 17% and 13% of our revenue in 2011, 2012, 2013 and the three months ended March 31, 2014, respectively.

 

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Mid-market retailers     We sell to retailers with a large regional or national presence, often focused on specific verticals such as consumer electronics, sporting goods, military, hunting and fishing and motor sports. We refer to these retailers as our “mid-market” channel, which includes Apple, Army & Air Force Exchange Service, B&H Foto & Electronics Corp., Cabela’s Inc., InMotion Entertainment, Recreation Equipment Inc. and The Sports Authority Inc. We sell directly to these retailers through our experienced sales teams assigned to particular accounts and regions. Mid-market retailers generally carry a smaller subset of our products targeted toward their end-user customers.

 

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Ecommerce channel     We sell our full line of products directly to consumers around the world through our online store at gopro.com. We drive consumers to our website through online and offline advertising, as well as marketing promotions carried out at tradeshows and sponsored events. Customers may also order our products over the phone.

We manage our diverse channels by differentiating our products among the various retail channels. For example, certain big box retailers such as Target and Walmart only carry White and Silver edition capture devices while specialty retailers focus on Silver and Black editions. Additionally, we leverage club retailers such as Costco Wholesale Corporation to sell through legacy products in key selling seasons (spring and holiday), while expanding our sales reach to entry-level customers.

Distributors

We sell to over 50 distributors who resell our products to retailers in international markets and to certain specific verticals in the United States. All of our sales outside of the United States are generated through distributors who sell GoPro products to independent specialty retailers, mid-market retailers and big box retailers. In 2013 and the three months ended March 31, 2014, our distributors accounted for 48% and 53% of our revenue, respectively. In the three months ended March 31, 2014, one distributor, X-treme Video accounted for 10% of our revenue.

In the United States, our distributors sell into powersports, telecommunications, college bookstores and premium incentive markets. Our contracts with distributors generally have a term of one or two years and prohibit the distributors from selling competing products.

We have dedicated sales personnel focused on providing a high level of service to these distributors, including assisting with product mix planning, channel marketing and in-store merchandising, development of marketing materials, order assistance and educating the distributors’ sales personnel about GoPro products.

In-store merchandising

Our in-store merchandising strategy focuses on our POP displays that continuously show GoPro content and present our products in an attractive manner. We provide our POP display in sizes ranging from two to four feet wide by five feet tall to retailers at no cost. In larger stores we are test marketing POP displays that are 12 feet wide by seven feet tall. Our capture devices are attractively arranged on the displays and the breadth of our offerings, combined with the associated content, communicate the wide range of uses for our products. As of December 31, 2013, we had over 25,000 POP displays in retail outlets.

 

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Marketing and advertising

Our marketing and advertising programs are focused on engaging consumers by exposing them to compelling GoPro content. We believe this approach enhances our brand while demonstrating the performance, durability and versatility of our products. Our marketing and advertising efforts span a wide range of consumer interests and leverage both traditional consumer marketing and lifestyle marketing strategies.

Consumer marketing

Social media plays an important role in our consumer marketing strategy. Our customers capture and share personal GoPro content on social media and content sharing platforms like Facebook, Instagram, Twitter, Vimeo and YouTube.

We promote our customers’ “best of” UGC on the GoPro Network, such as through our Video of the Day and Photo of the Day. We also leverage our internal media production team to produce aspirational GoPro-branded content that we distribute through the GoPro Network.

We also integrate UGC and GoPro originally produced content into advertising campaigns across various platforms including television commercials, print, online, billboards and other out of home advertising, and at consumer and trade facing events. This content also supports our in-store channel marketing efforts, appearing on our POP displays and other in-store marketing materials.

Lifestyle marketing

Our lifestyle marketing programs focus on expanding GoPro brand awareness by engaging consumers through relationships with key influencers, event promotions and other customer outreach efforts. We cultivate strong relationships with influential athletes, celebrities, entertainers and brands, all of which use our products to create and share engaging content with their own fans and consumers. We also work directly with these partners to create compelling content that we leverage to our mutual benefit across the GoPro Network.

We believe it is important to establish ongoing, authentic relationships within the various markets that we address. We employ a team of lifestyle marketing managers who foster

 

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relationships within each of our markets and create marketing opportunities for our brand and deliver market feedback to our product development teams in order to refine existing products and influence future product design.

Consumer-facing events are another important aspect of our lifestyle marketing program. We regularly host product demonstrations in a GoPro-branded environment that we call the GoPro Experience. We host the GoPro Experience at over 90 consumer events such as the X Games, Supercross and film festivals, as well as at recreation destination resorts such as Vail Company resorts and the Whistler Blackcomb resort. The GoPro Experience increases brand awareness and builds personal relationships with consumers and key influencers. We distribute special coupons and promotions at many of these events, which drive consumers to our website and also help us measure the efficacy of our event marketing efforts. Below is a photo of the GoPro trade show booth.

 

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Competition

The market for cameras and camcorders is highly competitive. We compete against established, well-known camera manufacturers such as Canon, Nikon, Olympus, Polaroid and Vivitar, large, diversified electronics companies such as JVC, Panasonic, Samsung, Sony and Toshiba, and specialty companies such as Garmin. Many of these companies have substantial market share, diversified product lines, well-established supply and distribution systems, strong worldwide brand recognition and significant financial, marketing, research and development and other resources.

We believe we compete favorably with these companies’ products. Our durable and versatile product design facilitates increased functionality and wearability. In addition, by offering a variety of mounts and other accessories, we enable a wide range of consumer use cases that are difficult for other competing products to address. Further, we offer many professional-grade

 

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features at attractive consumer price points, including our SuperView mode, which allows a user to capture an immersive wide-angle perspective, and super high resolution video capability. Moreover, we believe we have achieved significant brand recognition in our target vertical markets. We also believe our years of experience working with active and influential consumers contributes to our ability to develop attractive products and establishes the authenticity of our brand, thereby differentiating us from current and potential competitors.

Smartphones and tablets with photo and video functionality have significantly displaced traditional camera sales. We believe that our capture devices enable differentiated use cases from mobile devices. In particular, we allow consumers to self-capture their experiences in even the most challenging of environments, such as on and in water and in other environments where mobile devices would be damaged, and to do so with their hands free to focus on the activity and not the capture device. However, it is possible that in the future the manufacturers of these devices may design them for use in a range of scenarios and conditions. In addition new companies may emerge and offer competitive products directly in our category.

Intellectual property

Intellectual property is an important aspect of our business, and our practice is to seek protection for our intellectual property as appropriate.

Our trademarks, including “GoPro” and “Be a Hero,” are a critical component of the value of our business. In addition, we hold many issued and pending utility and design patents for various aspects of our capture devices and the software that helps our customers manage, share and enjoy their content. Our patents cover areas that include physical structures, image processing, operational firmware and software, post-processing software, distribution software, mount and accessory structures, as well as the ornamental aspects of our capture devices. As of the date of this filing, we had 42 issued patents and 72 patent applications pending in the United States, and 15 corresponding issued patents and 12 patent applications pending in foreign countries. We cannot be certain that our patent applications will be issued or that any issued patents will provide us with any competitive advantage or will not be challenged by third parties. Our issued U.S. patents will expire between 2024 and 2032 and our issued foreign patents will expire between 2022 and 2038. We continually review our developments efforts to assess the existence and patentability of new intellectual property.

In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls, including contractual protections with employees, contract manufacturers, distributors and others. Despite these protections, we may be unable to prevent third parties from using our intellectual property without our authorization, breaching any nondisclosure agreements with us, or independently developing products that are similar to ours, particularly in those countries where the laws do not protect our proprietary and intellectual property rights as fully as in the United States.

Employees

As of December 31, 2011, 2012 and 2013 and March 31, 2014, we had 147, 347, 646 and 718 employees, respectively. In the United States, as of March 31, 2014, we had 661 employees, including 283 in research and development, 232 in sales and marketing, 31 in manufacturing/logistics/fulfillment and 115 in general and administrative. Additionally as of March 31, 2014, we had 44 employees supporting finance, product development and manufacturing from Shenzhen,

 

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China and Hong Kong. We opened our first European office in Munich, Germany in late 2013, and as of March 31, 2014 we had 13 employees based in that office. None of our employees is currently covered by a collective bargaining agreement, and we have experienced no work stoppages. We consider our relationship with our employees to be good.

Facilities

Our executive and administrative offices are located in San Mateo, California, where we lease approximately 200,000 square feet of space pursuant to several leases that expire at various schedules through February 2019. We also have other offices in California, Shenzhen, China, Hong Kong and Munich, Germany.

Legal proceedings

On December 5, 2012, e.Digital Corporation filed a lawsuit against us in the United States District Court for the Southern District of California which alleges infringement of United States Patent No. 5,742,737, or the ‘737 patent, entitled “Method for recording voice messages on flash memory in a hand held recorder,” by certain of our cameras. We answered the complaint on February 4, 2013, denying infringement and validity, and asserting counterclaims for declaratory judgment of non-infringement and invalidity. e.Digital filed an amended complaint on June 4, 2013, adding allegations that we infringe U.S. Patent No. 5,491,774, or the ’774 patent, entitled “Handheld Record and Playback Device with Flash Memory.” We answered the amended complaint on June 18, 2013, again denying infringement and validity, and asserting counterclaims for declaratory judgment of non-infringement and invalidity. e.Digital also sued a number of additional parties unrelated to us and our products asserting claims regarding the patents asserted against us and in some cases, two other patents.

We, along with a number of other defendants sued by e.Digital, moved to limit the scope of the ’774 patent based on collateral estoppel resulting from an unfavorable claim construction ruling e.Digital received in an earlier action. On August 22, 2013, the court granted defendants’ motion and held that e.Digital was collaterally estopped from re-litigating the claim construction of the ’774 patent. In light of that ruling, e.Digital agreed to stipulate to non-infringement of the ’774 patent. The parties entered into a partial stipulated judgment of non-infringement as to the ’774 patent, which was subsequently amended as a Federal Rule of Civil Procedure 54(b) judgment to allow an immediate appeal to the U.S. Court of Appeals for the Federal Circuit as to the Court’s collateral estoppel ruling. The remainder of the case has been stayed pending the appeal. Under the stay, the case against us will not proceed until the appeal is completed. If the district court’s collateral estoppel ruling is reversed on appeal, the case against us will proceed only as to the ’737 patent. e.Digital filed its appeal brief in a related case on appeal on December 27, 2013. On March 10, 2014, the U.S. Court of Appeals for the Federal Circuit consolidated the appeal with several other pending appeals involving other defendants. e.Digital filed its opening brief on April 9, 2014. We filed a responsive brief on June 5, 2014.

We are currently and in the future may continue to be subject to litigation, claims and assertions incidental to our business, including patent infringement litigation and product liability claims, as well as other litigation of a non-material nature in the ordinary course of business. We believe that the outcome of any existing litigation, either individually or in the aggregate, will not have a material impact on our business, financial condition, results of operations or cash flows.

 

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Management

Executive officers, other executive management and directors

The following table provides information regarding our executive officers, other executive management and directors as of June 5, 2014:

 

Name    Age      Position(s)

 

Executive Officers

Nicholas Woodman

     38       Chief Executive Officer and Chairman

Anthony Bates

     47       President and Director

Jack Lazar

     48       Chief Financial Officer

Nina Richardson

     55       Chief Operating Officer

Sharon Zezima

     50       General Counsel and Secretary

Other Executive Management

Fabrice Barbier

     48       Senior Vice President of Product Development

Stephen Baumer

     41       Senior Vice President, Technology Fellow for Special Projects

George “Jeff” Brown

     55       Vice President of Communications

Paul Crandell

     45       Vice President of Marketing

Jonathan Harris

     49       Senior Vice President of Sales

Ronald LaValley

     49       Senior Vice President of Operations

Charles “CJ” Prober

     43       Senior Vice President of Software and Services

Jeff Ryan

     46       Vice President of People

Non-Employee Directors

Edward Gilhuly(1)(2)(3)

     54       Director

Kenneth Goldman(3)

     64       Director

Peter Gotcher(3)

     54       Director

Michael Marks(1)(2)†

     63       Director

John Ball(4)

     51       Director

 

 

  Lead independent director.

 

(1)   Member of the nominating and governance committee.

 

(2)   Member of the compensation and leadership committee.

 

(3)   Member of the audit committee.

 

(4)   Mr. Ball has tendered his resignation from our board of directors effective upon the effective date of this prospectus.

Executive officers

Nicholas Woodman founded our company and has served as our Chief Executive Officer and a member of the board of directors since inception, as Chairman since January 2014 and as President from our inception until June 2014. Mr. Woodman holds a B.A. in Visual Arts from the

 

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University of California, San Diego. We believe Mr. Woodman’s experience as the founder of GoPro and his knowledge of our products and customers give him the experience and leadership capabilities that qualify him to serve as member of our board of directors.

Anthony Bates has served as our President and as a member of our board of directors since June 2014. From June 2013 until March 2014, Mr. Bates was the Executive Vice President, Business Development and Evangelism, of Microsoft Corporation, a software company. Mr. Bates was the Chief Executive Officer of Skype Inc., a provider of software applications and related Internet communications products, from October 2010 until its acquisition by Microsoft in 2011, subsequent to which Mr. Bates served as the President of Microsoft’s Skype Division until June 2013. From 1996 to October 2010, Mr. Bates served in various roles at Cisco Systems, Inc., a networking equipment provider, most recently as Senior Vice President and General Manager of the Service Provider Group. Mr. Bates currently serves on the board of directors of Sirius X.M. Holdings Inc., a satellite radio system operator and broadcaster. We believe that Mr. Bates is qualified to serve on our board of directors due to his extensive executive leadership experience in the technology industry, including the management of worldwide operations, sales, service and support areas.

Jack Lazar has served as our Chief Financial Officer since January 2014. From January 2013 to January 2014, he was an independent business and financial consultant. Mr. Lazar previously served as Senior Vice President, Corporate Development and General Manager of Qualcomm Atheros, Inc., a wireless technology company, from May 2011 to January 2013. From September 2003 until its acquisition by Qualcomm Incorporated, a digital wireless communications products and services, in May 2011, Mr. Lazar served as Chief Financial Officer and Secretary of Atheros Communications, Inc., a provider of communications semiconductor solutions, as well as other executive roles. From August 1999 to May 2002, Mr. Lazar served in a variety of positions at NetRatings, Inc., an Internet audience measurement and analysis company, most recently as Executive Vice President of Corporate Development, Chief Financial Officer and Secretary. He currently serves as a member of the board of directors at Silicon Laboratories Inc. Mr. Lazar is a Certified Public Accountant and holds a B.S. in Commerce with an emphasis in Accounting from Santa Clara University.

Nina Richardson has served as our Chief Operating Officer since February 2013. From March 2006 to January 2013, Ms. Richardson provided operations consulting and interim operations management services for a variety of companies as a self-employed independent consultant. From October 2008 to July 2009, Ms. Richardson was the Chief Administrative Officer of Riverwood Solutions, a supply chain solutions provider. From October 1999 to March 2005, Ms. Richardson held various executive positions at Flextronics International, Ltd., a manufacturing services company, including Vice President of Worldwide Design for Imaging and Printing, Vice President and Global Account Manager of the Hewlett Packard Account and Vice President and General Manager of Flextronics’ Cisco Business Unit. In November 2003, Ms. Richardson co-founded Three Rivers Energy, Inc., an energy services company, where she continues to serve as a managing director. Ms. Richardson holds a B.S. in Industrial Engineering from Purdue University and an Executive M.B.A. from Pepperdine University.

Sharon Zezima has served as our General Counsel since September 2013 and as our Corporate Secretary since October 2013. From February 2012 to September 2013, Ms. Zezima was the Vice President and General Counsel at Marketo, Inc., a cloud-based marketing software company. Prior to joining Marketo, Ms. Zezima served in various positions at Electronic Arts Inc., a developer and distributor of interactive entertainment content and services, from September

 

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2000 to February 2012, most recently as Vice President and Deputy General Counsel. Ms. Zezima holds a J.D. from the University of Chicago and an A.B. in American Studies from Smith College.

Other executive management

Fabrice Barbier has served as our Senior Vice President of Product Development since May 2013, and served as our Vice President of Engineering from February 2011 to February 2013. From February 2009 to February 2011, Mr. Barbier was the Senior Director of Technology Touch and Display at Flextronics and from July 2007 to January 2009, he was its Senior Director of Product Management. Since 2006, Mr. Barbier has been a director of Barbier Ebelmann, a precision mechanics company. Mr. Barbier holds a B.S. in Mechanical Engineering and a Masters in Mechanical Engineering from Ecole Nationale Superieure de Mecanique et des Microtechniques.

Stephen Baumer has served as our Senior Vice President, Technology Fellow for Special Projects since May 2014, and served as our Chief Technology Officer from January 2009 to May 2014. From November 2007 to January 2009, Mr. Baumer was the Head of Business Development in Europe for OpSource, Inc., an infrastructure provider for software-as-a-service companies. From October 2005 to October 2007, he was the Vice President of Marketing at PanTerra Networks, a developer of cloud-based unified communications solutions. From 2001 to 2004, Mr. Baumer was the Director of Technology at Intermix Media, Inc., an Internet-based marketing company that owned and developed MySpace until the company’s acquisition by News Corp. in 2005. Mr. Baumer holds a B.S. in Linguistics from Georgetown University.

George “Jeff” Brown has served as our Vice President of Communications since January 2014. From April 2010 to October 2013, Mr. Brown was the Senior Vice President of Communications and Public Affairs for Electronic Arts, where he was also the Vice President of Communications and Public Affairs from December 1999 to April 2010. Mr. Brown also served in a variety of roles at PepsiCo Inc., a food and beverage company, most recently as Director of Public Relations in December of 1999. Mr. Brown holds a B.A. in Journalism from the University of Minnesota.

Paul Crandell has served as our Vice President of Marketing since August 2011. From January 2009 to August 2011, Mr. Crandell was the Co-founder of Q Sport Architects, a marketing consulting firm. From November 2007 to November 2008, Mr. Crandell was the Vice President of Marketing at ICON Aircraft, an aircraft design and production company. From November 1998 to October 2007, Mr. Crandell served in various positions at Red Bull North America, a beverage manufacturer, including as the Director of Sports Marketing from December 2005 to October 2007. Mr. Crandell holds a B.A. in Law and Society from the University of California, Santa Barbara.

Jonathan Harris has served as our Senior Vice President of Sales since January 2014, and served as our Vice President of Sales from June 2010 to January 2014. From February 2009 to June 2010, Mr. Harris was the Vice President of Business Development at SugarSync, Inc., a cloud-based document storage company. From January 2007 to February 2009, Mr. Harris was the Vice President of Sales at Aliph, Inc., a provider of wearable technology and audio devices. From October 2005 to May 2007, Mr. Harris was the Director of Sales at Check Point Software Technologies Ltd., an Internet security services provider. Mr. Harris holds a B.A. in Marketing from the Southern Methodist University.

Ronald LaValley has served as our Senior Vice President of Operations since December 2011. From 2000 to December 2011, Mr. LaValley served in various positions at Flextronics, including the Vice

 

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President of Logistics and Vice President of Supply Chain Solutions, and most recently as the Vice President and General Manager of the Milpitas Operations. Mr. LaValley holds a B.S. in Mechanical Engineering and Aeronautical Engineering from the University of California, Davis and an M.B.A. from Santa Clara University.

Charles “CJ” Prober has served as our Senior Vice President of Software and Services since June 2014. From January 2008 until May 2014, Mr. Prober served in various roles at Electronic Arts, most recently as the Senior Vice President of Digital Publishing. From January 2007 until January 2008, he was the Vice President of Legal and Business Affairs at VG Holding Company (BioWare and Pandemic Studios), a gaming company, until its acquisition by Electronic Arts. From 2003 until 2006, Mr. Prober was a consultant with McKinsey & Company, a global strategic management consulting firm and from 1998 until 2003, he was a corporate attorney at the law firm Wilson Sonsini Goodrich & Rosati, P.C. Mr. Prober holds a Bachelor of Commerce from the University of Manitoba and a Bachelor of Laws from McGill University.

Jeff Ryan has served as our Vice President of People since June 2014. From June 2011 until June 2014, Mr. Ryan served as the Senior Vice President, Human Resources at CBS Interactive, an online media company. From August 2007 until June 2011, Mr. Ryan was the Vice President of Human Resources at Electronic Arts. He also held several human resources roles, including Head of Human Resources, at Electronic Arts Canada, starting from November 2004. From May 2003 until November 2004, he was a Senior Human Resources Consultant at Shell Oil Products, an energy company. Mr. Ryan holds a B.A. in Sociology from University of California at Los Angeles and an M.B.A. from the University of California at Los Angeles, Anderson School of Management.

Board of directors

John Ball has served on our board of directors since December 2011. Mr. Ball is the Founder and has served as Managing Partner of Steamboat Ventures, a venture capital firm. Mr. Ball was a senior executive in the Corporate Development group for The Walt Disney Company, a family entertainment and media company, from June 1996 to September 2000 and served as Director of Mergers & Acquisitions at Dames & Moore, a global engineering services company, from September 1992 to June 1996. Mr. Ball holds a B.A. in Biological Sciences from Tufts University and an M.B.A. from Harvard Business School. We believe Mr. Ball is qualified to serve as a member of our board of directors based on his experience on the boards of directors of numerous companies and based on his extensive corporate management experience.

Edward Gilhuly has served on our board of directors since March 2011. Mr. Gilhuly is the Founder and has served as Managing Partner at Sageview Capital, a private investment firm since May 2006. Prior to forming Sageview Capital, Mr. Gilhuly worked for 19 years at Kohlberg Kravis Roberts & Co., a private equity firm, where he was a Partner from 1994 to 2005 and a member of the firm’s investment committee from its formation in 2000 until his departure in 2005. Mr. Gilhuly currently serves on the board of directors of Envivio, Inc. and two private companies as well as the board of trustees of Duke University. Mr. Gilhuly holds a B.A. in Economics and History from Duke University and an M.B.A. from Stanford University. We believe Mr. Gilhuly is qualified to serve as a member of our board of directors based on his experience on the boards of directors of numerous companies, his extensive corporate management experience and his significant experience in private equity and finance.

Kenneth Goldman has served on our board of directors since December 2013. Since October 2012, Mr. Goldman has served as the Chief Financial Officer of Yahoo! Inc., an Internet commerce website. From September 2007 to October 2012, he was Chief Financial Officer of Fortinet Inc., a

 

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provider of threat management technologies. From November 2006 to August 2007, Mr. Goldman served as Executive Vice President and Chief Financial Officer of Dexterra, Inc., a mobile enterprise software company. From August 2000 until March 2006, Mr. Goldman served as Senior Vice President of Finance and Administration and Chief Financial Officer of Siebel Systems, Inc., a supplier of customer software solutions and services. Mr. Goldman currently serves on the board of directors of NXP Semiconductor N.V., Gigamon Inc. and Yahoo! Japan, as well as the Trustee Emeritus of Cornell University. Mr. Goldman holds a B.A. in Electrical Engineering from Cornell University and an M.B.A. from Harvard Business School. We believe Mr. Goldman is qualified to serve as a member of our board of directors based on his experience on the boards of directors of numerous companies, his extensive executive experience and his service as a member of the Financial Accounting Standards Board Advisory Council. He provides a high level of expertise and significant leadership experience in the areas of finance, accounting and audit oversight.

Peter Gotcher has served on our board of directors since June 2014. Mr. Gotcher is an independent private investor focusing on investments in digital media technology companies. From September 1999 to June 2002, Mr. Gotcher was a venture partner with Redpoint Ventures, a private investment firm. Prior to that, Mr. Gotcher was a venture partner with Institutional Venture Partners, a private investment firm, from 1997 to 1999. Mr. Gotcher founded Digidesign, Inc., a manufacturer of digital audio workstations, and served as its President, Chief Executive Officer and Chairman from 1984 until it was acquired by Avid Technology, a media software company, in 1995. He served as the Executive Vice President of Avid Technology from 1995 to 1996. Mr. Gotcher currently serves on the board of directors of Pandora Media, Inc. and Dolby Laboratories, Inc., where he is currently Chairman. Mr. Gotcher holds a B.A. in English Literature from the University of California at Berkeley. We believe Mr. Gotcher is qualified to serve as a member of our board of directors based on his broad understanding of the operational, financial and strategic issues facing public companies and his background providing guidance to companies in the digital media industry.

Michael Marks has served on our board of directors since February 2011. Mr. Marks has been a Founding Partner of Riverwood Capital, LLC, a private equity firm, since March 2007. From August 2007 to November 2007, Mr. Marks was interim Chief Executive Officer of Tesla Motors, Inc., an electric vehicle designer and manufacturer. Mr. Marks was a senior adviser from January 2007 to January 2008 and a member from January 2006 to January 2007 at Kohlberg Kravis Roberts & Co., a private equity firm. From January 1994 to January 2006, Mr. Marks was Chief Executive Officer of Flextronics. Mr. Marks currently serves as a member of the board of directors of Schlumberger Limited and SanDisk Corporation, where he is currently Chairman. Mr. Marks holds a B.A. and an M.A. in Psychology from Oberlin College and an M.B.A. from Harvard Business School. We believe Mr. Marks is qualified to serve as a member of our board of directors based on his significant experience as the chief executive officer and member of the boards of directors of various companies, his expertise in financial and accounting matters and his expertise in private equity matters.

Board of directors

Pursuant to a voting agreement dated February 25, 2011, as amended, Messrs. Ball, Bates, Gilhuly, Goldman, Gotcher, Marks and Woodman were designated to serve as members of our board of directors. Messrs. Marks and Gilhuly were elected as the representatives of the Series A preferred stock, Messrs. Woodman, Goldman, Gotcher and Bates were elected by the holders of a majority of the shares of our common stock and Mr. Ball was elected by the holders of a majority of the shares of our preferred stock and common stock, voting together as a single class. The

 

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voting agreement will terminate upon the closing of this offering and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors. Each of the current members of our board of directors, other than Mr. Ball, will continue to serve on our board of directors following the closing of the offering until the earlier of his resignation or his successor is duly elected or appointed. Mr. Ball has tendered his resignation from our board of directors effective upon the effective date of this prospectus.

In connection with the closing of this offering, we will file our restated certificate of incorporation. Although initially our board of directors will not be classified, our restated certificate of incorporation will provide that at such time as all shares of our Class B common stock have been converted into shares of Class A common stock, 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 of directors continuing for the remainder of their respective three-year terms.

In addition, our amended and restated bylaws and restated certificate of incorporation will provide that only the board of directors may fill vacancies on the board of directors until the next annual meeting of stockholders. After our board of directors is classified, any additional directorships resulting from an increase 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 total number of directors.

This classification of the board of directors and the provisions described above may have the effect of delaying or preventing changes in our control or management. See “Description of capital stock—Anti-takeover provisions—Restated certificate of incorporation and amended and restated bylaw provisions.”

Board leadership structure and risk oversight

Our board of directors does not have a policy on whether the role of the chairman and chief executive officer should be separate and believes that it should maintain flexibility to select a chairman and board leadership structure from time to time. Currently, the board of directors believes that it is in the best interest of the company and its stockholders for Mr. Woodman to serve in both roles given his knowledge of our company and industry. Because Mr. Woodman is our Chief Executive Officer and Chairman, our board of directors appointed Mr. Marks to serve as our lead independent director. As lead independent director, Mr. Marks will, among other responsibilities, preside over regularly scheduled meetings at which only our independent directors are present, serve as a liaison between the Chairman and the President and the independent directors, and perform such additional duties as our board of directors may otherwise determine and delegate.

Our board of directors is primarily responsible for overseeing our risk management processes. Our board of directors, as a whole, determines the appropriate level of risk for our company, assesses the specific risks that we face and reviews management’s strategies for adequately mitigating and managing the identified risks. Although our board of directors administers this risk management oversight function, our audit committee, nominating and governance committee and compensation and leadership committee support our board of directors in discharging its oversight duties and address risks inherent in their respective areas. We believe this division of responsibilities is an effective approach for addressing the risks we face and that our board leadership structure supports this approach.

 

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Director independence

Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that Messrs. Ball, Gilhuly, Goldman, Gotcher and Marks, representing five of our seven directors, are “independent directors” as defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the NASDAQ Stock Market. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management, 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.”

Committees of the board of directors

Our board of directors has established an audit committee, a compensation and leadership committee and a nominating and governance committee. The composition and responsibilities of each committee are described below. Immediately prior to the closing of this offering, copies of the charters for each committee will be available on the investor relations portion of our website at www.gopro.com. Members serve on these committees until their resignations or removal.

Audit committee

Our audit committee is comprised of Mr. Goldman, who serves as the chairman, and Messrs. Gilhuly and Gotcher, each of whom, our board of directors has determined, meets the requirements for independence under the current rules of the SEC and the NASDAQ Stock Market. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Mr. Goldman is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K of the Securities Act.

All audit services to be provided to us and all permissible non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm will be approved in advance by our audit committee. Our audit committee, among other things:

 

Ÿ  

selects a firm to serve as independent registered public accounting firm to audit our financial statements;

 

Ÿ  

helps to ensure the independence of the independent registered public accounting firm;

 

Ÿ  

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

 

Ÿ  

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

 

Ÿ  

reviews related party transactions and proposed waivers of the code of conduct;

 

Ÿ  

considers the adequacy of our internal accounting controls and audit procedures; and

 

Ÿ  

approves all audit and non-audit services to be performed by the independent registered public accounting firm.

 

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Compensation and leadership committee

Our compensation and leadership committee is comprised of Mr. Marks, who serves as the chairman, and Mr. Gilhuly. Our board of directors has determined that each member of our compensation and leadership committee meets the requirements for independence under the current rules of the NASDAQ Stock Market. The purpose of our compensation and leadership committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation and leadership committee, among other things:

 

Ÿ  

reviews and determines the compensation of our executive officers;

 

Ÿ  

administers our stock and equity incentive plans; and

 

Ÿ  

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

Nominating and governance committee

The nominating and governance committee is comprised of Mr. Gilhuly, who serves as the chairman, and Mr. Marks. Our board of directors has determined that each member of our nominating and governance committee meets the requirements for independence under the current rules of the NASDAQ Stock Market. Our nominating and governance committee, among other things:

 

Ÿ  

identifies, evaluates and recommends nominees to our board of directors and committees of our board of directors;

 

Ÿ  

conducts searches for appropriate directors;

 

Ÿ  

evaluates the performance of our board of directors and of individual directors;

 

Ÿ  

considers and makes recommendations to the board of directors regarding the composition of the board and its committees and related compensation;

 

Ÿ  

reviews developments in corporate governance practices;

 

Ÿ  

evaluates the adequacy of our corporate governance practices and reporting; and

 

Ÿ  

makes recommendations to our board of directors concerning corporate governance matters.

Code of business conduct and ethics

We have adopted a code of business conduct and ethics that will apply to all of our employees, officers and directors beginning on the effective date of this prospectus. Immediately prior to the effectiveness of this offering, the full text of our code of business conduct and ethics will be posted on the investor relations section of our website at www.gopro.com.

Compensation committee interlocks and insider participation

None of the members of our compensation and leadership committee has at any time been one of our officers or employees. None of our executive officers currently serves, or in the past has served, as a member of the board of directors or compensation and leadership committee (or other board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our board of directors or our compensation and leadership committee.

 

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Director compensation

Prior to the effective date of this prospectus, we have had no formal policy relating to the granting of equity awards to our directors. The following table presents the total compensation earned in the year ended December 31, 2013 for each non-employee member of our board of directors. In addition to the following amounts, we reimbursed our directors for expenses associated with attending meetings of our board of directors and committees of our board of directors. Other than described below, we did not pay any fees to, make any equity awards or non-equity awards to or pay any other compensation to the non-employee members of our board of directors in 2013. Nicholas Woodman, our Chief Executive Officer, received no compensation for his service as a director.

The following table provides information regarding compensation of our non-employee directors for 2013:

 

Name and principal position    Fees earned
or paid in
cash ($)
     Option
awards ($)(1)(2)
     All other
compensation ($)
     Total ($)  

 

 

Kenneth Goldman

   $             —       $ 911,427       $             —       $ 911,427   

John Ball

                               

Edward Gilhuly

                               

Michael Marks

                               

Jill Woodman(3)

                               

 

 

 

 

(1)   The amounts reported in this column represent the aggregate grant date value of option awards made to directors in 2013 computed in accordance with FASB ASC Topic 718.

 

(2)  

The option vests as to 1/4 th of the shares of Class B common stock underlying the option on the first anniversary of the vesting commencement date and as to 1/48 th of the shares underlying the option each month thereafter. In addition, in the event of a qualified acquisition, the option shall vest as to an additional 1/4 th of the total shares underlying the option.

 

(3)   Jill Woodman resigned as a member of our board of directors effective as of May 16, 2014.

In May 2014, our board of directors approved a compensation policy for non-employee directors that will be effective upon the effective date of this prospectus. Pursuant to the policy, immediately following each annual meeting of our stockholders each non-employee director will be granted an annual stock option having a grant date fair value computed in accordance with FASB ASC Topic 718 equal to $150,000. Each stock option will have a ten-year term and will vest in full on the earlier of the one-year anniversary of the date of grant or on the date of the next annual meeting of our stockholders. In addition, immediately following each annual meeting of our stockholders, we will grant each non-employee director RSUs having a fair market value on the grant date equal to $30,000. The shares underlying each RSU grant will vest in equal quarterly installments over one year from the date of grant, subject to the director’s continuous service on the board of directors. The stock options and RSUs described above will accelerate and vest in full in the event of a change in control. Directors who are appointed to the board of directors between the annual meetings of our stockholders will receive pro-rated stock option and RSU grants.

In addition to the annual stock option and RSU grants for service as a member of our board of directors, our policy provides for additional annual RSU grants to the chairs of each committee of our board of directors with a fair market value on the grant date equal to the following:

 

Ÿ  

$20,000 for the chair of our audit committee;

 

Ÿ  

$15,000 for the chair of our compensation and leadership committee; and

 

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Ÿ  

$10,000 for the chair of our nominating and governance committee.

On June 2, 2014, we granted Peter Gotcher an option to purchase 17,234 shares of our Class B common stock at an exercise price of $18.40 per share and 1,630 RSUs in connection with his appointment as director. The stock option will vest in full on the one-year anniversary of the date of grant and will have a ten-year term. The RSUs will vest in equal quarterly installments over one year from the date of grant, subject to Mr. Gotcher’s continuous service on the board of directors. The stock option and RSUs will accelerate and vest in full in the event of a change in control.

 

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Executive compensation

2013 summary compensation table

The following table provides information regarding compensation received by our named executive officers for 2013:

 

Name and Principal Position   

Salary

($)(1)

     Bonus ($)(2)      Option
awards
($)(3)
     All other
compensation
($)
    Total ($)  

 

 

Nicholas Woodman

   $ 800,000       $ 1,003,200       $       $ 49,591 (4)    $ 1,852,791   

Chief Executive Officer

             

Nina Richardson

     287,986         120,649         3,253,337              $ 3,661,972   

Chief Operations Officer

             

Paul Crandell

     267,981         116,909         542,628              $ 927,518   

Vice President of Marketing

             

 

 

 

(1)   The amounts in this column include any salary contributed by the named executive officer to our 401(k) plan.

 

(2)   The amounts reported in this column represent the named executive officer’s bonus awards, which we awarded on a discretionary basis based on the compensation and leadership committee’s determination of individual and overall company performance.

 

(3)   The amounts reported in this column represent the aggregate grant date value of option awards made to the named executive officer in 2013 computed in accordance with FASB ASC Topic 718 and excluding the effect of estimated forfeitures.

 

(4)   The amount reported in this column represents the cost of Mr. Woodman’s personal use of cars provided by us, including depreciation attributed to his personal use of the cars, maintenance and repair costs, insurance premiums and registration fees.

Outstanding equity awards at December 31, 2013

The following table provides information regarding each unexercised stock option held by each of our named executive officers as of December 31, 2013:

 

       Number of securities
underlying unexercised
options(1)
    Option
exercise
price(2)
    

Option
expiration

date

 
Name    Exercisable      Unexercisable       

 

 

Nicholas Woodman

                              

Nina Richardson

             450,000 (3)    $ 13.7200         02/18/2023   

Paul Crandell

     171,700         125,000      $ 1.5167         10/25/2021   

Paul Crandell

             75,000      $ 13.7200         02/18/2023   

 

 

 

(1)  

Except as otherwise described in these footnotes, all options vest as to 1/4 th of the shares of Class B common stock underlying the options on the first anniversary of the vesting commencement date and as to 1/48 th of the shares underlying the option each month thereafter. The vesting commencement date for Ms. Richardson’s option grant is February 12, 2013 and the vesting commencement date for Mr. Crandell’s option grants are August 15, 2011 and February 19, 2013, respectively. Any options exercised prior to their vesting date would be subject to forfeiture as specified in the 2010 Plan. In addition, if the executive is subject to a qualified termination in connection with a change in control, then the shares underlying any unvested equity award shall vest immediately prior to the termination of the executive, pursuant to the severance and change in control policy adopted in January 2014 (described below).

 

(2)   Represents the fair market value of a share of our Class B common stock, as determined by our board of directors, on the grant date. See the section titled “Management’s discussion and analysis of financial condition and results of operations—Critical accounting policies and estimates—Stock-based compensation” for a discussion of the valuation of our Class B common stock.

 

(3)   In addition to the time-based vesting indicated in footnote (1), if we achieve the goals approved by our board of directors under our 2014 Operating Plan, then an additional 25,000 of the shares will become vested and exercisable on February 12, 2015.

On June 3, 2014, we granted Mr. Woodman 4,500,000 RSUs. This award vests in three tranches of 1,500,000 RSUs each. The first tranche vested on the grant date. Each of the second and third

 

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tranches vests monthly over 36 months from the grant date, with vesting conditional upon Mr. Woodman’s continued service and our Class A common stock having a closing price per share for 30 consecutive days equal to or greater than $34.03 and $44.24, respectively. Such 30-day period may begin no earlier than the 181st day following the date of this prospectus. Upon a change in control that occurs prior to the termination of Mr. Woodman’s services, a portion of the second tranche will vest (regardless of any service-based vesting conditions) to the extent that the acquisition price per share exceeds the initial public offering price, such that the second tranche will fully vest if the acquisition price exceeds $34.03. Similarly, a portion of the third tranche will vest (regardless of any service-based vesting conditions) to the extent that the acquisition price per share exceeds $34.03, such that the third tranche will fully vest if the acquisition price exceeds $44.24. The per share milestones will be adjusted for stock splits and the like, extraordinary dividends or follow-on offerings.

Pension benefits

None of our named executive officers is a participant in any defined benefit plans.

Nonqualified deferred compensation

We do not offer any nonqualified deferred compensation plans.

Employment, severance and change in control agreements

Nicholas Woodman

On June 2, 2014, we entered into an employment letter with Mr. Woodman, which provides for certain severance and other benefits upon a qualifying termination of employment. If Mr. Woodman’s service is terminated by us without cause or due to his resignation for good reason prior to a change in control, he will be entitled to (i) a single lump sum payment equal to 12 months of his then-current base salary and target bonus (assuming a 150% achievement threshold), (ii) an additional payment of the pro-rata portion of his target bonus for the year of his termination and (iii) continuation of benefits under COBRA for 12 months following termination (or if applicable law requires otherwise, a lump sum payment equal to that amount). If Mr. Woodman’s service is terminated by us without cause or due to his resignation for good reason within 24 months following a change in control, he shall be entitled to (i) a single lump sum payment equal to 24 months of his then-current base salary and target bonus (assuming a 150% achievement threshold), (ii) an additional payment of the pro-rata portion of his target bonus for the year of his termination, (iii) fully accelerated vesting of all of his then-outstanding equity awards (other than his 4,500,000 RSUs granted in June 2014) and (iv) continuation of benefits under COBRA for 18 months following termination (or if applicable law requires otherwise, a lump sum payment equal to that amount). These payments and benefits are conditioned on Mr. Woodman’s execution and delivery of an irrevocable release to us within the 60 days following his termination.

Nina Richardson

In February 2013, we entered into an offer letter with Nina Richardson. The offer letter provided that Ms. Richardson’s option to purchase 450,000 shares of Class B common stock would vest 25%

 

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on the 12 month anniversary of her commencement of employment and in equal monthly installments over the 36 months thereafter subject to her continuous service. In addition, the offer letter provides that 25,000 option shares would vest on the two-year anniversary of her commencement of employment in the event that we achieve our 2014 Operating Plan as approved and certified by our board of directors subject to her continuous service. Subsequent to the execution of the offer letter, we entered into a change in control severance agreement with Ms. Richardson, the terms of which are described in detail below. The agreement provides that (i) in the event of a qualified termination connected to a change in control, Ms. Richardson shall be entitled to acceleration in full of all of her equity awards and (ii) in the event of a qualified termination not connected to a change in control, 25% of the shares initially subject to her equity awards will accelerate or we will continue to allow her to vest in her equity awards as a limited consultant for up to 12 months post-employment. With respect to vesting acceleration, Ms. Richardson will receive whichever acceleration provision under her equity awards or her change in control severance agreement as would cause her to vest in the largest number of shares.

Paul Crandell

In July 2011, we entered into an offer letter with Paul Crandell. The offer letter provided that Mr. Crandell’s option to purchase 300,000 shares of Class B common stock would be subject to the terms and conditions applicable to options granted under the 2010 Plan, as described in the 2010 Plan, and the applicable stock option agreement made available to Mr. Crandell at the time of his grant. Subsequent to the execution of the offer letter, we entered into a change in control severance agreement with Mr. Crandell. The terms of the change in control severance agreement are described in detail below and it provides that in the event of a qualified termination connected to a change in control, Mr. Crandell shall be entitled to acceleration in full of all of his equity awards.

Potential payments upon termination or change in control

In January 2014, we adopted a change in control and severance policy applicable to our executive officers and certain other employees pursuant to which each employee entered into an agreement governing such situations. The change in control and severance agreement with each of our named executive officers has a term ending December 31, 2016 with automatic three-year renewals unless we give at least three months notice of non-renewal and requires us to pay certain benefits upon a qualifying termination, which occurs when the employee’s employment is terminated by us without cause, or he or she resigns with good reason, within three months preceding or 12 months following a change in control. These benefits are contingent upon such employee’s execution, delivery and non-revocation of a release and waiver of claims satisfactory to us following such employee’s separation from service. In addition, for six months following termination of employment, and as a condition to the benefits under this agreement, the employee must cooperate with any transition efforts that we request and must not disparage us, or our directors, officers or employees.

Under the employment letter dated June 2, 2014, Mr. Woodman is eligible for severance benefits upon a qualifying termination connected to a change in control as described in “—Employment, severance and change in control agreements—Nicholas Woodman.” In addition, Mr. Woodman has vesting and acceleration terms on his outstanding RSUs that supercede any acceleration that would have been provided under his employment letter. See “—Outstanding equity awards at December 31, 2013.”

 

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Under his change in control severance agreement, Mr. Crandell would be eligible for severance benefits of 12 months of then-current base pay, 100% of his target bonus or, if greater, his most recent annual bonus, and $3,000 per month for 12 months in lieu of employee benefits upon a qualifying termination connected to a change in control. In addition, upon a qualifying termination, the shares underlying all unvested equity awards held Mr. Crandell will become vested and exercisable in full immediately prior to such termination.

Under her amended change in control severance agreement dated June 8, 2014, Ms. Richardson would be eligible for severance benefits of 12 months of then-current base pay, 100% of her target bonus or, if greater, her most recent annual bonus, and $3,000 per month for 12 months in lieu of employee benefits upon a qualifying termination connected to a change in control. In addition, upon a qualifying termination connected with a change in control, the shares underlying all unvested equity awards held Ms. Richardson will become vested and exercisable in full immediately prior to such termination. Furthermore, Ms. Richardson shall be entitled to these same benefits upon a qualifying termination not connected to a change in control, except that in lieu of 100% acceleration of her equity awards, she will be entitled to immediate vesting acceleration of 25% the shares initially subject to her equity awards or we will allow her to vest in her equity awards as a limited consultant for up to 12 months post-employment.

Employee benefit plans

2010 equity incentive plan

Our board of directors approved, and our stockholders adopted, our 2010 Plan in August 2010. Our 2010 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees or any parent or subsidiary’s employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock and RSUs to our employees, directors and consultants and any parent or subsidiary’s employees and consultants. As of June 5, 2014, an aggregate of 40,920,000 shares of our Class B common stock were reserved for issuance under our 2010 Plan and 310,534 shares remained available for future awards. Upon the signing of the underwriting agreement relating to this offering, no further equity grants will be made under our 2010 Plan. We intend to grant all future equity awards under the 2014 Plan and the ESPP. However, all stock options and RSUs granted under our 2010 Plan will continue to be governed by the terms of our 2010 Plan. The purposes of the 2010 Plan are to attract, retain and motivate eligible persons whose present and potential contributions are important to our growth by offering such eligible persons an opportunity to participate in our future performance through the grant of awards.

Administration .    Subject to the terms of the 2010 Plan, our board of directors or an authorized committee, referred to as the compensation and leadership committee, has the discretion to make all decisions implementing the 2010 Plan including the power to determine recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the compensation and leadership committee will also determine the exercise price of options granted, and the consideration (if any) to be paid for restricted stock awards.

Stock options .    Incentive and nonstatutory stock options are granted pursuant to stock option agreements adopted by the compensation and leadership committee. Generally, the exercise

 

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price for an incentive stock option or a nonstatutory stock option cannot be less than 100% of the fair market value of the Class B common stock subject to the option on the date of grant. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock comprising more than 10% of our total combined voting power or that of any of our affiliates unless (a) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and (b) the term of the incentive stock option does not exceed five years from the date of grant. Options granted under the 2010 Plan generally vest over a four-year period. A stock option agreement may provide for early exercise prior to vesting and rights of repurchase.

The term of stock options granted under the 2010 Plan may not exceed 10 years. Unless the terms of an optionholder’s stock option agreement provides for earlier or later termination, if an optionholder’s service relationship with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options up to the 12 months after the date the service relationship ends. Unless the terms of an optionholders’ stock option agreement provides for earlier or later termination, if an optionholder’s service relationship with us, or any affiliate of ours, ceases without cause for any reason other than disability or death, the optionholder may exercise any vested options for up to three months. In no event may an option be exercised after its expiration date.

The forms of consideration for the purchase of our Class B common stock under the 2010 Plan that the compensation and leadership committee may approve include cash, check, full recourse promissory note, cancellation of indebtedness, waiver of accrued compensation, shares of stock already owned, consideration paid through a formal cashless exercise program or same day sale program, any other form of consideration approved by the compensation and leadership committee or any combination of such consideration.

Limitations .    The aggregate fair market value, determined at the time of grant, of shares of our Class B common stock with respect to incentive stock options that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. The options or portions of options that exceed this limit are treated as nonstatutory stock options.

Stock appreciation rights .    Our 2010 Plan also permits the issuance of stock appreciation rights that provide for a payment, or payments, in cash or shares of our Class B common stock, to the holder based upon the increase in the fair market value of our Class B common stock on the date of exercise from the stated exercise price (subject to any maximum number of shares as may be specified in the applicable award agreement). Stock appreciation rights expire under the same rules that apply to stock options.

Restricted stock.     Our 2010 Plan also permits the issuance of restricted stock. Restricted stock are shares of our Class B common stock that are subject to our right of repurchase in the event of a termination of the stockholder’s service relationship with us.

Restricted stock units .    Our 2010 Plan also permits the issuance of restricted stock units, or RSUs, to our service providers. RSUs granted under our 2010 Plan represent the right to receive shares of our Class B common stock or cash payment at a specified future date and may be subject to vesting requirements.

 

 

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Transferability .    Unless the compensation and leadership committee permits otherwise, stock may not be transferred, except by will or by the laws of descent or distribution. However, nonstatutory stock options may be transferred to immediate family members or certain trusts.

Changes to capitalization .    In the event that there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split, stock dividend or other recapitalization, the 2010 Plan provides for the proportional adjustment of the number of shares reserved under the 2010 Plan and the number of shares and exercise or purchase price, if applicable, of all outstanding stock awards.

Corporate transactions .    Unless otherwise provided in the award agreement, in the event of certain corporate transactions, any or all outstanding stock awards under the 2010 Plan may be assumed or substituted for by any surviving entity. If the surviving entity elects not to assume or substitute for such awards, such stock awards will terminate without vesting acceleration. In the event of our dissolution or liquidation, all outstanding options and stock appreciation rights under the 2010 Plan will terminate immediately prior to such event without accelerating vesting.

Additional provisions .    Our board of directors has the authority to amend, alter, suspend or terminate the 2010 Plan. However, no amendment or termination of the plan may adversely affect any rights under awards already granted to a participant without the affected participant’s consent. No equity awards will be made under the 2010 Plan after the effective date of this offering and our 2014 Plan.

2014 equity incentive plan

We expect our board of directors to adopt our 2014 Plan, subject to stockholder approval, to become effective the day before the effective date of this prospectus. The 2014 Plan will terminate in 2024, unless sooner terminated by our board of directors. The purpose of the 2014 Plan is to provide incentives to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards. The 2014 Plan is also designed to permit us to make cash-based awards and equity-based awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code.

Stock awards .    The 2014 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, RSUs, performance-based stock awards and other forms of equity compensation, or collectively, stock awards. In addition, the 2014 Plan provides for the grant of performance cash awards. Incentive stock options may be granted only to employees, subject to certain limitation described below. All other awards may be granted to employees, including officers, as well as directors and consultants.

The principal features of the 2014 Plan are summarized below. This summary is qualified in its entirety by reference to the text of the 2014 Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.

Share reserve.     We reserved 13,470,229 shares of our Class A common stock to be issued under our 2014 Plan. The number of shares reserved for issuance under our 2014 Plan will increase automatically on January 1 of each of our fiscal years, beginning January 1, 2015 through the termination of the plan, by the number of shares equal to 3% of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our board of directors or compensation and leadership committee may reduce the amount of the increase in

 

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any particular year. In addition, shares reserved but not issued or subject to outstanding grants under our 2010 Plan on the date of this prospectus will be available for grant and issuance under our 2014 Plan as Class A common stock and the following shares will again be available for grant and issuance under our 2014 Plan as Class A common stock:

 

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shares subject to options or stock appreciation rights granted under our 2014 Plan that cease to be subject to the option or stock appreciation right for any reason other than exercise of the option or stock appreciation right;

 

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shares subject to awards granted under our 2014 Plan that are subsequently forfeited or repurchased by us at the original issue price;

 

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shares subject to awards granted under our 2014 Plan that otherwise terminate without shares being issued;

 

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shares surrendered, cancelled, or exchanged for cash or a different award (or combination thereof);

 

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shares issuable upon the exercise of options or subject to other awards under our 2010 Plan prior to the date of this prospectus that cease to be subject to such options or other awards by forfeiture or otherwise after the date of this prospectus;

 

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shares issued under our 2010 Plan that are forfeited or repurchased by us after the date of this prospectus; and

 

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shares subject to awards under our 2010 Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award.

As of the date hereof, no shares of our Class A common stock have been issued under the 2014 Plan. No person may be granted stock awards covering more than 500,000 shares of our Class A common stock under the 2014 Plan during any calendar year pursuant to stock options or stock appreciation rights other than a new employee of ours, who will be eligible to receive no more than 1,000,000 shares of our Class A common stock under the 2014 Plan in the calendar year in which the employee commences employment. Such limitations are designed to help assure that any deductions to which we would otherwise be entitled with respect to such stock awards will not be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code.

Administration .    Our 2014 Plan will be administered by our compensation and leadership committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation and leadership committee. The compensation and leadership committee will have the authority to construe and interpret our 2014 Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.

The compensation and leadership committee has the authority to reprice any outstanding stock award (by reducing the exercise price of any outstanding option, canceling an option in exchange for cash or another equity award or any other action that may be deemed a repricing under generally accepted accounting provisions) under the 2014 Plan without the approval of our stockholders.

Stock options .    Incentive and nonstatutory stock options are granted pursuant to incentive and nonstatutory stock option agreements adopted by the compensation and leadership committee.

 

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The compensation and leadership committee determines the exercise price for a stock option, within the terms and conditions of the 2014 Plan, provided that the exercise price of a stock option cannot be less than 100% of the fair market value of our Class A common stock on the date of grant, except where a higher exercise price is required in the case of certain incentive stock options, as described below.

We anticipate that in general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation and leadership committee may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under our 2014 Plan is 10 years. The compensation and leadership committee determines the term of stock options granted under the 2014 Plan, up to a maximum of 10 years, except in the case of certain incentive stock options, as described below. Unless the terms of an optionholder’s stock option agreement provide otherwise, if an optionholder’s relationship with us, or any of our affiliates, ceases for any reason other than for cause, disability or death, the optionholder may exercise any vested options for a period of three months following the cessation of service. If an optionholder’s service relationship with us or any of our affiliates is terminated for cause, then the option terminates immediately. If an optionholder’s service relationship with us or any of our affiliates terminates due to disability, the optionholder may exercise any vested options for a period of six months. If an optionholder’s service relationship with us or any of our affiliates ceases due to death, or an optionholder dies within three months following termination of service other than for cause or due to disability, the optionholder or a beneficiary may exercise any vested options for a period of 12 months. The option term may be extended in the event that exercise of the option following termination of service is prohibited by applicable securities laws. In no event, however, may an option be exercised beyond the expiration of its maximum term.

Acceptable consideration for the purchase of Class A common stock issued upon the exercise of a stock option will be determined by the compensation and leadership committee and may include cash, check or other legal consideration approved by the compensation and leadership committee, including a broker-assisted cashless exercise, the tender of Class A common stock or Class B common stock previously owned by the optionholder, cancellation of our indebtedness to the optionholder or waiver of compensation due to the optionholder for services rendered.

Unless the compensation and leadership committee provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionholder may, however, designate a beneficiary who may exercise the option following the optionholder’s death.

Limitations on incentive stock options .    Incentive stock options may be granted only to employees of ours or our affiliates. The aggregate fair market value, determined at the time of grant, of shares of our Class A common stock with respect to incentive stock options that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock comprising more than 10% of our total combined voting power or that of any of our affiliates unless (a) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and (b) the term of the incentive stock option does not exceed five years from the date of grant.

 

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Restricted stock awards .    Restricted stock awards are granted pursuant to restricted stock award agreements adopted by our compensation and leadership committee. A restricted stock award is an offer by us to sell shares of our Class A common stock subject to restrictions. The price, if any, of a restricted stock award will be determined by our compensation and leadership committee. Restricted stock awards may be granted in consideration for cash, check, past or future services rendered to us or our affiliates or any other form of legal consideration determined by the compensation and leadership committee. Shares of Class A common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option or forfeiture restriction in our favor in accordance with a vesting schedule to be determined by the compensation and leadership committee. Rights to acquire shares under a restricted stock award may be transferred only upon such terms and conditions as set by the compensation and leadership committee. Except as otherwise provided in the applicable award agreement, restricted stock awards that have not vested will be forfeited or subject to repurchase upon the participant’s cessation of continuous service for any reason.

Restricted stock unit awards .    RSU awards are granted pursuant to restricted stock unit award agreements adopted by our compensation and leadership committee. RSUs represent the right to receive shares of our Class A common stock at a specified date in the future, subject to forfeiture of that right because of termination of the holder’s services to us or the holder’s failure to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, we may deliver to the holder of the RSU whole shares of our Class A common stock, which may be subject to additional restrictions, cash or a combination of our Class A common stock and cash. Our compensation and leadership committee may also permit the holders of the RSUs to defer payment to a date or dates after the RSU is earned, provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code.

Stock appreciation rights .    Stock appreciation rights are granted pursuant to stock appreciation rights agreements adopted by the compensation and leadership committee. Stock appreciation rights provide for a payment, or payments, in cash or shares of our Class A common stock, to the holder based upon the increase in the fair market value of our Class A common stock on the date of exercise from the stated exercise price (subject to any maximum number of shares as may be specified in the applicable award agreement). The payment may occur upon the exercise of a stock appreciation right or deferred with such interest or dividend equivalent, if any, as our compensation and leadership committee determines, provided that the terms of the stock appreciation right and any deferral satisfy the requirements of Section 409A of the Code. The compensation and leadership committee determines the exercise price for a stock appreciation right which generally cannot be less than 100% of the fair market value of our Class A common stock on the date of grant. Stock appreciation rights may vest based on continued service or achievement of performance conditions. Stock appreciation rights expire under the same rules that apply to stock options.

Performance awards .    The 2014 Plan permits the grant of performance stock awards and performance cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code. To assure that the compensation attributable to performance-based awards will so qualify, our compensation and leadership committee can structure such awards so that stock will be issued or paid pursuant to such award only upon the achievement of certain pre-established performance goals during a

 

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designated performance period. Performance awards are unique awards and are distinct from the other equity awards (such as options, restricted stock, RSUs and stock appreciation rights) provided under the 2014 Plan. No person will be eligible to receive more than $1,000,000 in performance awards in any calendar year under the 2014 Plan. While other equity-based awards may be structured to vest, in whole or in part, upon the achievement of performance goals, those other awards are not performance awards within the meaning of the 2014 Plan and therefore are only subject to the share limitations discussed above, rather than this $1,000,000 limitation.

Other stock awards .    Our compensation and leadership committee may grant other awards based in whole or in part by reference to our Class A common stock. The compensation and leadership committee will set the number of shares under the award and all other terms and conditions of such awards.

Changes to capital structure .    In the event that there is a specified type of change in our capital structure, such as a stock split, appropriate adjustments will be made to (a) the class and maximum number of shares reserved under the 2014 Plan, (b) the class and maximum number of shares subject to options, stock appreciation rights and performance stock awards that can be granted in a calendar year, (c) the class and maximum number of shares that may be issued upon exercise of incentive stock options, (d) the maximum number of shares that may be awarded to a member of our board of directors, and (e) the number of shares and exercise price, if applicable, of all outstanding stock awards.

Corporate transactions .    The 2014 Plan provides that, in the event of a sale, lease or other disposition of all or substantially all of the assets of us or specified types of mergers or consolidations (each, a “corporate transaction”), outstanding awards may be continued if we are the successor entity; outstanding awards may be assumed by any surviving or acquiring corporation; the surviving or acquiring corporation may substitute similar awards for those outstanding; awards may be settled for the full value of such outstanding award (whether or not then vested or exercisable) in cash or securities of the successor entity with payment deferred until the date or dates the award would have become exercisable or vested; or the vesting, exercisability and expiration of outstanding awards may be accelerated. Awards held by directors who are not employees of ours or our parent or subsidiary companies will immediately vest as to all or any portion of the shares subject to the stock award and will become exercisable at such times and on such conditions as the compensation and leadership committee determines.

Plan suspension or termination .    Our board of directors has the authority to suspend or terminate the 2014 Plan at any time provided that such action does not impair the existing rights of any participant.

Securities laws and federal income taxes .    The 2014 Plan is designed to comply with various securities and federal tax laws as follows:

 

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Securities laws .    The 2014 Plan is intended to conform to all provisions of the Securities Act of 1933, as amended, and the Exchange Act and any and all regulations and rules promulgated by the SEC thereunder, including, without limitation, Rule 16b-3. The 2014 Plan will be administered, and options will be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations.

 

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Section 409A of the Code .    Certain awards under the 2014 Plan may be considered “nonqualified deferred compensation” for purposes of Section 409A of the Code, which

 

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imposes certain additional requirements regarding the payment of deferred compensation. Generally, if at any time during a taxable year a nonqualified deferred compensation plan fails to meet the requirements of Section 409A, or is not operated in accordance with those requirements, all amounts deferred under the 2014 Plan and all other equity incentive plans for the taxable year and all preceding taxable years, by any participant with respect to whom the failure relates, are includible in gross income for the taxable year to the extent not subject to a substantial risk of forfeiture and not previously included in gross income. If a deferred amount is required to be included in income under Section 409A, the amount also is subject to interest and an additional income tax. The interest imposed is equal to the interest at the underpayment rate plus one percentage point, imposed on the underpayments that would have occurred had the compensation been includible in income for the taxable year when first deferred, or if later, when not subject to a substantial risk of forfeiture. The additional federal income tax is equal to 20% of the compensation required to be included in gross income. In addition, certain states, including California, have laws similar to Section 409A, which impose additional state penalty taxes on such compensation.

 

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Section 162(m) of the Code .    In general, under Section 162(m) of the Code, income tax deductions of publicly held corporations may be limited to the extent total compensation (including, but not limited to, base salary, annual bonus, and income attributable to stock option exercises and other non-qualified benefits) for certain executive officers exceeds $1,000,000 (less the amount of any “excess parachute payments” as defined in Section 280G of the Code) in any taxable year of the corporation. However, under Section 162(m), the deduction limit does not apply to certain “performance-based compensation” established by an independent compensation committee that is adequately disclosed to, and approved by, stockholders. In particular, stock options and stock appreciation rights will satisfy the “performance-based compensation” exception if the awards are made by a qualifying compensation committee, the 2014 Plan sets the maximum number of shares that can be granted to any person within a specified period and the compensation is based solely on an increase in the stock price after the grant date. Specifically, the option exercise price must be equal to or greater than the fair market value of the stock subject to the award on the grant date.

We have attempted to structure the 2014 Plan in such a manner that the compensation attributable to stock options, stock appreciation rights and other performance-based awards which meet the other requirements of Section 162(m) will not be subject to the $1,000,000 limitation. We have not, however, requested a ruling from the IRS or an opinion of counsel regarding this issue.

2014 employee stock purchase plan

We expect our board of directors to adopt our ESPP, subject to stockholder approval, to become effective upon the effectiveness of this offering. The purpose of the ESPP is to assist us in retaining the services of new employees and securing the services of new and existing employees while providing incentives for such individuals to exert maximum efforts toward our success.

Share reserve .    Following this offering, the ESPP reserves for issuance 3,367,557 shares of our Class A common stock pursuant to purchase rights granted to our employees or to employees of our subsidiaries. The number of shares of our Class A common stock reserved for issuance will automatically increase on January 1 of each calendar year, by the lesser of 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year or a number determined by our board of directors. The ESPP is intended to qualify as an

 

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“employee stock purchase plan” within the meaning of Section 423 of the Code. As of the date hereof, no shares of our Class A common stock have been purchased under the ESPP. No more than 50,000,000 shares of our Class A common stock may be issued under our ESPP, and no other shares may be added to this plan without the approval of our stockholders.

Administration .    Our compensation and leadership committee administers the ESPP. The ESPP is implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. The ESPP provides for six month offering periods. After the initial offering period, a six month offering period shall commence on each February 15 and August 15. Each offering will have one or more purchase dates on which not more than 2,500 shares of our Class A common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances.

Payroll deductions .    Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of our Class A common stock under the ESPP. Unless otherwise determined by our board of directors, Class A common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85% of the fair market value of a share of our Class A common stock on the first date of an offering or (b) 85% of the fair market value of a share of our Class A common stock on the date of purchase.

Limitations .    Employees may have to satisfy one or more of the following service requirements before participating in the ESPP, as determined by our board of directors: (a) customarily employed for more than 20 hours per week, (b) customarily employed for more than five months per calendar year or (c) continuous employment with us or one of our affiliates for a period of time not to exceed two years. No holder will have the right to purchase our shares at a rate which, when aggregated with purchase rights under all our employee stock purchase plans that are also outstanding in the same calendar year(s), have a fair market value of more than $25,000, determined in accordance with Section 423 of the Code, for each calendar year in which that right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding capital stock measured by vote or value pursuant to Code Section 424(d).

Changes to capital structure .    In the event of a stock split, reverse stock split, recapitalization, stock dividend, combination, reclassification, or other similar change in our capital structure, the board of directors will make appropriate adjustments to (a) the number of shares reserved under the ESPP, (b) the maximum number of shares that may be issued under the ESPP and (c) the number of shares and purchase price of all outstanding purchase rights.

Corporate transactions.     In the event of a change in control transaction, any offering periods that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new purchase date. The new purchase date will occur prior to the closing of the proposed change in control and our ESPP will then terminate on the closing of the proposed change in control.

Plan amendment or termination .    Our board of directors has the authority to amend or terminate the ESPP at any time. If our board of directors determines that the amendment or

 

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termination of an offering is in our best interests and the best interests of our stockholders, then our board of directors may terminate any offering on any purchase date, establish a new purchase date with respect to any offering then in progress, terminate any offering and return any money contributed by participants that has not been used to purchase shares back to the participants. We will obtain stockholder approval of any amendment to the ESPP as required by applicable law.

401(k) plan

We maintain a defined contribution employee retirement plan for our U.S. employees. The plan is intended to qualify as a tax-qualified 401(k) plan so that contributions to the 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan. Participants may make pre-tax contributions to the 401(k) plan from their eligible earnings up to the statutorily prescribed annual limit on pre-tax contributions under the Code. The 401(k) plan provides that each participant may contribute up to 100% of eligible compensation on a pre-tax or, in the case of the Roth 401(k), after tax basis into their accounts. Participants who are at least 50 years old may also contribute additional amounts based on the statutory limits for “catch-up” contributions. Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee. Although the 401(k) plan provides for a discretionary employer profit sharing contribution and a discretionary employer matching contribution, we have not made any such contributions on behalf of participating employees to date.

Limitation of liability and indemnification of directors and officers

Our restated certificate of incorporation, which will become effective upon the closing of this offering, 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:

 

Ÿ  

any breach of their duty of loyalty to our company or our stockholders;

 

Ÿ  

any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

Ÿ  

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

Ÿ  

any transaction from which they derived an improper personal benefit.

Our amended and restated bylaws, which will become effective upon the closing of this offering, will provide that we shall 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 will 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

 

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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.

Prior to the closing of this offering, we intend to obtain insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law.

Prior to the closing of this offering, we intend 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 may 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 may 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.

At present, we are not aware of any pending litigation or proceeding for which indemnification is sought 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, and we are not aware of any threatened litigation that may result in claims for indemnification.

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.

 

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Certain relationships and related person transactions

Other than compensation arrangements, the following is a description of each transaction since January 1, 2011 and each currently proposed transaction in which:

 

Ÿ  

we have been or are to be a participant;

 

Ÿ  

the amount involved exceeds $120,000; and

 

Ÿ  

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.

Compensation arrangements for our directors and named executive officers are described elsewhere in this prospectus.

Series A preferred stock dividend and financing

In February 2011, we declared a stock dividend pursuant to which each holder of our common stock as of such date received 0.078946 shares of our Series A preferred stock for each share of our common stock then held. In March 2011, we declared a second stock dividend pursuant to which each holder of our common stock as of such date received 0.205689 shares of our Series A preferred stock for each share of our common stock then held. As of the record date of both stock dividends, Nicholas Woodman and Dean Woodman, Nicholas Woodman’s father, were the only holders of our common stock. Nicholas Woodman has served as our Chief Executive Officer and as a director since February 2004 and each of Nicholas Woodman and Dean Woodman beneficially own more than 5% of our capital stock.

In February 2011, we issued and sold to accredited investors an aggregate of 7,894,632 shares of Series A preferred stock, at a purchase price of $2.533367 per share, for aggregate consideration of $20.0 million pursuant to the Series A Preferred Stock Purchase Agreement dated February 19, 2011. In connection with the Series A preferred stock financing, Nicholas Woodman and Dean Woodman sold 24,155,730 and 2,683,977 shares of Series A preferred stock, respectively, which constituted all of the shares of Series A preferred stock they received in connection with the stock dividend described above, at a purchase price of $2.533367 per share, for aggregate consideration of $61.2 million and $6.8 million, respectively. Further, in connection with this Series A preferred stock financing, Nicholas Woodman and Dean Woodman contributed 24,155,730 and 2,683,977 shares of common stock, respectively, to us at no cost and as an inducement to investors to participate in this preferred stock financing.

In connection with the Series A preferred stock financing, (i) RW Camera Holdings LLC, or RW Camera acquired 7,894,632 shares of Series A preferred stock from us for aggregate consideration of $20.0 million and 12,994,494 shares of Series A preferred stock from Nicholas Woodman and Dean Woodman for aggregate consideration of $32.9 million, (ii) Sageview Capital Master, L.P., or Sageview Master, acquired 7,894,635 shares of Series A preferred stock from Nicholas Woodman and Dean Woodman for aggregate consideration of $20.0 million (iii) Steamboat Ventures II, LLC, or Steamboat, acquired 3,947,316 shares of Series A preferred stock from Nicholas Woodman and Dean Woodman for aggregate consideration of $10.0 million and (iv) U.S. Venture Partners X, L.P. and USVP X Affiliates, L.P., or collectively USVP, acquired 1,973,658 shares of Series A preferred stock from Nicholas Woodman and Dean Woodman for aggregate consideration of $5.0 million. RW Camera and Sageview Master each hold more than

 

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5% of our capital stock. Michael Marks, one of our directors, is an affiliate of RW Camera. Edward Gilhuly, one of our directors, is an affiliate of Sageview Master. John Ball, one of our directors, is an affiliate of Steamboat. Irwin Federman, Nicholas Woodman’s stepfather, is an affiliate of USVP.

Investors’ rights agreement

In connection with our Series A preferred stock financing, we entered into an investors’ rights agreement, dated February 25, 2011 and amended on March 10, 2011, with the holders of our redeemable convertible preferred stock, including entities affiliated with certain of our directors. Pursuant to such investors’ rights agreement, the holders of our redeemable convertible preferred stock are entitled to rights with respect to the registration of their shares following this offering under the Securities Act. For a more detailed description of these registration rights see the section titled “Description of capital stock—Registration rights.”

Dividend

On December 19, 2012, we declared cash dividends of $117.4 million pursuant to which each holder of our common stock as of December 21, 2012 received $1.050965 for each share then held by such stockholder (on an as-converted to common stock basis). The following directors, executive officers and holders of more than 5% of our capital stock, or their affiliates, received the dividend payments listed below:

 

   
Directors, Executive Officers and 5% Stockholders (or Affiliates)    Total
Dividend
Received
 

 

 

Nicholas Woodman and Jill R. Woodman, as Co-Trustees of the Woodman Family Trust under Trust Agreement dated March 11, 2011(1)

   $ 57,114,689   

RW Camera Holdings LLC(2)

     19,291,998   

Foxteq Holdings Inc.

     12,306,093   

Sageview Capital Master, L.P.(3)

     7,291,032   

Dean Woodman(4)

     7,625,825   

John Ball(5)

     3,645,515   

Terrapin Trust(6)

     2,475,023   

U.S. Venture Partners X, L.P.(7)

     1,766,253   

Andrea Moody

     446,204   

Pilar Woodman

     446,204   

Concepcion Federman

     315,290   

Irwin Federman

     315,290   

USVP X Affiliates, L.P.(7)

     56,504   

 

 

 

(1)   Nicholas Woodman is our Chief Executive Officer and Chairman and Ms. Woodman is a former member of our board of directors.

 

(2)   Mr. Marks, a member of our board of directors, is an affiliate of RW Camera Holdings LLC.

 

(3)   Mr. Gilhuly, a member of our board of directors, is an affiliate of Sageview Capital Master, L.P.

 

(4)   Includes dividend payments to Dean Woodman, a holder of 5% or more of our capital stock as his sole and separate property and as certain community property, and the Dean S. Woodman 2010 Irrevocable Trust dated December 3, 2010 of which family members of Mr. Woodman are beneficiaries.

 

(5)   Steamboat Ventures Holdings V, L.P. is an affiliate of Mr. Ball.

 

(6)   Nicholas Woodman’s children are the beneficiaries of the Terrapin Trust.

 

(7)   U.S. Venture Partners X, L.P. and USVP X Affiliates, L.P. are affiliates of Mr. Federman, Nicholas Woodman’s stepfather.

 

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Offer letters and change in control agreements

We have entered into offer letters and change in control severance agreements with our executive officers that, among other things, provide for severance and change in control benefits. See “Executive compensation—Employment, severance and change in control agreements” for information about these agreements.

Share of proceeds from sale of equity securities

During our development stage, Nicholas Woodman, our Chief Executive Officer, entered into a verbal agreement with Neil Dana, an employee since October 2004, pursuant to which Mr. Woodman agreed to share 10% of any proceeds he received from the sale of our equity securities held by Mr. Woodman. Pursuant to Mr. Woodman’s agreement with Mr. Dana, in March 2011, we paid Mr. Dana a cash payment of $6.1 million, and Mr. Woodman reimbursed us in the amount of $6.1 million. We recorded the payment to Mr. Dana as compensation expense. In release of any claim Mr. Dana had to further payments under his agreement with Mr. Woodman, in June 2011 we issued Mr. Dana fully vested options to purchase 6,584,427 shares of Class B common stock under our 2010 Plan at an exercise price of $0.763 per share, and in December 2011 issued to him 270,000 RSUs under our 2010 Plan that will be settled upon a qualified acquisition. We recorded compensation expense of $6.8 million in connection with the issuance of these options. In connection with our equity awards to Mr. Dana, Mr. Woodman entered into a separate agreement with us in December 2011 pursuant to which he agreed to contribute back to us the same number of shares of Class B common stock as are issued pursuant to the exercise of Mr. Dana’s options.

Mr. Dana has been employed by us since October 2004. During 2011, 2012 and 2013, Mr. Dana had total cash compensation, including base salary, bonus and other compensation, of $6.3 million (inclusive of the $6.1 million payment described above), $245,499 and $240,982, respectively.

Employment arrangements with and equity grants to immediate family members of our executive officers and directors

Andrea Moody, the sister of Nicholas Woodman, has been employed by us since March 2009. During 2011, 2012 and 2013, Ms. Moody had total cash compensation, including base salary, bonus and other compensation, of $109,107, $139,062 and $102,638, respectively.

Pilar Woodman, the sister of Nicholas Woodman, has been employed by us since January 2011. During 2011, 2012 and 2013, Ms. Woodman had total cash compensation, including base salary, bonus and other compensation, of $83,961, $89,741 and $86,100, respectively.

In connection with their exercise of stock options and their sale of shares of common stock to our Chief Executive Officer in 2012, each of Ms. Moody and Ms. Woodman had reportable income under the Code of $1,970,844. Associated with this transaction we recorded aggregate compensation expense of $806,400 as the cash proceeds received by Ms. Moody and Ms. Woodman were in excess of the fair value of the shares sold.

In June 2011, we granted to Concepcion Federman and Irwin Federman, the mother and stepfather of Nicholas Woodman, an aggregate of 600,000 shares of common stock at a purchase price of $0.0033 per share for consulting services, all of which are fully vested.

 

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Indemnification of directors

Prior to the closing of this offering we intend to enter into indemnification agreements with each of our directors and executive officers. These indemnification agreements and our restated certificate of incorporation and amended and restated bylaws will provide for indemnification of each of our directors and executive officers to the fullest extent permitted by Delaware law. For a more detailed description of our indemnification arrangements, see “Management—Limitation of liability and indemnification of directors and officers.”

Other transactions

Beginning in April 2013, we entered into agreements for certain contract manufacturing and engineering services with a company affiliated with Foxteq Holdings Inc., a beneficial owner of more than 5% of our capital stock. As of March 31, 2014, the aggregate amount invoiced to us under these agreements was $14.1 million.

In July 2013, we loaned to Paul Crandell, one of our named executive officers, $150,000, pursuant to a demand payment loan that did not bear interest, which was repaid in March 2014.

In August 2013, we entered into an agreement with Mooresville Motorplex, LLC, a company owned by the son of Michael Marks, one of our directors, to acquire certain naming rights to a sprint kart track. As consideration for these naming rights, we will pay a total of $525,000 in installments beginning in October 2013 over the naming rights period. In addition to cash payment for the naming rights, we are also contractually obligated to provide Mooresville Motorplex with 300 capture devices at no cost over the life of the agreement. Mr. Marks is not affiliated with, and has no financial interest in, Mooresville Motorplex, LLC.

In November 2013, we became a party to a settlement agreement between Nicholas Woodman and Dean Woodman related to an outstanding legal matter. Pursuant to the settlement agreement, we reimbursed Dean Woodman’s legal expenses of $175,000.

In December 2013, we entered into a separation agreement with Kurt Amundson, our former Chief Financial Officer, pursuant to which we paid him cash severance of $290,306.

In fiscal year 2013 and the first quarter of fiscal year 2014, we incurred and expensed chartered aircraft fees for the use of Nicholas Woodman’s private plane, for which $185,000 was accrued as of March 31, 2014.

In May 2014, we amended the outstanding stock options granted to Mr. Amundson to facilitate net exercise of those options and subsequently repurchased 41,154 shares of common stock from Mr. Amundson’s estate for a total purchase price of $757,234.

In June 2014, we sold seven automobiles owned by us to Nicholas Woodman for a total purchase price of $287,618. The purchase price Mr. Woodman paid for each automobile was based on the deemed fair values attributed to third-party sales of automobiles of similar make model, age and condition by appraisers, dealers or well-known automotive resources.

 

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Review, approval or ratification of transactions with related parties

Our policy and the charter of the audit committee require that any transaction with a related party that must be reported under applicable rules of the SEC (other than compensation-related matters) and must be reviewed and approved by the audit committee (other than transactions that are subject to review by our board of directors as a whole or any other committee of our board of directors). These committees have adopted policies and procedures for review of, and standards for approval of, such transactions.

 

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Principal and selling stockholders

The following table presents information as to the beneficial ownership of our Class B common stock as of June 5, 2014, as adjusted to reflect the sale of our Class A common stock in this offering, by:

 

Ÿ  

each stockholder known by us to be the beneficial owner of more than 5% of our Class B common stock;

 

Ÿ  

each of our directors;

 

Ÿ  

each of our named executive officers;

 

Ÿ  

all of our directors and executive officers as a group; and

 

Ÿ  

each selling stockholder.

Beneficial ownership is determined in accordance with the rules of the SEC and thus represents 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 beneficially owned, subject to community property laws where applicable. Shares of our Class B common stock subject to options that are currently exercisable or exercisable within 60 days of June 5, 2014 are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

Percentage ownership of our Class B common stock before this offering is based on 115,027,871 shares of our Class B common stock outstanding on June 5, 2014, which includes 30,523,036 shares of Class B common stock resulting from the conversion of all outstanding shares of our redeemable convertible preferred stock in connection with the closing of this offering, as if this conversion had occurred as of June 5, 2014. No shares of our Class A common stock will be outstanding prior to the effective date of this prospectus. Percentage ownership of our Class A and Class B common stock after the offering also assumes (i) the sale of shares of Class A common stock by us and the selling stockholders in this offering, (ii) the exercise of options to purchase 2,476,548 shares of our Class B common stock by certain selling stockholders and the conversion of such shares into the same number of shares of our Class A common stock for sale in this offering and (iii) the contribution of 658,443 shares of Class B common stock by Mr. Woodman to us in respect of stock options exercised by a certain selling stockholder (assuming no exercise of the underwriters’ option to purchase additional shares). Unless otherwise indicated, the address of each of the individuals and entities named below is c/o GoPro, Inc., 3000 Clearview Way, San Mateo, California 94402.

 

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      Number of shares
beneficially owned
before this  offering
                    Number of shares
beneficially owned
after this offering
         
Name   Class B     % of total
voting
power
before
offering(1)
    Number of
shares
offered
    Class A     Class B     % of total
voting
power
after
offering(1)
 

 

 

5% stockholders:

           

Nicholas Woodman and Jill R. Woodman, as Co-Trustees of The Woodman Family Trust under Trust Agreement dated March 11, 2011(2)

    56,600,496        49.21        3,562,892               52,379,161        47.74   

RW Camera Holdings LLC(3)

    18,356,461        15.96        1,155,504               17,200,957        15.68   

Foxteq Holdings Inc.(4)

    11,709,327        10.18        737,080               10,972,247        10.00   

Dean Woodman(5)

    7,256,022        6.31                      7,256,022        6.61   

Sageview Capital Master, L.P.(6)

    6,937,464        6.03        436,700               6,500,764        5.92   

Neil Dana§(7)

    6,584,427        5.41        658,443               5,925,984        5.12   

Directors and named executive officers:

           

Nicholas Woodman(8)

    56,600,496        49.21        3,562,892               52,379,161        47.74   

Michael Marks(9)

    18,356,461        15.96        1,155,504               17,200,957        15.68   

Edward Gilhuly(10)

    6,937,464        6.03        436,700               6,500,764        5.92   

John Ball(11)

    3,468,731        3.02        218,350               3,250,381        2.96   

Kenneth Goldman

           *                             *   

Peter Gotcher(12)

    54,348        *                      54,348        *   

Anthony Bates(13)

    366,619        *                      366,619        *   

Paul Crandell(14)

    245,310        *        30,000               215,310        *   

Nina Richardson(15)

    159,375        *                      159,375        *   

All executive officers and directors as a group (10 persons)(16)

    86,207,554        74.66        5,403,446               80,145,665        72.77   

Other selling stockholders:

           

Entities affiliated with U.S. Venture Partners(17)

    1,734,365        1.51        109,175               1,625,190        1.48   

Stephen Baumer§(18)

    1,620,000        1.39        162,000               1,458,000        1.31   

Ruben Ducheyne§(19)

    1,080,000        *        100,000               980,000        *   

Andrea Moody§(20)

    1,080,000        *        108,000               972,000        *   

Justin Wilkenfeld§(21)

    1,080,000        *        108,000               972,000        *   

Estate of Kurt E. Amundson(22)

    1,050,000        *        660,000               390,000        *   

Pilar Woodman§(23)

    650,433        *        88,000               562,433        *   

David Newman§(24)

    634,623        *        61,588               573,035        *   

Jonathan Harris§†

    600,000        *        57,500               542,500        *   

Stephen Schmidt§(25)

    600,000        *        60,000               540,000        *   

Arthur Smith§†

    600,000        *        60,000               540,000        *   

Rudy Samuels§†

    540,000        *        54,000               486,000        *   

David Taylor§(26)

    384,624        *        38,000               346,624        *   

Virginia Crowe§(27)

    315,000        *        29,250               285,750        *   

Irwin Federman(28)

    300,000        *        15,000               285,000        *   

Concepcion Federman(29)

    300,000        *        15,000               285,000        *   

Greg Patti§(30)

    285,000        *        25,000               260,000        *   

Damon Jones§(31)

    270,000        *        20,000               250,000        *   

Brian Schunck§(32)

    225,000        *        10,000               215,000        *   

Kelly Slater(33)

    210,000        *        73,500               136,500        *   

Ronald LaValley§†

    193,749        *        17,500               176,249        *   

Craig Davidson§(34)

    129,945        *        12,432               117,513        *   

Abraham Kislevitz§(35)

    105,937        *        3,807               102,130        *   

Timothy Bucklin§†

    104,945        *        5,000               99,945        *   

Christina Anderson§(36)

    97,187        *        9,063               88,124        *   

Lee Topar§(37)

    88,250        *        8,638               79,612        *   

David Northway§†

    87,500        *        8,000               79,500        *   

Meghan Laffey§(38)

    86,250        *        8,063               78,187        *   

Jordan Miller§(39)

    85,781        *        5,280               80,501        *   

Beverly Ambrose§(40)

    84,000        *        1,000               83,000        *   

Scot Briggs§†

    83,125        *        7,657               75,468        *   

Ora DiLeonardo§(41)

    75,000        *        7,500               67,500        *   

 

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      Number of shares
beneficially owned
before this  offering
                    Number of shares
beneficially owned
after this offering
         
Name   Class B     % of total
voting
power
before
offering(1)
    Number of
shares
offered
    Class A     Class B     % of total
voting
power
after
offering(1)
 

 

 

Andrew Patrick Ryer§†

    75,000        *        6,938               68,062        *   

Richard Loughery§†

    67,500        *        6,750               60,750        *   

Nicholas Berger§(42)

    60,000        *        6,000               54,000        *   

Alexander Eng§(43)

    60,000        *        6,000               54,000        *   

Jenille Johnson§†

    60,000        *        5,000               55,000        *   

Wendy Misner§†

    60,000        *        4,000               56,000        *   

Denise Mitchell§†

    60,000        *        6,000               54,000        *   

Elizabeth Szulczewski§†

    57,500        *        5,000               52,500        *   

Justin Fierro§(44)

    52,500        *        5,250               47,250        *   

Arturo Salazar§†

    52,500        *        5,250               47,250        *   

All other selling stockholders (45)

    1,114,214        *        96,891               1,017,323        *   

 

 

 

*   Represents beneficial ownership of less than 1% of our outstanding shares of common stock.

 

  All shares beneficially owned by this individual represent shares subject to options that are exercisable within 60 days of June 5, 2014.

 

§   Identifies a person who is one of our current employees or was an employee of ours within the past three years.

 

(1)   Percentage of total voting power represents voting power with respect to all shares of our Class A and Class B common stock, as a single class. The holders of our Class B common stock are entitled to ten votes per share, and holders of our Class A common stock are entitled to one vote per share. See “Description of capital stock—Common stock” for more information about the voting rights of our Class A and Class B common stock.

 

(2)   Consists of 55,100,496 shares held by the Woodman Family Trust under Trust Agreement dated March 11, 2011 of which Nicholas Woodman and Jill Woodman are co-trustees and 1,500,000 shares held by Nicholas Woodman. As a co-trustee, Mr. Woodman may be deemed to have shared voting and investment power over the shares owned by the Woodman Family Trust. If the option to purchase additional shares is exercised by the underwriters in full, an additional 1,529,482 shares of Class B common stock will be sold by the Woodman Family Trust, after which Mr. Woodman will beneficially own 50,849,679 shares of Class B common stock, which represents 47.38% of the total voting power after this offering. The address for the Woodman Family Trust is 3000 Clearview Way, San Mateo, CA 94402.

 

(3)   Consists of 18,356,461 shares held by RW Camera Holdings LLC. Riverwood Capital L.P. is the manager of RW Camera Holdings LLC and Riverwood Capital GP Ltd. is the general partner of Riverwood Capital L.P. Mr. Marks, a member of our board of directors, is Chief Executive Officer and Director of Riverwood Capital GP Ltd., and Nicholas Brathwaite, Francisco Alvarez-Demalde and Jeff Parks are the managing directors of Riverwood Capital GP Ltd., all of whom may be deemed to share voting and investment power over these shares. If the option to purchase additional shares is exercised by the underwriters in full, an additional 496,036 shares of Class B common stock will be sold by RW Camera Holdings LLC, after which it will beneficially own 16,704,921 shares of Class B common stock, which represents 15.57% of the total voting power after this offering. The address for RW Camera Holdings is 70 Willow Road, Suite 100, Menlo Park, CA 94025.

 

(4)   Consists of 11,709,327 shares held by Foxteq Holdings Inc. Foxconn (Far East) Ltd. (Cayman), an exempt company, is the manager of Foxteq Holdings Inc. Hon Hai Precision Industry Co., Ltd., a company limited by shares, is the manager of Foxconn (Far East) Ltd. (Cayman). If the option to purchase additional shares is exercised by the underwriters in full, an additional 316,414 shares of Class B common stock will be sold by Foxteq Holdings Inc., after which it will beneficially own 10,655,833 shares of Class B common stock, which represents 9.93% of the total voting power after this offering. The address for Foxteq Holdings Inc. is No 2 Ziyou Street, Tucheng District New Taipei City 236 Taiwan, Republic of China.

 

(5)  

Consists of (i) 120,000 shares held by Dean Woodman as his sole and separate property, (ii) 3,336,022 shares held by Dean Woodman as certain community property, (iii) 2,000,000 shares held by Mockingbird Trail LLLP, of which Dean Woodman holds a 99% limited partnership interest and (iv) 1,800,000 shares held by Theodore H. Swindells, Trustee of the Dean S. Woodman 2010 Irrevocable Trust dated December 3, 2010. The address for Dean Woodman is c/o Morgan Stanley Private Wealth Management, 555 California Street, 35 th Floor, San Francisco, CA 94104, Attn: Michael Baumer.

 

(6)   Consists of 6,937,464 shares held by Sageview Capital Master, L.P. (“Sageview Master”). Sageview Capital Partners (A), L.P. (“Sageview A”), Sageview Capital Partners (B), L.P. (“Sageview B”) and Sageview Partners (C) (Master), L.P. (“Sageview C”) are the sole shareholders of Sageview Master. Sageview Capital GenPar, Ltd. (“Sageview Ltd”) is the sole general partner of each of Sageview Master. Sageview A, Sageview B and Sageview C. Sageview Capital GenPar, L.P. (“Sageview GenPar”) is the sole shareholder of Sageview Ltd. Sageview Capital MGP, LLC is the sole general partner of Sageview GenPar. Scott Stuart and Edward Gilhuly, one of our directors, are managing members and controlling persons of Sageview Capital MGP, LLC. As managing members of Sageview Capital MGP, LLC, each of Messrs. Stuart and Gilhuly may be deemed to share voting and invested power over these shares. If the option to purchase additional shares is exercised by the underwriters in full, an additional 187,467 shares of Class B common stock will be sold by Sageview Master, after which it will beneficially own 6,313,297 shares of Class B common stock, which represents 5.88% of the total voting power after this offering. The address for Mr. Gilhuly is c/o Sageview Capital LP, 245 Lytton Avenue, Suite 250, Palo Alto, CA 94301. The address for Mr. Stuart is c/o Sageview Capital LP, 55 Railroad Avenue, Greenwich, CT 06830.

 

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(7)   Consists of 6,584,427 shares subject to options held by Mr. Dana that are exercisable within 60 days of June 5, 2014. The address for Mr. Dana is 3000 Clearview Way, San Mateo, CA 94402.

 

(8)   Consists of 55,100,496 shares held by the Woodman Family Trust under Trust Agreement dated March 11, 2011 of which Nicholas Woodman and Jill Woodman are co-trustees and 1,500,000 shares held by Nicholas Woodman. As a co-trustee, Mr. Woodman may be deemed to have shared voting and investment power over the shares owned by the Woodman Family Trust. If the option to purchase additional shares is exercised by the underwriters in full, an additional 1,529,482 shares of Class B common stock will be sold by the Woodman Family Trust, after which Mr. Woodman will beneficially own 50,849,679 shares of Class B common stock, which represents 47.38% of the total voting power after this offering. The address for the Woodman Family Trust is 3000 Clearview Way, San Mateo, CA 94402.

 

(9)   Consists of the shares referred to in footnote (3) above. If the option to purchase additional shares is exercised by the underwriters in full, an additional 496,036 shares of Class B common stock will be sold by RW Camera Holdings LLC, after which it will beneficially own 16,704,921 shares of Class B common stock, which represents 15.57% of the total voting power after this offering. The address for Mr. Marks is c/o Riverwood Capital, 70 Willow Road, Suite 100, Menlo Park, CA 94025.

 

(10)   Consists of the shares referred to in footnote (6) above. If the option to purchase additional shares is exercised by the underwriters in full, an additional 187,467 shares of Class B common stock will be sold by Sageview Master, after which it will beneficially own 6,313,297 shares of Class B common stock, which represents 5.88% of the total voting power after this offering. The address for Mr. Gilhuly is c/o Sageview Capital LP, 245 Lytton Avenue, Suite 250, Palo Alto, CA 94301.

 

(11)   Consists of 3,468,731 shares held by Steamboat Ventures V, L.P., on its own behalf and as nominee for the benefit of certain other entities affiliated with Steamboat Ventures V, L.P. Steamboat Ventures Holdings V Manager, L.P. is the general partner of Steamboat Ventures V, L.P. Steamboat Ventures Holdings V GP, Ltd. is the general partner of Steamboat Ventures Holdings V Manager, L.P. Mr. Ball, a member of our board of directors, is a managing partner of Steamboat Ventures Holdings V GP, Ltd. and may be deemed to have shared voting and investment power over these shares. If the option to purchase additional shares is exercised by the underwriters in full, an additional 93,734 shares of Class B common stock will be sold by Steamboat Ventures V, L.P., after which it will beneficially own 3,156,648 shares of Class B common stock, which represents 2.94% of the total voting power after this offering. The address for Mr. Ball is 3601 West Olive Avenue, Suite 650, Burbank, CA 91505.

 

(12)   Consists of 54,348 shares held by The Peter and Marie-Helene Gotcher Family Trust. Mr. Gotcher is the President of The Peter and Marie-Helene Gotcher Family Trust.

 

(13)   Represents 271,740 shares held by Mr. Bates and 94,879 shares subject to options held by Mr. Bates that are exercisable within 60 days of June 5, 2014.

 

(14)   Represents 80,300 shares held by Mr. Crandell and 165,010 shares subject to options held by Mr. Crandell that are exercisable within 60 days of June 5, 2014.

 

(15)   Represents 159,375 shares subject to options held by Ms. Richardson that are exercisable within 60 days of June 5, 2014.

 

(16)   Consists of (i) 85,769,540 shares and (ii) 438,014 shares subject to options that are exercisable within 60 days of June 5, 2014.

 

(17)   Consists 1,680,601 shares held by U.S. Venture Partners X, L.P (“USVP X”) and 53,764 shares held by USVP X Affiliates, L.P. (“AFF X”), together, the “USVP Funds.” Presidio Management Group X, L.L.C. (“PMG X”) is the general partner of the USVP Funds. The managing members of PMG X are Irwin Federman, Steven M. Krausz, Rick Lewis, Paul Matteucci, Jonathan D. Root and Casey Tansey, all of whom may be deemed to share voting and investment power over these shares. Irwin Federman is Nicholas Woodman’s stepfather. If the option to purchase additional shares is exercised by the underwriters in full, an additional 46,867 shares of Class B common stock will be sold by the USVP Funds, after which it will beneficially own 1,578,323 shares of Class B common stock, which represents 1.47% of the total voting power after this offering. The address for the USVP Funds is 2735 Sand Hill Road, Menlo Park, CA 94025.

 

(18)   Represents 304,566 shares held by Mr. Baumer and 1,315,434 shares subject to options held by Mr. Baumer that are exercisable within 60 days of June 5, 2014.

 

(19)   Represents 27,000 shares held by Mr. Ducheyne and 1,053,000 shares subject to options held by Mr. Ducheyne that are exercisable within 60 days of June 5, 2014.

 

(20)   Represents 304,566 shares held by the Moody 2013 Family Trust dated April 26, 2013 of which Ms. Moody is a co-trustee and 775,434 shares subject to options held by Ms. Moody that are exercisable within 60 days of June 5, 2014. Ms. Moody is Nicholas Woodman’s sister and has been employed by us since March 2009.

 

(21)   Represents 25,000 shares held by Mr. Wilkenfeld and 1,055,000 shares subject to options held by Mr. Wilkenfeld that are exercisable within 60 days of June 5, 2014.

 

(22)   Represents 1,050,000 shares subject to options held by the Estate of Kurt E. Amundson, our former Chief Financial Officer, that are exercisable within 60 days of June 5, 2014.

 

(23)   Ms. Woodman is Nicholas Woodman’s sister and has been employed by us since January 2011.

 

(24)   Represents 20,000 shares held by Mr. Newman and 614,623 shares subject to options held by Mr. Newman that are exercisable within 60 days of June 5, 2014.

 

(25)   Represents 400 shares held by Mr. Schmidt and 599,600 shares subject to options held by Mr. Schmidt that are exercisable within 60 days of June 5, 2014.

 

(26)   Represents 1,000 shares held by Mr. Taylor and 383,624 shares subject to options held by Mr. Taylor that are exercisable within 60 days of June 5, 2014.

 

(27)   Represents 30,000 shares held by Ms. Crowe and 285,000 shares subject to options held by Ms. Crowe that are exercisable within 60 days of June 5, 2014.

 

(28)   Mr. Federman is Nicholas Woodman’s stepfather.

 

(29)   Ms. Federman is Nicholas Woodman’s mother.

 

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(30)   Represents 30,000 shares held by Mr. Patti and 255,000 shares subject to options held by Mr. Patti that are exercisable within 60 days of June 5, 2014.

 

(31)   Represents 10,000 shares held by Mr. Jones and 260,000 shares subject to options held by Mr. Jones that are exercisable within 60 days of June 5, 2014.

 

(32)   Represents 20,000 shares held by Mr. Schunck and 205,000 shares subject to options held by Mr. Schunck that are exercisable within 60 days of June 5, 2014.

 

(33)   Mr. Slater is a consultant to us.

 

(34)   Represents 49,280 shares held by Mr. Davidson and 80,665 shares subject to options held by Mr. Davidson that are exercisable within 60 days of June 5, 2014.

 

(35)   Represents 97,499 shares held by Mr. Kislevitz and 8,438 shares subject to options held by Mr. Kislevitz that are exercisable within 60 days of June 5, 2014.

 

(36)   Represents 28,500 shares held by Ms. Anderson and 68,687 shares subject to options held by Ms. Anderson that are exercisable within 60 days of June 5, 2014.

 

(37)   Represents 5,000 shares held by Mr. Topar and 83,250 shares subject to options held by Mr. Topar that are exercisable within 60 days of June 5, 2014.

 

(38)   Represents 72,562 shares held by Ms. Laffey and 13,688 shares subject to options held by Ms. Laffey that are exercisable within 60 days of June 5, 2014.

 

(39)   Represents 1,000 shares held by Mr. Miller and 84,781 shares subject to options held by Mr. Miller that are exercisable within 60 days of June 5, 2014.

 

(40)   Represents 50,000 shares held by Ms. Ambrose and 34,000 shares subject to options held by Ms. Ambrose that are exercisable within 60 days of June 5, 2014.

 

(41)   Represents 5,000 shares held by Ms. DiLeonardo and 70,000 shares subject to options held by Ms. DiLeonardo that are exercisable within 60 days of June 5, 2014.

 

(42)   Represents 40,000 shares held by Mr. Berger and 20,000 shares subject to options held by Mr. Berger that are exercisable within 60 days of June 5, 2014.

 

(43)   Represents 15,000 shares held by Mr. Eng and 45,000 shares subject to options held by Mr. Eng that are exercisable within 60 days of June 5, 2014.

 

(44)   Represents 30,000 shares held by Mr. Fierro and 22,500 shares subject to options held by Mr. Fierro that are exercisable within 60 days of June 5, 2014.

 

(45)   Represents 1,114,214 shares held by 39 selling stockholders not listed above who, as a group, owned less than 1% of the outstanding common stock prior to this offering. Of the 1,114,214 shares, 823,903 of the shares are subject to options held by the selling stockholders that are exercisable within 60 days of June 5, 2014. All of these selling stockholders are current or former (within the past three years) employees.

 

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Description of capital stock

Upon the completion of this offering, our authorized capital stock will consist of 655,000,000 shares of Class A common stock, $0.0001 par value per share, 150,000,000 shares of Class B common stock, $0.0001 par value per share and 5,000,000 shares of undesignated preferred stock, $0.0001 par value per share. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation and amended and restated bylaws that will be in effect upon the completion of this offering, which will be included as exhibits to the registration statement of which this prospectus forms a part, and to the provisions of applicable Delaware law.

Common stock

As of March 31, 2014, there were 112,820,599 shares of our Class B common stock outstanding, held by 190 stockholders of record, assuming the conversion of all of the outstanding shares of redeemable convertible preferred stock into 30,523,036 shares of Class B common stock in connection with the closing of this offering. No shares of our Class A common stock will be outstanding prior to the effective date of this prospectus. After the completion of this offering and after giving effect to the issuance of 2,476,548 shares of Class B common stock upon the exercise of options by certain selling stockholders, the conversion of such shares into Class A common stock to sell in this offering and the contribution back to us by Mr. Woodman of 658,443 shares of Class B common stock in respect of options exercised by a certain selling stockholder, there will be 17,800,000 shares of our Class A common stock outstanding and 105,738,704 shares of our Class B common stock outstanding, or 20,470,000 shares of Class A common stock outstanding and 103,068,704 shares of Class B common stock outstanding if the underwriters exercise in full their option to purchase additional shares of Class A common stock in this offering.

Dividend rights

Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our Class A and Class B common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors may determine.

Voting rights

Holders of our Class A and Class B common stock have identical rights, except that holders of our Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders and holders of our Class B common stock are entitled to 10 votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Holders of shares of our Class A common stock and Class B common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law. Cumulative voting for the election of directors is not provided for in our restated certificate of incorporation that will be in effect upon the closing of this offering, which means that the holders of a majority of our voting shares can elect all of the directors then standing for election.

No preemptive or similar rights

Neither our Class A nor our Class B common stock is entitled to preemptive or redemption rights.

 

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Conversion

Our Class A common stock is not convertible into any other shares of our capital stock. Each share of our Class B common stock is convertible at any time at the option of the holder into one share of our Class A common stock. In addition, each share of our Class B common stock will convert automatically into one share of our Class A common stock upon any transfer, whether or not for value, except for estate planning, intercompany and other similar transfers. Following the completion of this offering, each share of our Class B common stock will convert automatically into one share of Class A common stock on the date that the total number of shares of Class B common stock outstanding represents less than 10% of the total number of shares of Class A and Class B common stock outstanding. Each share of our Class B common stock will also convert into one share of Class A common stock if such conversion is approved by the holders of a majority of the then-outstanding shares of Class B common stock. Once converted into Class A common stock, the Class B common stock may not be reissued. No class of our common stock may be subdivided or combined unless the other class of our common stock concurrently is subdivided or combined in the same proportion and in the same manner.

Right to receive liquidation distributions

Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Class A and Class B common stock and any participating preferred stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding shares of preferred stock and payment of other claims of creditors.

Fully paid and nonassessable

All outstanding shares of our Class B common stock are, and the shares of our Class A 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, 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 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, unless approved by the affirmative vote of the holders of a majority of our capital stock entitled to vote, or such other vote as may be required by the certificate of designation establishing the series. 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 the Class A or Class B 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 and might adversely affect the market price of our Class A common stock and the voting and other rights of the holders of our Class A and Class B common stock. We have no current plan to issue any shares of our preferred stock.

 

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Options and RSUs

As of June 5, 2014, we had outstanding options to purchase 30,006,460 shares of our Class B common stock and 5,320,379 RSUs under our 2010 Plan and 310,534 shares remained available for future awards.

Registration rights

Pursuant to the terms of our investors’ rights agreement, immediately following the completion of this offering, the holders of approximately 28,603,307 shares of our Class B common stock (or 27,779,204 shares if the underwriters exercise the option to purchase additional shares in full) will be entitled to rights with respect to the registration of such shares under the Securities Act, as described below.

Demand registration rights .    At any time following 180 days after the effective date of this offering, the holders of a majority of the then-outstanding shares having registration rights can request that we file a registration statement covering registrable securities with an anticipated aggregate offering price of at least $50.0 million, provided that we are not required to file more than one such registration statement. In addition, at such time as we are eligible to register securities on a Registration Statement on Form S-3, the holders of a majority of the then-outstanding shares having registration rights can request that we file a registration statement covering registrable securities with an anticipated aggregate offering price of at least $7.0 million, provided that we are not required to file more than two such registrations in a 12-month period. We have certain rights to postpone or delay such requests for the filing of a registration statement.

Piggyback registration rights .    If we register any of our securities for public sale, holders of shares having registration rights will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to any of our employee benefit plans or a registration relating to a corporate reorganization. If the managing underwriter of any underwritten offering determines that it is necessary to limit the number of shares included in the offering by these holders, the number of shares to be registered will be apportioned pro rata among these holders. However, except in limited circumstances, the number of shares to be registered by these holders cannot be reduced below 25% of the total shares covered by the registration statement.

Expenses of registration rights .    We will pay all expenses incurred in connection with the registrations described above.

Expiration of registration rights .    The registration rights described above will expire, with respect to any particular holder of these rights, on the earlier of the fifth anniversary of the effective date of this offering or when such holder can sell all of its registrable securities in any three-month period without registration under Rule 144 of the Securities Act.

Anti-takeover provisions

The provisions of Delaware law, our restated certificate of incorporation and our amended and restated bylaws that will be in effect upon the completion of this offering may have the effect of delaying, deferring or discouraging another person from acquiring control of our company.

 

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Delaware law

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any “business combination” with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:

 

Ÿ  

before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

Ÿ  

upon closing of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

Ÿ  

on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock.

Restated certificate of incorporation and amended and restated bylaw provisions

We anticipate that our restated certificate of incorporation and our amended and restated bylaws that will be in effect upon the completion of this offering will include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control of our management team, including the following:

 

Ÿ  

Dual class common stock.     As described above in “—Common stock—Voting rights,” our restated certificate of incorporation will provide for a dual class common stock structure pursuant to which holders of our Class B common stock will have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, and current investors, executives and employees with the ability to exercise significant influence over those matters.

 

Ÿ  

Board of directors vacancies.     Our restated certificate of incorporation and amended and restated bylaws will authorize only our board of directors to fill vacant directorships. In addition, the number of directors constituting our board of directors may be set only by resolution adopted by a majority vote of our entire board of directors. These provisions

 

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prevent a stockholder from increasing the size of our board of directors and gaining control of our board of directors by filling the resulting vacancies with its own nominees.

 

Ÿ  

Classified board.     Initially our board of directors will not be classified. However, our restated certificate of incorporation and amended and restated bylaws will provide that our board will be classified into three classes of directors at such time as all shares of our Class B common stock have been converted into shares of our Class A common stock. Directors may be removed from office with or without cause so long as our board of directors is not classified, and thereafter directors may be removed from office only for cause. The existence of a classified board could delay a successful tender offeror from obtaining majority control of our board of directors, and the prospect of that delay might deter a potential offeror.

 

Ÿ  

Supermajority requirements for bylaws and certificate of incorporation amendments.     Our restated certificate of incorporation will further provide that the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of voting stock will be required to amend certain provisions of our certificate of incorporation, including provisions relating to the classified board, the size of the board, removal of directors, special meetings, actions by written consent and designation of our preferred stock. In addition, the affirmative vote of holders of 75% of the voting power of each of our Class A common stock and Class B common stock, voting separately by class, will be required to amend the provisions of our restated certificate of incorporation relating to the terms of our Class B common stock. The affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of voting stock will be required to amend or repeal our amended and restated bylaws, although our amended and restated bylaws may be amended by a simple majority vote of our board of directors.

 

Ÿ  

Stockholder action; special meeting of stockholders.     Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. Stockholders will not be permitted to cumulate their votes for the election of directors. Our restated certificate of incorporation and our amended and restated bylaws that will be in effect upon the closing of this offering will further provide that so long as any shares of our Class B common stock are outstanding, special meetings of our stockholders may be called by the holders of 10% of the outstanding voting power of all then-outstanding shares of stock, a majority of our board of directors, the chairman of our board of directors, our chief executive office or our president, and thereafter special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our chief executive officer or our president.

 

Ÿ  

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 also will specify certain requirements regarding the form and content of a stockholder’s notice. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.

 

Ÿ  

Issuance of undesignated preferred stock.     After the filing of our restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of undesignated preferred stock with rights and

 

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preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock enables 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 otherwise.

Choice of forum

Our restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty owed by any of our directors, officers or other employees; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. There are several pending lawsuits challenging the validity of choice of forum provisions in other companies’ organizational documents. It is possible that a court could rule that such a provision is inapplicable or unenforceable.

Limitations of liability and indemnification

See “Executive compensation—Limited liability and indemnification of directors and officers.”

NASDAQ listing

We have applied to list our Class A common stock on the NASDAQ Global Select Market under the symbol “GPRO.”

Transfer agent and registrar

The transfer agent and registrar for our Class A common stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue, Brooklyn, New York 11219, and its telephone number is (800) 937-5449.

 

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Shares eligible for future sale

Prior to this offering, there has not been a public market for shares of our Class A common stock, and we cannot predict the effect, if any, that market sales of shares of our Class A common stock or the availability of shares of our Class A common stock for sale will have on the prevailing market price of our Class A common stock from time to time. Nevertheless, sales of substantial amounts of our Class A common stock, including shares of Class A common stock issued upon conversion of Class B common stock issued upon exercise of outstanding options or settlement of outstanding RSUs, or the perception that these sales could occur in the public market after this offering could adversely affect prevailing market prices and could impair our ability to raise capital through the sale of our equity securities.

Upon the closing of this offering, based on the number of shares outstanding as of June 5, 2014, we will have 125,745,976 shares of Class A and Class B common stock outstanding assuming no exercise of outstanding stock options after June 5, 2014 (other than stock options exercised by selling stockholders in connection with this offering). Of these shares, all 17,800,000 shares of Class A common stock sold in this offering will be freely tradable, except that any shares held by our affiliates, as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the limitations described below.

The remaining 107,945,976 outstanding shares of our Class A and Class B common stock will be deemed “restricted securities” as defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered under the Securities Act 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 stockholders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they agreed, subject to specific exceptions, not to sell any of their stock for at least 180 days following the date of this prospectus. Subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:

 

Ÿ  

Beginning on the date of this prospectus, 17,800,000 of the shares will be immediately available for sale in the public market without restriction.

 

Ÿ  

Beginning 181 days after the date of this prospectus, subject to extension as described in “Underwriting,” 107,945,976 shares will become eligible for sale in the public market, of which 10,043,042 shares will be freely tradable under Rule 144 and Rule 701 and 97,911,573 shares will be held by affiliates and subject to the volume and other restrictions of Rule 144 and Rule 701, as described below.

In addition, of the 30,006,460 shares of our Class B common stock that were subject to stock options outstanding as of June 5, 2014, after the completion of this offering, options to purchase 18,566,793 shares of Class B common stock were vested and will be eligible for sale 181 days following the effective date of this prospectus, subject to extension as described in “Underwriting” and subject to, in the case of affiliates, the volume and other restrictions of Rule 144, as described below.

Lock-up agreements

All of our directors and officers and the holders of substantially all our equity securities are subject to lock-up agreements described in “Underwriting.”

 

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Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements 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 is 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 beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

 

Ÿ  

1% of the number of shares of Class A and Class B common stock then outstanding, which will equal approximately 1,257,459 shares immediately after this offering, or

 

Ÿ  

the average weekly trading volume of the Class A 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

In general, Rule 701 as currently in effect allows a stockholder who purchased shares of our Class B 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 to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701. Moreover, substantially all Rule 701 shares are subject to lock-up agreements as described above and under the section titled “Underwriting” and will not become eligible for sale until the expiration of those agreements.

Registration statements

We intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our Class B common stock subject to options and RSUs outstanding and shares of our Class A common stock reserved for issuance under our equity incentive plans. We expect to file this registration statement on, or as soon as practicable after, the effective date of this prospectus. However, the shares registered on Form S-8 will not be eligible for resale until expiration of the lock up agreements to which they are subject.

 

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Registration rights

We have granted demand registration rights, rights to participate in offerings that we initiate and Form S-3 registration rights to certain of our stockholders to sell our common stock. For a further description of these rights, see “Description of capital stock—Registration rights.”

 

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Certain material U.S. federal income tax considerations for non-U.S. holders of Class A common stock

This section summarizes certain material U.S. federal income tax considerations relating to the ownership and disposition of our Class A common stock by a “non-U.S. holder” (as defined below) pursuant to this offering. This summary does not provide a complete analysis of all potential tax considerations. The information provided below is based upon provisions of the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions currently in effect. These authorities may change at any time, possibly on a retroactive basis, or the IRS, might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of our Class A common stock could differ from those described below. As a result, we cannot assure you that the tax consequences described in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS.

This summary does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent provided below. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

 

Ÿ  

banks, insurance companies or other financial institutions;

 

Ÿ  

partnerships or entities or arrangements treated as partnerships or other pass-through entities for U.S. federal tax purposes (or investors in such entities);

 

Ÿ  

corporations that accumulates earnings to avoid U.S. federal income tax;

 

Ÿ  

persons subject to the alternative minimum tax or the net investment income tax;

 

Ÿ  

tax-exempt organizations or tax-qualified retirement plans;

 

Ÿ  

real estate investment trusts or regulated investment companies;

 

Ÿ  

controlled foreign corporations or passive foreign investment companies;

 

Ÿ  

persons who acquired our common stock as compensation for services;

 

Ÿ  

dealers in securities or currencies;

 

Ÿ  

traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

Ÿ  

persons that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below);

 

Ÿ  

certain former citizens or long-term residents of the United States;

 

Ÿ  

persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction;

 

Ÿ  

persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes); or

 

Ÿ  

persons deemed to sell our common stock under the constructive sale provisions of the Code.

 

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In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes is a beneficial owner of our Class A common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. Accordingly, this summary does not address tax considerations applicable to partnerships that hold our Class A common stock, and partners in such partnerships should consult their tax advisors.

INVESTORS CONSIDERING THE PURCHASE OF OUR CLASS A COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES.

Non-U.S. holder defined

For purposes of this summary, a “non-U.S. holder” is any holder of our Class A common stock, other than an entity taxable as a partnership for U.S. federal income tax purposes or:

 

Ÿ  

an individual who is a citizen or resident of the United States;

 

Ÿ  

a corporation, or other entity taxable as a corporation for United States federal income tax purposes, created or organized under the laws of the United States, any state therein or the District of Columbia or otherwise treated as such for U.S. federal income tax purposes;

 

Ÿ  

a trust that (1) is subject to the primary supervision of a U.S. court and one or more U.S. persons have authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

Ÿ  

an estate whose income is subject to U.S. income tax regardless of source.

If you are a non-U.S. citizen that is an individual, you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For these purposes, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to U.S. federal income tax as if they were U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the ownership, sale, exchange or other disposition of our Class A common stock.

Distributions

We do not expect to declare or make any distributions on our Class A common stock in the foreseeable future. If we do make any distributions on shares of our Class A common stock, however, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. holder’s adjusted tax basis in shares of our Class A common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of our Class A common stock. See “—Sale of Class A common stock.”

 

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Any distribution made to a non-U.S. holder on our Class A common stock that is not effectively connected with a non-U.S. holder’s conduct of a trade or business in the United States will generally be subject to U.S. withholding tax at a 30% rate. The withholding tax might not apply, however, or might apply at a reduced rate, under the terms of an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence. You should consult your tax advisors regarding your entitlement to benefits under a relevant income tax treaty. Generally, in order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder generally can meet this certification requirement by providing a Form W-8BEN (or any successor form) or appropriate substitute form to us or our paying agent. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you may obtain a refund or credit from the IRS of any excess amounts withheld by filing an appropriate claim for a refund with the IRS in a timely manner.

Distributions received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder, or, if an income tax treaty between the United States and the non-U.S. holder’s country of residence applies, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States, are not subject to such withholding tax. To obtain this exemption, a non-U.S. holder must provide us with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected distributions, although not subject to withholding tax, are generally taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition to the graduated tax described above, distributions received by corporate non-U.S. holders that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.

Sale of Class A common stock

Subject to the discussion below regarding the Foreign Account Tax Compliance Act, or FATCA, non-U.S. holders will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange or other disposition of Class A common stock unless:

 

Ÿ  

the gain (1) is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business and (2) if required by an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence applies, is attributable to a permanent establishment (or, in the case of an individual, a fixed base) maintained by the non-U.S. holder in the United States (in which case the special rules described below apply);

 

Ÿ  

the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the sale, exchange or other disposition of our Class A common stock, and certain other requirements are met (in which case the gain would be subject to a flat 30% tax, or such reduced rate as may be specified by an applicable income tax treaty, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States); or

 

Ÿ  

the rules of the Foreign Investment in Real Property Tax Act, or FIRPTA, treat the gain as effectively connected with a U.S. trade or business.

 

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The FIRPTA rules may apply to a sale, exchange or other disposition of our Class A common stock if we are, or were within the shorter of the five-year period preceding the disposition and the non-U.S. holder’s holding period, a “U.S. real property holding corporation, or USRPHC. In general, we would be a USRPHC if interests in U.S. real estate comprised at least half of the value of our business assets. We do not believe that we are a USRPHC and we do not anticipate becoming one in the future. Even if we become a USRPHC, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests subject to the FIRPTA rules only if a non-U.S. holder actually owns or constructively holds more than 5% of our outstanding common stock.

If any gain from the sale, exchange or other disposition of Class A common stock, (1) is effectively connected with a U.S. trade or business conducted by a non-U.S. holder and (2) if an income tax treaty between the United States and the non-U.S. holder’s country of residence applies, is attributable to a permanent establishment (or, in the case of an individual, a fixed base) maintained by such non-U.S. holder in the United States, then the gain generally will be subject to U.S. federal income tax at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If the non-U.S. holder is a corporation, under certain circumstances, that portion of its earnings and profits that is effectively connected with its U.S. trade or business, subject to certain adjustments, generally would be subject to a “branch profits tax.” The branch profits tax rate is 30%, although an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence might provide for a lower rate.

U.S. federal estate tax

The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent, unless an applicable tax treaty between the United States and the decedent’s country of residence provides otherwise.

Backup withholding and information reporting

The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by “backup withholding” rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, failing to report interest or dividends on his U.S. tax returns, or failing to otherwise establish an exemption to these rules. The backup withholding tax rate is currently 28%. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign, provided that they establish such exemption.

Payments to non-U.S. holders of dividends on common stock generally will not be subject to backup withholding, and payments of proceeds made to non-U.S. holders by a broker upon a sale of common stock will not be subject to information reporting or backup withholding, in each case so long as the non-U.S. holder certifies its nonresident status (and we or our paying agent do not have actual knowledge or reason to know the holder is a U.S. person or that the conditions

 

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of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. The certification procedures to claim treaty benefits described under “Distributions” above will generally satisfy the certification requirements necessary to avoid the backup withholding tax. We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides.

Backup withholding is not an additional tax. Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund from the IRS, provided that the required information is furnished to the IRS in a timely manner.

Foreign account tax compliance act

FATCA will impose a U.S. federal withholding tax of 30% on certain types of U.S. source “withholdable payments” (including dividends and the gross proceeds from the sale or other disposition of U.S. stock) to foreign financial institutions and other non-U.S. entities that fail to comply with certain certification and information reporting requirements regarding U.S. account holders or owners of such institution or entity. The obligation to withhold under FATCA is currently expected to apply to, among other items, (i) dividends on our Class A common stock that are paid after June 30, 2014 and (ii) gross proceeds from the disposition of our Class A common stock paid after December 31, 2016. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation on their investment in our Class A common stock.

THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR CLASS A COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

 

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Underwriting

We and the selling stockholders are offering the shares of Class A common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Barclays Capital Inc. are acting as joint book-running managers of the offering and as representatives of the underwriters. We and the selling stockholders have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we and the selling stockholders have severally agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of Class A common stock listed next to its name in the following table:

 

Name    Number of shares  

 

 

J.P. Morgan Securities LLC

  

Citigroup Global Markets Inc.

  

Barclays Capital Inc.

  

Allen & Company LLC

  

Stifel, Nicolaus & Company, Incorporated

  

Robert W. Baird & Co. Incorporated

  

MCS Capital Markets LLC

  

Piper Jaffray & Co.

  

Raymond James & Associates, Inc.

  
  

 

 

 

Total

     17,800,000   

 

 

The underwriters are committed to purchase all the shares of Class A common stock offered by us and the selling stockholders if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

The underwriters propose to offer the shares of Class A common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $             per share. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters. The representatives have advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the common shares offered in this offering.

The underwriters have an option to buy up to 2,670,000 additional shares of Class A common stock from certain of the selling stockholders to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of Class A common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

The underwriting discounts and commissions are equal to the public offering price per share of Class A common stock less the amount paid by the underwriters to us and the selling stockholders per share of Class A common stock. The underwriting discounts and commissions are $                 per share.

 

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The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

 

      Paid by us     Paid by selling stockholders     Total  
    Without over-
allotment
exercise
    With over-
allotment
exercise
    Without over-
allotment
exercise
    With over-
allotment exercise
    Without over-
allotment
exercise
   

With over-

allotment
exercise

 

 

 

Per Share

  $                   $                   $                   $                   $                   $                

Total

  $        $        $        $        $        $     

 

 

We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $5,150,000. We have agreed to reimburse the underwriters for certain expenses, including up to an aggregate of $50,000 in connection with the clearance of this offering with the Financial Industry Regulatory Authority, or FINRA, as set forth in the underwriting agreement.

A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

We, the selling stockholders, all of our directors and executive officers and holders of substantially all of our common stock and securities exercisable for or convertible into our common stock outstanding immediately prior to this offering have agreed not to (1) 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, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers and security holders in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of our common stock or any such other securities (whether any such transactions described in clause (1) or (2) above is to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise) or (3) in the case of our directors, executive officers and holders of our common stock and securities exercisable for or convertible into our common stock outstanding immediately prior to this offering, make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock, in each case without the prior written consent of J.P. Morgan Securities LLC for a period of 180 days after the date of this prospectus.

In our case, such restrictions shall not apply to:

 

Ÿ  

the shares of our Class A common stock to be sold in this offering;

 

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Ÿ  

any shares of our common stock issued upon the exercise of options or warrants or the conversion of a security outstanding on the date of the underwriting agreement and described in this prospectus;

 

Ÿ  

the grant of options or the issuance of shares of common stock by us to our employees, officers, directors, advisors or consultants pursuant to employee benefit plans in effect on the date of the underwriting agreement and as described in this prospectus; or

 

Ÿ  

the filing by us of a registration statement with the SEC on Form S-8 in respect of any shares issued under or the grant of any award pursuant to an employee benefit plan described herein.

In the case of our directors, executive officers and holders of our common stock, and subject to certain conditions, such restrictions shall not apply to:

 

Ÿ  

the sale of shares of our Class A common stock to the underwriters;

 

Ÿ  

sales of shares of our Class A common stock or other securities acquired in open market transactions after the completion of this offering, provided, that no filing under Section 16 of the Exchange Act or other public announcement is required or voluntarily made in connection with subsequent sales of the acquired securities;

 

Ÿ  

transfers of shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock (1) to the spouse, domestic partner, parent, child or grandchild of the director, executive officer or security holder, or to a trust for the benefit of such spouse, domestic partner, parent, child or grandchild, (2) by bona fide gift, will or intestacy, (3) that occurs by operation of law, (4) if the director, executive officer or security holder is a corporation, partnership or other business entity (a) to another corporation, partnership or other business entity that controls, is controlled by or is under common control with it or (b) as part of a disposition, transfer or distribution without consideration by such director, executive officer or security holder to its equity holders, or (5) if the director, executive officer or security holder is a trust, to a trustee or beneficiary of the trust, provided that, in each case, the transferee agrees to be bound by the terms of the lock-up agreement and no filing under Section 16 of the Exchange Act reporting a reduction in beneficial ownership or other public announcement is required or voluntarily made;

 

Ÿ  

transfers of shares of our common stock or any security convertible into common stock to us upon a vesting event of our securities or upon the exercise of options or warrants to purchase our securities, in each case on a “cashless” or “net exercise” basis or to cover tax withholding obligations of the director, executive officer or security holder in connection with such vesting or exercise, but only to the extent that such right expires during the lock up period;

 

Ÿ  

the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of our common stock; provided that such plan does not provide for the transfer of common stock during the lock-up period and no public announcement or filing under the Exchange Act is required or made voluntarily by the director, executive officer, security holder or us; or

 

Ÿ  

transfers of shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction made to all holders of our common stock involving a change in control of our company.

 

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We and the selling stockholders have agreed to indemnify the underwriters and their controlling persons, and we have agreed to indemnify Piper Jaffray & Co. and its controlling persons, in its capacity as qualified independent underwriter, against certain liabilities, including liabilities under the Securities Act.

We have applied to list our Class A common stock on the NASDAQ Global Select Market under the symbol “GPRO.”

In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of Class A common stock in the open market for the purpose of preventing or retarding a decline in the market price of the Class A common stock while this offering is in progress. These stabilizing transactions may include making short sales of the Class A common stock, which involves the sale by the underwriters of a greater number of shares of Class A common stock than they are required to purchase in this offering, and purchasing shares of Class A common stock on the open market to cover positions created by short sales. Short sales may be “covered” shorts, which are short positions in an amount not greater than the underwriters’ option to purchase additional shares referred to above, or may be “naked” shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. 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 Class A common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the Class A common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase Class A common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

These activities may have the effect of raising or maintaining the market price of the Class A common stock or preventing or retarding a decline in the market price of the Class A common stock, and, as a result, the price of the Class A common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NASDAQ Global Select Market, in the over-the-counter market or otherwise.

Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:

 

Ÿ  

the information set forth in this prospectus and otherwise available to the representatives;

 

Ÿ  

our prospects and the history and prospects for the industry in which we compete;

 

Ÿ  

an assessment of our management;

 

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Ÿ  

our prospects for future earnings;

 

Ÿ  

the general condition of the securities markets at the time of this offering;

 

Ÿ  

the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and

 

Ÿ  

other factors deemed relevant by the underwriters and us.

Neither we, the selling stockholders, nor the underwriters can assure investors that an active trading market will develop for our Class A common stock, or that the shares will trade in the public market at or above the initial public offering price.

Relationships with underwriters

The underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing, and brokerage activities. Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. Specifically, affiliates of J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Barclays Capital Inc. serve as lenders and an affiliate of J.P. Morgan Securities LLC serves as administrative agent under our credit facility. We expect to use more than 5% of the net proceeds from the sale of our Class A common stock to fully repay our term loan under our facility. See “Use of proceeds.” Accordingly, this offering is being made in compliance with the requirements of Rule 5121 of FINRA’s conduct rules. See “Conflicts of interest” for a more detailed discussion of potential conflicts of interest. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans.

Directed share program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the Class A common stock offered hereby (including any shares sold pursuant to the LOYAL3 platform described below) for sale to certain business and other associates of ours. None of our directors or executive officers will participate in the directed share program. We will offer these shares to the extent permitted under applicable regulations in the United States and applicable jurisdictions through a directed share program. The number of shares of our Class A common stock available for sale to the general public will be reduced by the number of directed shares purchased by participants in the program. Any directed shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares of our Class A common stock offered hereby. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act in connection with the sale of shares through a directed share program.

LOYAL3 platform

At our request, the underwriters have reserved up to 1.5% of the Class A common stock offered hereby to be offered through the LOYAL3 platform at the initial public offering price. Purchases

 

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through the LOYAL3 platform will be in dollar amounts and may include fractional shares. The LOYAL3 platform is designed to facilitate participation of individual purchasers in initial public offerings in amounts starting at $100. Any purchase of our Class A common stock in this offering through the LOYAL3 platform will be at the same initial public offering price, and at the same time, as any other purchases in this offering, including purchases by institutions and other large investors. Individual investors, including employees, partners and consumers, in the United States who are interested in purchasing Class A common stock in this offering through the LOYAL3 platform may go to LOYAL3’s website for information about how to become a customer of LOYAL3, which is required to purchase Class A common stock through the LOYAL3 platform. The LOYAL3 platform is available fee-free to investors. Sales of our Class A common stock by investors using the LOYAL3 platform will be completed through a batch or combined order process typically only once per day. The LOYAL3 platform and information on the LOYAL3 website do not form a part of this prospectus. The LOYAL3 platform is administered by LOYAL3 Securities, Inc., a U.S.-registered broker-dealer, that is unaffiliated with GoPro.

Selling restrictions outside the United States

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The shares of Class A common stock offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, referred to as the Order, or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order, all such persons together being referred to as relevant persons. The shares of Class A common stock are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

Notice to prospective investors in the European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each referred to as a Relevant Member State, from and including the date, or Relevant Implementation Date, on which the European Union Prospectus Directive, or EU Prospectus Directive, was implemented in that Relevant Member State, an offer of shares of common stock described in this prospectus may not be made 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

 

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Relevant Member State, all in accordance with the EU Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities described in this prospectus may be made to the public in that Relevant Member State at any time:

 

Ÿ  

to any legal entity which is a qualified investor as defined under the EU Prospectus Directive;

 

Ÿ  

to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive), as permitted under the EU Prospectus Directive, subject to obtaining the prior consent of J.P. Morgan Securities LLC for any such offer; or

 

Ÿ  

in any other circumstances falling within Article 3(2) of the EU Prospectus Directive, provided that no such offer of securities described in this prospectus shall result in a requirement for the publication by us of a prospectus pursuant to Article 3 of the EU Prospectus Directive.

For the purposes of this provision, the expression an “offer of securities to the public” in relation to any securities 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 of common stock to be offered so as to enable an investor to decide to purchase or subscribe for the shares, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression “EU Prospectus Directive” means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Notice to prospective investors in Switzerland

The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or the SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or the CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.

Notice to prospective investors in Hong Kong

The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within

 

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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.

Notice to prospective investors in 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 (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) 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 (iii) 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.

Notice to prospective investors in 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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Conflicts of interest

We expect at least 5% of the net proceeds from the sale of our Class A common stock will be used to fully repay our term loan under our credit facility, which had an outstanding balance of $114.0 and $111.0 million as of December 31, 2013 and March 31, 2014, respectively, owed by us to the lenders under our credit facility, including affiliates of J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Barclays Capital Inc. See “Use of proceeds” and “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources” for additional information regarding our credit facility. Accordingly, this offering is being made in compliance with the requirements of Rule 5121 of FINRA’s conduct rules. This rule provides generally that if at least 5% of the net proceeds from the sale of securities, not including underwriting compensation, is used to reduce or retire the balance of a loan or credit facility extended by the underwriters or their affiliates, a “qualified independent underwriter” meeting certain standards set forth by FINRA must participate in the preparation of this prospectus and exercise the usual standards of due diligence with respect thereto. Piper Jaffray & Co. is assuming the responsibilities of acting as the qualified independent underwriter in connection with this offering and in conducting due diligence. None of J.P. Morgan Securities LLC, Citigroup Global Markets Inc. or Barclays Capital Inc. will confirm sales of the securities to any account over which they exercise discretionary authority without the prior written approval of the customer.

 

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Legal matters

Fenwick & West LLP, Mountain View, California will pass upon the validity of the issuance of the shares of Class A common stock offered by this prospectus. Fenwick & West LLP beneficially owns 26,015 shares of our redeemable convertible preferred stock that will convert to Class B common stock in connection with the closing of this offering, representing approximately 0.02% of our outstanding shares of common stock as of December 31, 2013. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California, will act as counsel to the underwriters.

Experts

The consolidated financial statements of GoPro, Inc. as of December 31, 2013 and 2012, and for each of the three years in the period ended December 31, 2013, included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

Where you can find additional information

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the Class A common stock. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some items of which are 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 Class A common stock, we refer you to the registration statement, including the exhibits and the consolidated financial statements and notes filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are 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 in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. The exhibits to the registration statement should be reviewed for the complete contents of these contracts and documents. A copy of the registration statement, including the exhibits and the financial statements and notes filed as a part of the registration statement, may be inspected without charge at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon the payment of fees prescribed by it. You may call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference facilities. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with it.

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.

 

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GoPro, Inc.

Index to consolidated financial statements

 

    Page(s)  

Report of Independent Registered Public Accounting Firm

    F-2   

Consolidated Balance Sheets

    F-3   

Consolidated Statements of Operations

    F-4   

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

    F-5   

Consolidated Statements of Cash Flows

    F-6   

Notes to Consolidated Financial Statements

    F-7   

 

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Report of independent registered public accounting firm

To the Board of Directors and Stockholders of GoPro, Inc.:

In our opinion, the accompanying Consolidated Balance Sheets and the related Consolidated Statements of Operations, Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) and Statement of Cash Flows present fairly, in all material respects, the financial position of GoPro, Inc. and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements 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. An audit 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.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

March 14, 2014

 

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GoPro, Inc.

Consolidated balance sheets

 

       December 31,    

March 31,

2014

   

Pro forma
March 31,

2014

(note 2)

 
(in thousands, except share and per share amounts)    2012     2013      

 

 
                 (unaudited)  

Assets

        

Current assets:

        

Cash

   $ 36,485      $ 101,410      $ 111,215     

Accounts receivable, net of allowance for doubtful accounts of $262, $520 and $382 at December 31, 2012, 2013 and March 31, 2014 (unaudited), respectively

     80,197        122,669        47,310     

Inventories, net

     60,412        111,994        90,186     

Prepaid expenses and other current assets

     21,724        21,967        24,589     
  

 

 

 

Total current assets

     198,818        358,040        273,300     

Property and equipment, net

     22,440        32,111        34,065     

Intangible assets and goodwill

     8,449        17,365        17,080     

Other long-term assets

     16,958        32,155        30,755     
  

 

 

 

Total assets

   $ 246,665      $ 439,671      $ 355,200     
  

 

 

 

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

        

Current liabilities:

        

Accounts payable

   $ 53,746      $ 126,423      $ 55,673     

Accrued liabilities

     48,714        86,391        70,083     

Deferred revenue

     7,380        7,781        8,689     

Income taxes payable

     3,578        19,702        8,556     

Notes payable and current portion of long-term debt

     15,782        60,297        63,300     
  

 

 

 

Total current liabilities

     129,200        300,594        206,301     

Long-term debt, less current portion

     113,613        53,315        47,366     

Other long-term liabilities

     6,455        13,930        13,929     
  

 

 

 

Total liabilities

     249,268        367,839        267,596     
  

 

 

 

Commitments and contingencies (Note 12)

        

Redeemable convertible preferred stock—$0.0001 par value; 36,000,000 shares authorized: 30,523,036 shares issued and outstanding as of December 31, 2012, 2013 and March 31, 2014 (unaudited), respectively; no shares issued or outstanding pro forma (unaudited); liquidation preference of $77,326 as of December 31, 2012, 2013 and March 31, 2014 (unaudited), respectively

     77,138        77,198        77,213          

Stockholders’ equity (deficit)

        

Common stock—$0.0001 par value; 150,000,000 shares authorized:

        

80,714,412, 81,420,040 and 81,899,442 shares issued and outstanding as of December 31, 2012, 2013 and March 31, 2014 (unaudited), respectively, and 112,422,478 pro forma (unaudited) shares issued and outstanding

     8        8        8        11   

Additional paid-in capital

     471        14,510        19,218        96,428   

Accumulated deficit

     (80,220     (19,884     (8,835     (8,835
  

 

 

 

Total stockholders’ equity (deficit)

     (79,741     (5,366     10,391      $ 87,604   
  

 

 

 

Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

   $ 246,665      $ 439,671      $ 355,200     

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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GoPro, Inc.

Consolidated statements of operations

 

      Year ended December 31,     Three months ended
March 31,
 
(in thousands, except per share amounts)   2011    

2012

    2013     2013     2014  

 

   

 

 

   

 

 

 
                      (unaudited)  

Revenue

  $ 234,238      $ 526,016      $ 985,737      $ 255,057      $ 235,716   

Cost of revenue

    111,683        298,530        623,953        165,628        139,202   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    122,555        227,486        361,784        89,429        96,514   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

         

Research and development

    8,644        36,115        73,737        12,012        28,739   

Sales and marketing

    64,375        116,855        157,771        35,673        41,341   

General and administrative

    10,757        20,899        31,573        6,988        9,878   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    83,776        173,869        263,081        54,673        79,958   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    38,779        53,617        98,703        34,756        16,556   

Other income (expense), net

    12        (407     (7,374     (1,694     (1,625
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    38,791        53,210        91,329        33,062        14,931   

Income tax expense

    14,179        20,948        30,751        10,027        3,882   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 24,612      $ 32,262      $ 60,578      $ 23,035      $ 11,049   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: common stock distributed earnings

    (5,071     (84,828                     

Less: preferred stock distributed earnings, including accumulated accretion

    (5,815     (26,927                     

Less: unvested early exercised options and restricted stock distributed earnings

           (454                     

Less: undistributed earnings allocable to:

holders of preferred stock and unvested early exercised options and restricted stock

                  (16,727     (6,379     (3,040
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed net income (loss) attributable to common stockholders—basic

  $ 13,726      $ (79,947   $ 43,851      $ 16,656      $ 8,009   

Add: adjustments to net income for dilutive securities allocable to:

holders of preferred stock and unvested early exercised options and restricted stock

                  2,309        872        443   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed net income (loss) attributable to common stockholders—diluted

  $ 13,726      $ (79,947   $ 46,160      $ 17,528      $ 8,452   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributed earnings to common stockholders

  $ 5,071      $ 84,828                        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net income per share attributable to common stockholders:

         

Basic

    73,481        74,226        81,018        80,768        81,582   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    78,551        74,226        98,941        98,457        100,783   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders:

         

Basic

  $ 0.26      $ 0.07      $ 0.54      $ 0.21      $ 0.10   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ 0.24      $ 0.07      $ 0.47      $ 0.18      $ 0.08   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per share attributable to common stockholders (unaudited):

         

Basic

      $ 0.54        $ 0.10   
     

 

 

     

 

 

 

Diluted

      $ 0.47        $ 0.08   
     

 

 

     

 

 

 

Pro forma weighted-average shares used to compute net income per share attributable to common stockholders (unaudited):

         

Basic

        111,541          112,105   
     

 

 

     

 

 

 

Diluted

        129,464          131,306   
     

 

 

     

 

 

 

Supplemental pro forma net income per share attributable to common stockholders (unaudited):

         

Basic

      $ 0.54        $ 0.10   
     

 

 

     

 

 

 

Diluted

      $ 0.47        $ 0.09   
     

 

 

     

 

 

 

Supplemental pro forma weighted-average shares used to compute net income per share attributable to common stockholders (unaudited):

         

Basic

        116,474          117,038   
     

 

 

     

 

 

 

Diluted

        134,397          136,239   

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4


Table of Contents
Index to Financial Statements

GoPro, Inc.

Consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit)

 

      Redeemable
convertible
preferred stock
    Common stock    

Additional

paid-in
capital

   

Retained
earnings
(accumulated

deficit)

   

Total
stockholders’

equity
(deficit)

 
(in thousands)   Shares     Amount     Shares     Amount        

 

 

Balances at December 31, 2010

                  73,160        263        674        11,465        12,402   

Reclassification of retained earnings due to termination of S corporation election

                                9,108        (9,108       

Issuance of preferred stock, net of issuance costs

    7,894        19,663                                      

Preferred stock dividend to common stockholders

    26,840        67,995                      (10,030     (57,965     (67,995

Preferred stock dividend accretion

           3,432                      (3,432            (3,432

Accretion of preferred stock issuance costs

           56                      (56            (56

Exercise of stock options

                  646        11                      11   

Stock-based compensation expense

                                8,975               8,975   

Stock options assumed in acquisition

                                339               339   

Stockholder contribution

                                6,120               6,120   

Cash distribution to stockholders

                                (5,071            (5,071

Reincorporation in Delaware and change in par value

                         (267     267                 

Net income

                                       24,612        24,612   
 

 

 

 

Balances at December 31, 2011

    34,734        91,146        73,806        7        6,894        (30,996     (24,095

Preferred stock dividend accretion

           4,207                      (4,207            (4,207

Accretion of preferred stock issuance costs

           67                      (67            (67

Exercise of stock options

                  2,565               1,906               1,906   

Vesting of shares related to early exercise of common stock options

                  132               201               201   

Excess tax benefit from stock-based compensation

                                4,182               4,182   

Stock-based compensation expense

                                9,156               9,156   

Conversion of preferred stock to common stock

    (4,211     (11,569     4,211        1        11,568               11,569   

Cash distribution to stockholders

           (6,713                   (29,162     (81,486     (110,648

Net income

                                       32,262        32,262   
 

 

 

 

Balances at December 31, 2012

    30,523        77,138        80,714        8        471        (80,220     (79,741

Accretion of preferred stock issuance costs

           60                      (60            (60

Exercise of stock options

                  346               769               769   

Vesting of shares related to restricted stock and early exercise of common stock options

                  267               379               379   

Stock-based compensation expense

                           10,887               10,887   

Retirement of common stock

          (15                   (242     (242

Issuance of common stock for acquisition

                  108               1,741               1,741   

Excess tax benefit from stock-based compensation

                                323               323   

Net income

                                       60,578        60,578   
 

 

 

 

Balances at December 31, 2013

    30,523        77,198        81,420        8        14,510        (19,884     (5,366

Accretion of preferred stock issuance costs (unaudited)

           15                      (15            (15

Exercise of stock options (unaudited)

                  390               522               522   

Vesting of shares related to restricted stock and early exercise of common stock options (unaudited)

                  89               95               95   

Stock-based compensation expense (unaudited)

                           4,037               4,037   

Excess tax benefit from stock-based compensation (unaudited)

                                69               69   

Net income (unaudited)

                                       11,049        11,049   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2014 (unaudited)

    30,523      $ 77,213        81,899      $ 8      $ 19,218      $ (8,835   $ 10,391   

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5


Table of Contents
Index to Financial Statements

GoPro, Inc.

Consolidated statements of cash flows

 

       Years ended December 31,     Three months ended
March 31,
 
(in thousands)    2011     2012     2013     2013     2014  

 

 
                       (unaudited)  

Operating activities:

        

Net income

   $ 24,612      $ 32,262      $ 60,578      $ 23,035      $ 11,049   

Adjustments to reconcile net income to net cash provided by operating activities

          

Depreciation and amortization

     1,517        3,975        12,034        2,209        3,811   

Deferred taxes

     (6,831     (2,121     (8,129     (346     (330

Excess tax benefit from stock-based compensation

            (4,182     (323            (69

Stock-based compensation

     8,975        9,156        10,887        2,095        4,037   

Provision for doubtful accounts

     42        736        664        63          

Provision for inventory obsolescence

     760        1,955        4,081        2,212        78   

Net loss on disposals of fixed assets and other

     127        57        1,224        279        247   

Changes in operating assets and liabilities, net of effect of acquisitions:

          

Accounts receivable

     (19,565     (53,508     (43,117     21,346        75,359   

Inventories

     (12,737     (43,718     (55,664     (26,919     21,729   

Prepaids and other assets

     (8,381     (8,510     (15,355     (2,680     1,068   

Accounts payable and accrued liabilities

     24,916        67,802        135,197        11,386        (100,173

Deferred revenue

     1,794        4,462        400        (1,555     908   
  

 

 

 

Net cash provided by operating activities

     15,229        8,366        102,477        31,125        17,714   
  

 

 

 

Investing activities:

          

Purchase of property and equipment

     (1,954     (17,795     (18,325     (5,844     (4,701

Net cash used in acquisitions

     (7,955            (2,912              
  

 

 

 

Net cash used for investing activities

     (9,909     (17,795     (21,237     (5,844     (4,701
  

 

 

 

Financing activities:

          

Proceeds from issuance of common stock

     11        2,762        527        88        522   

Proceeds from issuance of debt and revolving credit facility

            139,389        30,000                 

Proceeds from issuance of Series A preferred stock, net of issuance costs

     19,663                               

Excess tax benefit from stock-based compensation

            4,182        323               69   

Payment of debt issuance costs and deferred public offering costs

            (1,776     (1,165     (104     (799

Repayment of debt

     (380     (10,380     (46,000     (11,500     (3,000

Cash distribution to stockholders

     (5,071     (117,361                     

Stockholder contribution

     6,120                          
  

 

 

 

Net cash provided by (used for) financing activities

     20,343        16,816        (16,315     (11,516     (3,208
  

 

 

 

Net increase in cash

     25,663        7,387        64,925        13,765        9,805   

Cash:

          

Beginning of year

     3,435        29,098        36,485        36,485        101,410   
  

 

 

 

End of period

   $ 29,098      $ 36,485      $ 101,410      $ 50,250      $ 111,215   
  

 

 

 

Supplementary cash flow disclosure:

          

Cash paid for

          

Interest

   $ 31      $ 284      $ 4,904      $ 1,188      $ 996   

Income taxes

     10,280        31,317        2,831        92        14,855   

Non-cash investing and financing activities:

          

Accretion of preferred stock dividends

     3,432        4,207                        

Conversion of preferred stock to common stock

            11,569                        

Purchases of property and equipment included in accounts payable and accrued expenses

     785        4,621        2,937        1,436        810   

Vesting of shares related to restricted stock and early exercise of common stock options

            201        379        94        95   

Preferred stock dividend to common stockholders

     67,995                               

Notes payable and stock options assumed in acquisition of CineForm

     1,099                               

Retirement of common stock

                   242                 

Deferred public offering costs not yet paid

                   490        88        1,323   

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

1. Business overview

GoPro, Inc. (GoPro or the Company) was incorporated as Woodman Labs, Inc. in California on February 14, 2004 as an S Corporation. The Company produces mountable and wearable cameras and accessories, which the Company refers to as capture devices. The Company’s products are sold globally through retailers, wholesale distributors and on the Company’s website. In 2012, the Company established wholly-owned subsidiaries in Hong Kong, Germany and the Cayman Islands. The Company’s corporate headquarters are located in San Mateo, California with additional operational support offices in Hong Kong and Shenzhen, China.

On February 18, 2011, the Company issued 26,839,707 shares of Series A redeemable convertible (Series A) preferred stock to all of its then existing common stockholders in exchange for the same amount of common shares and the common shares exchanged were subsequently cancelled. The preferred stock issuance was accounted for as a stock dividend. The cancellation of the common shares was accounted for as a reverse stock split; accordingly, all share and per share amounts for all periods presented in these consolidated financial statements and related notes, have been adjusted to reflect the reverse stock split. On February 24, 2011, the Company amended and restated its Articles of Incorporation to increase the authorized number of shares of common stock on a post-split basis from 120.0 million to 150.0 million and approved an additional 36.0 million shares of Series A preferred stock, both with no par value. As a result of this amendment and restatement of the Company’s Articles of Incorporation, the Company changed from an S corporation to a C corporation. On October 27, 2011, the Company re-incorporated in the state of Delaware and changed its no par value common and preferred stock to $0.0001 par value. In July 2012, the Company’s board of directors (Board) approved a 3-for-1 split of the preferred stock and common stock. All share and per share amounts for all periods presented in these consolidated financial statements have been adjusted to reflect the stock split (including the February 2011 transaction described above).

2. Basis of presentation

The Company’s fiscal year ends on December 31, and its fiscal quarters end on March 31, June 30 and September 30.

Changes in classification

The Company has reclassified certain amounts from its previously issued consolidated financial statements. The Company has revised its presentation of certain operating expenses for 2011 and 2012 and has now included $2.1 million and $3.2 million, respectively, in sales and marketing expenses that was previously classified in general and administrative expenses. In addition, the Company has revised its disclosure of advertising costs for 2011 and 2012 to include costs of sponsorships of $2.6 million and $8.2 million, respectively.

Principles of consolidation

T hese consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries. Unless otherwise specified, references to the Company are references to the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

 

F-7


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Use of estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to its allowance for doubtful accounts, stock-based compensation, inventory valuation, warranty liabilities, sales returns, web-based sale deliveries at period-end, implied post contract support and marketing allowances, the valuation and useful life evaluation of acquired intangibles, the valuation of deferred income tax assets and uncertain tax positions. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Unaudited interim consolidated financial statements

The accompanying interim Consolidated Balance Sheet as of March 31, 2014, the interim Consolidated Statements of Operations and Cash Flows for the three months ended March 31, 2014 and 2013 and the interim Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended March 31, 2014 are unaudited. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position as of March 31, 2014 and its results of operations and cash flows for the three months ended March 31, 2014 and 2013. The financial data and the other financial information disclosed in the notes to these consolidated financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014, or for any other future year or interim period.

Unaudited pro forma financial information

In connection with the closing of the Company’s initial public offering, all of the outstanding shares of Series A preferred stock will convert on a 1-for-1 basis into common stock. The unaudited pro forma financial information has been prepared assuming the conversion of the redeemable convertible preferred stock into shares of common stock.

Supplemental pro forma net income per share

Supplemental pro forma basic and diluted net income per share attributable to common stockholders have been computed to give effect to the pro forma adjustments discussed above and to the number of additional shares that would have been required to be issued to repay the outstanding syndicated senior secured credit facility balance at March 31, 2014, assuming the issuance of such shares at the initial offering price of $22.50, the mid-point of the price range set

 

F-8


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

forth on the cover page of the Company’s initial public offering prospectus. The numerator in the supplemental pro forma basic and diluted net income per share calculation has been adjusted to include the pro forma adjustments discussed above and to reverse the interest expense, net of tax on this credit facility which is assumed to be repaid using a portion of the net proceeds of the Company’s initial public offering of its common stock. The supplemental pro forma net income per share does not include the proceeds to be received from the assumed initial public offering, or shares expected to be sold in the initial public offering, except for those shares necessary to be issued to repay this credit facility.

Comprehensive income

For all periods presented, comprehensive income equaled net income. Therefore, the Consolidated Statements of Comprehensive Income have been omitted from the consolidated financial statements.

3. Summary of significant accounting policies

Accounts receivable and allowance for doubtful accounts

Accounts receivables are stated at invoice value less estimated allowances for returns and doubtful accounts. The Company continually monitors customer payments and maintains a reserve for estimated losses resulting from its customers’ inability to make required payments. The Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic related risks and economic conditions that may affect a customer’s ability to pay. In cases where there are circumstances that may impair a specific customer’s ability to meet its financial obligations, a specific allowance is recorded against amounts due, and thereby reduces the net recognized receivable to the amount reasonably believed to be collectible. For all periods presented, the activity in the allowance for doubtful accounts was not material.

Inventories

Inventories consist of finished goods and component parts, which are purchased from contract manufacturers. Inventories are stated at the lower of average cost or market on a first-in, first-out basis. The Company’s assessment of market value requires the use of estimates regarding the net realizable value of its inventory balances, including an assessment of excess or obsolete inventories. The Company determines excess and obsolete inventories based on an estimate of the future demand for its products within a specified time horizon, generally 12 months. The estimates used for future demand are also used for near-term capacity planning and inventory purchases and are consistent with revenue forecast assumptions. If the Company’s demand forecast is greater than actual demand, the Company may be required to record an excess inventory charge, which would decrease gross profit. Any write-downs taken establish a new cost basis for the underlying inventory. For all periods presented, inventories were predominantly comprised of finished goods.

 

F-9


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Point of purchase (POP) displays

The Company sponsors a program to provide retailers with POP displays in order to facilitate the marketing of the Company’s products within retail stores. The POP displays contain a video display that broadcast video images taken by GoPro cameras with product placement available on the POP display for cameras and accessories. The Company generally provides these POP displays to customers free of charge. The costs of the POP displays, less any fees charged to customers, are capitalized as a long-term asset on the accompanying Consolidated Balance Sheets, and the net cost is recognized over the expected period of the benefit provided by these assets, which is generally 24 months. POP display amortization included in sales and marketing expense were $3.6 million, $8.6 million, $13.5 million, $2.2 million and $4.5 million for 2011, 2012, 2013 and the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited), respectively.

Property and equipment, net

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful life of the assets, ranging from one to seven years. Leasehold improvements are stated at cost and amortized over the shorter of the lease term or the expected useful life of the improvements. Property and equipment pending installation, configuration or qualification are classified as construction in progress.

Fair value measurements

The Company does not have any financial instruments, such as investments in debt or equity securities or derivative instruments that are required to be measured at fair value on a recurring basis. The carrying amounts of the Company’s accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their short maturities. Based on borrowing rates currently available to the Company for its credit facility with similar terms and remaining maturities, and considering the Company’s credit risk, the carrying value of the credit facility approximates fair value and was determined to be a Level 2 measurement.

Leases

The Company leases its facilities under cancelable and non-cancelable operating leases. For leases that contain rent escalation or rent concession provisions, the Company records the total rent expense on a straight-line basis over the term of the lease. The Company records the difference between the rent paid and the straight-line rent as a deferred rent liability on the accompanying Consolidated Balance Sheets. Leasehold improvements are included in property and equipment, net.

Goodwill, acquired intangible assets and other long-lived assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but the Company performs an annual qualitative assessment of its goodwill during the fourth quarter of each calendar year to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount,

 

F-10


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, the Company performs a two-step process. The first step involves comparing the fair value of the Company’s reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the purpose of impairment testing, the Company has determined that it has one reporting unit. There has been no impairment of goodwill for any periods presented.

The Company’s long-lived assets consist of property and equipment and acquired intangible assets. Acquired intangible assets with definite lives are amortized on a straight-line basis over the remaining estimated economic life of the underlying products and technologies. The Company reviews its definite-lived long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Recoverability of an asset group is measured by comparing its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value. There has been no impairment of long-lived assets for any periods presented.

Warranty

The Company generally provides 12-month warranty coverage on all of its products except in the European Union where the Company provides a two-year warranty. The Company’s warranty provides for repair or replacement of the associated products during the warranty period. The Company establishes a liability for estimated product warranty costs at the time product revenue is recognized. The warranty obligation is affected by product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual product failure rates, use of materials, or other costs differ from the Company’s estimates, additional warranty liabilities could be required, which would reduce its gross profit.

Revenue recognition

Revenue is comprised of product revenue, net of returns and sales incentives.

Revenue is derived from the sale of capture devices, as well as the related implied post contract support (PCS). The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Evidence of an arrangement consists of an order from its distributors, resellers or online customers. The Company considers delivery to have occurred once title and risk of loss has been transferred. Customer deposits are included in accrued liabilities on the accompanying Consolidated Balance Sheets and are recognized as revenue when all the criteria for recognition of revenue are met.

 

F-11


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

The Company’s standard terms and conditions of sale do not allow for product returns and it generally does not allow product returns other than under warranty. However, the Company grants limited rights to return product for certain large retailers and distributors. Estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by customer class. Upon recognition, the Company reduces revenue and cost of sales for the estimated return. Return trends are influenced by product life cycle status, new product introductions, market acceptance of products, sales levels, product sell-through, the type of customer, seasonality, product quality issues, operational policies and procedures, and other factors. Return rates can fluctuate over time, but are sufficiently predictable to allow the Company to estimate expected future product returns.

For customers who purchase products directly from the Company’s website, transfer of risk of loss is determined to be upon delivery to the customer’s address. The Company defers those sales made to customers who purchase products from its website in the last four days of the reporting period for which the Company estimates delivery to occur in the following period. The Company uses estimates to determine when shipments are delivered based on third-party metrics for average transit time. Additionally, the Company provides a 30-day money back guarantee for web-based sales for which the Company reduces revenue by an estimate of potential future product returns related to the web-based sales, based on analyses of historical return trends and seasonality. Estimates for web-based sale returns and estimates to derive web sale shipment delivery dates may differ from actual results.

The Company’s camera products include multiple elements. Each element in a multiple element arrangement must be evaluated to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when it has standalone value and delivery of an undelivered element is both probable and delivery is within the Company’s control.

The Company has determined its multiple element arrangements generally include two separate units of accounting: The first element is the hardware component (camera and accessories) and the embedded firmware essential to the functionality of the camera delivered at the time of sale. The second element is the implied right for the customer to receive post contract support included with the purchase of the Company’s camera products. PCS includes the right to receive, on a when and if available basis, future unspecified firmware upgrades and features as well as bug fixes, email and telephone support.

The Company accounts for each element separately and allocate fees from the arrangement based on the relative selling price of each element. Revenue allocated to an undelivered element is recognized over an estimated service period. The Company recognizes revenue for delivered elements only when all contractual obligations have been completed.

The Company uses a hierarchy to determine the allocation of revenue. The hierarchy is as follows: (i) vendor-specific objective evidence of fair value (VSOE), (ii) third-party evidence of selling price (TPE) and (iii) best estimate of the selling price (BESP).

 

i.   VSOE generally exists only when a company sells a deliverable separately and is the price actually charged by the company for that deliverable. The Company does not sell its deliverables separately and, as such, do not have VSOE.

 

F-12


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

ii.   TPE can be substantiated by determining the price that other parties sell similar or substantially similar offerings. The Company does not believe that there is accessible TPE evidence for similar deliverables since there are not comparable deliverables sold by other companies.

 

iii.   BESP reflects the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. The Company believes that BESP is the most appropriate methodology for determining the allocation of revenue for its multiple element arrangements.

The Company has allocated revenue between its two elements using the relative selling price method which is based on the BESP for all deliverables. Revenue allocated to the delivered hardware and the related essential software is recognized at the time of sale provided the conditions for recognition of revenue have been met. Revenue allocated to PCS is deferred and recognized on a straight-line basis over the estimated term of the support period, which is estimated to be one year based on historical experience. At December 31, 2012, 2013 and March 31, 2014 (unaudited), deferred implied PCS revenue was $3.8 million, $6.4 million and $7.4 million, respectively.

The Company’s process for determining the BESP for its deliverables involves multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Key factors considered by the Company in developing the BESP for PCS include evaluating the level of support provided to customers and analyzing the amount of time and cost that is allocated to the Company’s efforts to develop the undelivered elements, determining the cost of its support efforts, and then adding an appropriate level of gross profit to these costs.

Sales incentives

The Company offers sales incentives through various programs, consisting primarily of cooperative advertising and marketing development fund programs. The Company records cooperative advertising and marketing development fund programs with customers as a reduction to revenue unless it receives an identifiable benefit in exchange for credits claimed by the customer and can reasonably estimate the fair value of the identifiable benefit received, in which case the Company will record it as a marketing expense. In addition, the Company offers price protection discounts to certain customers when new capture device models are released and the customer has remaining inventory on hand of the older capture device model. The Company estimates price protection discounts, which are recorded as a reduction of revenue, by evaluating inventory currently held by the customer subject to price protection. The Company records reductions to revenue for sales incentives when the related revenue is recognized.

Cost of revenue

Cost of revenue includes actual product cost, the cost of shipping, depreciation and amortization, warehousing and processing inventory, warranty replacement costs, excess and obsolete inventory write-downs, certain allocated costs and license fees paid to third parties.

 

F-13


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Shipping costs

The Company records amounts billed to customers for shipping costs as revenue in the accompanying Consolidated Statements of Operations. The Company classifies related shipping and handling costs incurred as cost of revenue in the accompanying Consolidated Statements of Operations.

Deferred revenue

Deferred revenue is comprised of customer deposits, undelivered post contract support and undelivered web sale shipments. The cost of revenue related to deferred web sales is included in inventory.

Research and development

Research and development expense includes internal and external costs. Internal costs include employee related expenses, equipment costs, depreciation expense and allocated facility costs. External research and development expenses consist of costs associated with consultants, tooling and prototype materials.

Substantially all research and development expense is related to new research and development efforts and the designing of significant improvements to existing products. Research and development expense to establish the technological feasibility of the Company’s products are expensed as incurred. To date, the period between achieving technological feasibility and the release of products for sale has been short and development costs qualifying for capitalization have been insignificant.

Advertising costs

Advertising costs consist of costs associated with print, television and ecommerce media advertisements and are expensed as incurred. A significant amount of the Company’s promotional expenses result from payments under event, resort and athlete sponsorship contracts. Accounting for sponsorship payments is based upon specific contract provisions. These sponsorship arrangements are considered to be executory contracts and, as such, the costs are recognized as performance under the contract is received. The costs associated with preparation of sponsorship activities, including the supply of GoPro products, media team support and activation fees are considered costs of producing advertising and are expensed as incurred. Prepayments made under sponsorship agreements are included in prepaid expenses or other assets depending on the period to which the prepayment applies. Advertising costs were $23.7 million, $46.9 million, $55.5 million, $13.3 million and $10.4 million for 2011, 2012 and 2013 and the three months ended March 31, 2013 (unaudited) and 2014 (unaudited), respectively.

Stock-based compensation

The Company accounts for stock-based compensation activity using the fair value method, which requires the measurement and recognition of compensation expense for all share-based payment awards based on estimated fair values. This method requires companies to estimate the fair value of stock-based compensation on the date of grant using an option pricing model. The Company uses the Black-Scholes option pricing model to measure stock-based compensation. The Black-Scholes model determines the fair value of share-based payment awards based on the fair value

 

F-14


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

of the underlying common stock on the date of grant and is affected by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the fair value of the underlying common stock, expected volatility over the term of the awards and actual and projected employee stock option exercise behaviors. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The assumptions used in calculating the fair value of the stock-based awards represent management judgment. As a result, if factors change and different assumption are used, the stock-based compensation expense could be materially different in the future. Compensation expense relating to employee stock awards is recorded on a straight-line basis in the accompanying Consolidated Statements of Operations.

Stock awards issued to non-employees are accounted for at fair value. The Company believes that the fair value of the awards is more reliably measured than the fair value of services received. The Company records compensation expense based on the then-current fair values of the stock awards at each financial reporting date. Compensation recorded during the service period is adjusted in subsequent periods for changes in the stock award’s fair value until the earlier of the date at which the non-employee’s performance is complete or a performance commitment is reached, which is generally when the stock option award vests. Compensation expense relating to non-employee stock awards is recorded on a straight-line basis in the accompanying Consolidated Statements of Operations.

The Company recognizes a benefit from stock-based compensation in additional paid-in capital if an incremental tax benefit is realized by following the ordering provisions of the tax law. In addition, the indirect effects of stock-based compensation deductions are reflected in the income tax provision for purposes of measuring the windfall at settlement of awards.

Sales taxes

Sales taxes collected from customers and remitted to respective governmental authorities are not included in revenue and are reflected as a liability on the accompanying Consolidated Balance Sheets.

Foreign currency

The Company and the Company’s wholly-owned subsidiaries use the U.S. dollar as their functional currency. Local currency transactions of the Company’s international operations are remeasured into U.S. dollars at the rates of exchange in effect at the date of the transaction. For those wholly-owned subsidiaries with assets or liabilities denominated in currencies other than the U.S. dollar, non-monetary assets are remeasured into U.S. dollars using historical rates of exchange. Monetary assets and liabilities are remeasured into U.S. dollars using exchange rates prevailing on the balance sheet date. Transaction gains and losses were not material for all periods presented and are included in other income (expense), net, in the accompanying Consolidated Statements of Operations.

Income taxes

The Company utilizes the asset and liability method of accounting for income taxes which requires the recognition of deferred tax assets and liabilities for expected future consequences of temporary differences between the financial reporting and income tax bases of assets and

 

F-15


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

liabilities using enacted tax rates. Management makes estimates, assumptions and judgments to determine the Company’s provision for income taxes and also for deferred tax assets and liabilities, and any valuation allowances recorded against the Company’s deferred tax assets. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance.

The calculation of the Company’s current provision for income taxes involves the use of estimates, assumptions and judgments while taking into account current tax laws, interpretation of current tax laws and possible outcomes of future tax audits. The Company has established reserves to address potential exposures related to tax positions that could be challenged by tax authorities. Although the Company believes its estimates, assumptions and judgments to be reasonable, any changes in tax law or its interpretation of tax laws and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in the Company’s consolidated financial statements.

The calculation of the Company’s deferred tax asset balance involves the use of estimates, assumptions and judgments while taking into account estimates of the amounts and type of future taxable income. Actual future operating results and the underlying amount and type of income could differ materially from the Company’s estimates, assumptions and judgments thereby impacting the Company’s financial position and results of operations.

The Company has adopted ASC 740-10 “Accounting for Uncertainty in Income Taxes” that prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company includes interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying Consolidated Statements of Operations. The Company has not incurred any interest or penalties related to unrecognized tax benefits in any of the periods presented.

Recent accounting pronouncements

In July 2013, the Financial Accounting Standards Board issued a new accounting standard update on the financial statement presentation of unrecognized tax benefits. The new guidance provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance becomes effective for the Company on January 1, 2014 and it should be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. The Company adopted the guidance on January 1, 2014. The guidance had no material impact to the Company’s financial position or results of operations in the first quarter of 2014.

 

F-16


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

4. Balance sheet components

Inventories, net

Inventories, net consisted of the following:

 

       December 31,     

March 31,

2014

 
(in thousands)    2012      2013     

 

    

 

 

    

 

 

 
                   (unaudited)  

Components

   $ 3,240       $ 8,000       $ 3,702   

Finished goods

     57,172         103,994         86,484   
  

 

 

    

 

 

    

 

 

 

Inventories, net

   $ 60,412       $ 111,994       $ 90,186   

 

    

 

 

    

 

 

 

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following:

 

       December 31,     

March 31,

2014

 
(in thousands)    2012      2013     

 

    

 

 

    

 

 

 
                   (unaudited)  

Prepaid income taxes

   $ 9,529       $       $   

Current deferred tax assets

     7,226         15,173         15,079   

Prepaid expenses

     1,947         2,739         3,270   

Deposits

     1,193         2,049         1,400   

Prepaid licenses

     544         1,091         1,353   

Other current assets

     1,285         915         3,487   
  

 

 

    

 

 

    

 

 

 
   $ 21,724       $ 21,967       $ 24,589   

 

    

 

 

    

 

 

 

Property and equipment, net

Property and equipment, net consisted of the following;

 

      

Useful life

(in years)

     December 31,    

March 31,

2014

 
(in thousands)       2012     2013    

 

   

 

 

   

 

 

 
                        (unaudited)  

Leasehold improvements

     3–7       $ 7,595      $ 20,111      $ 20,345   

Computers, software, equipment and furniture

     2–7         4,757        11,988        14,859   

Tooling

     1–4         4,197        8,799        9,582   

Construction in progress

        6,356        2,151        3,095   

Tradeshow equipment

     2–5         2,308        2,613        2,781   

Automobiles

     3–5         717        856        918   
     

 

 

   

 

 

   

 

 

 
        25,930        46,518        51,580   

Less: Accumulated depreciation

        (3,490     (14,407     (17,515
     

 

 

   

 

 

   

 

 

 
      $ 22,440      $ 32,111      $ 34,065   

 

   

 

 

   

 

 

 

Depreciation expense was $0.6 million, $2.8 million, $10.9 million, $1.9 million and $3.5 million for 2011, 2012 and 2013 and the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited), respectively.

 

F-17


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Goodwill and acquired intangible assets

Goodwill at December 31, 2012, 2013 and March 31, 2014 (unaudited) was as follows:

 

(In thousands)  

Good will at December 31, 2012

   $ 4,233   

Acquisition

     9,862   
  

 

 

 

Goodwill at December 31, 2013

   $ 14,095   

Adjustments (unaudited)

       
  

 

 

 

Goodwill at March 31, 2014 (unaudited)

   $ 14,095   

 

  

 

 

 

Goodwill increased by approximately $9.9 million due to the acquisition of General Things, Inc. (General Things) in the fourth quarter of 2013. There were no impairments or other additions to goodwill in 2012 or the three months ended March 31, 2014 (unaudited).

Acquired intangible assets at December 31, 2012, 2013 and March 31, 2014 (unaudited) were as follows:

 

       December 31, 2012     

Weighted
average
remaining

useful life

(in years)

 
(in thousands)    Gross      Accumulated
amortization
    Net     

 

 

Developed technology

   $ 5,330       $ (1,629   $ 3,701         4.2   

Tradename

     664         (243     421         3.2   

Customer relationships

     170         (104     66         1.2   

Noncompete agreements

     150         (137     13         0.2   

Domain name

     15                15      
  

 

 

    
   $ 6,329       $ (2,113   $ 4,216      

 

 

 

       December 31, 2013     

Weighted
average
remaining

useful life
(in years)

 
(in thousands)    Gross      Accumulated
amortization
    Net     

 

 

Developed technology

   $ 5,330       $ (2,517   $ 2,813         3.2   

Tradename

     664         (376     288         2.2   

Customer relationships

     170         (161     9         0.2   

Noncompete agreements

     311         (166     145         1.8   

Domain name

     15                15      
  

 

 

    
   $ 6,490       $ (3,220   $ 3,270      

 

 

 

F-18


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

       March 31, 2014     

Weighted
average
remaining

useful life
(in years)

 
(in thousands)    Gross      Accumulated
amortization
    Net     

 

  

 

 

    

 

 

   

 

 

    

 

 

 

Developed technology

   $ 5,330       $ (2,739   $ 2,591         3.0   

Tradename

     664         (410     254         2.0   

Customer relationships

     170         (170               

Noncompete agreements

     311         (186     125         1.6   

Domain name

     15                15      
  

 

 

    

 

 

   

 

 

    
   $ 6,490       $ (3,505   $ 2,985      

 

  

 

 

    

 

 

   

 

 

    

 

 

 

Amortization expense in fiscal years 2011, 2012, 2013 and the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited) was $1.0 million, $1.2 million, $1.1 million, $0.3 million and $0.3 million, respectively.

The estimated future amortization expense of acquired intangible assets to be charged to cost of revenue and operating expenses as of December 31, 2013, is as follows:

 

(in thousands)    Cost of
revenue
     Operating
expenses
     Total  

 

 

Years ending December 31,

        

2014

   $ 888       $ 223       $ 1,111   

2015

     888         197         1,085   

2016

     888         22         910   

2017

     149                 149   
  

 

 

 
   $ 2,813       $ 442       $ 3,255   

 

 

The estimated future amortization expense of acquired intangible assets to be charged to cost of revenue and operating expenses as of March 31, 2014 (unaudited), is as follows:

 

(in thousands)    Cost of
revenue
     Operating
expenses
     Total  

 

 

Years ending December 31,

        

2014 (remaining 9 months)

   $ 666       $ 160       $ 826   

2015

     888         197         1,085   

2016

     888         22         910   

2017

     149                 149   
  

 

 

 
   $ 2,591       $ 379       $ 2,970   

 

 

 

F-19


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Other long-term assets

Other long-term assets consisted of the following:

 

       December 31,     

March 31,

2014

 
(in thousands)    2012      2013     

 

    

 

 

 
                   (unaudited)  

POP displays

   $ 13,106       $ 22,379       $ 19,025   

Deposits

     1,920         2,698         2,752   

Long-term licenses

             4,000         4,000   

Deferred financing charges

     1,378         947         790   

Long-term deferred tax assets

     554         736         1,160   

Deferred public offering costs

             1,395         3,028   
  

 

 

    

 

 

 
   $ 16,958       $ 32,155       $ 30,755   

 

    

 

 

 

Deferred public offering costs consist principally of legal, accounting and other fees incurred through the balance sheet date that are directly related to this public offering and that will be charged to Stockholders’ Equity (Deficit) upon the receipt of the capital raised. As of December 31, 2013 and March 31, 2014 (unaudited), $0.5 million and $1.3 million, respectively, of deferred public offering costs are included in accrued liabilities.

Accrued liabilities

Accrued liabilities consisted of the following:

 

       December 31,     

March 31,

2014

 
(in thousands)    2012      2013     

 

    

 

 

 
                   (unaudited)  

Accrued payables

   $ 33,112       $ 49,975       $ 38,311   

Employee related liabilities

     2,716         11,932         8,978   

Customer deposits

     1,372         1,316         3,550   

Warranty liability

     1,734         3,691         2,428   

Taxes payable

     2,561         7,766         7,108   

Accrued sponsorship expense

     504         2,909         4,124   

Accrued sales incentives

     3,314         4,909         2,352   

Sales commissions

     2,579         2,454         1,440   

Other

     822         1,439         1,792   
  

 

 

    

 

 

 
   $ 48,714       $ 86,391       $ 70,083   

 

    

 

 

 

 

F-20


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

5. Redeemable convertible preferred stock

At December 31, 2012 and 2013 and March 31, 2014 (unaudited), there were 36,000,000 shares of Series A preferred stock authorized and 30,523,036 of Series A preferred stock issued and outstanding with the following terms:

Conversion

Each share of Series A preferred stock is convertible, at the option of the holder, into shares of common stock at a rate of 1-for-1. The conversion of all outstanding Series A preferred stock will occur in connection with the closing of an initial public offering, provided the aggregate offering price equals or exceeds $50.0 million.

Voting rights

The holders of shares of the Company’s Series A preferred stock vote equally with shares of common stock on an as-if converted to common stock basis on all matters, including the election of directors.

Dividend rights

The holders of each Series A share are entitled to receive any noncumulative dividends on an equal basis with common stock, when and if declared by the Board.

Redemption rights

In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the Company is required to redeem shares of Series A preferred stock at the original issue price of $2.53 per share plus any noncumulative dividends declared by the Board. If the holders have not previously exercised the rights granted to them, the Series A preferred stock is redeemable within 365 days after July 1, 2017, subject to a majority vote of the then outstanding Series A preferred shares. As the redemption events described above could occur and are not solely within the Company’s control, all shares of preferred stock have been presented outside of permanent equity.

On December 19, 2012, certain Series A stockholders exercised their conversion right and converted 4,211,303 shares of Series A preferred stock to common stock to participate in a common share sale transaction between the Company’s principal stockholder and a new investor pursuant to the pre-existing tag-along right. On December 20, 2012, the Series A preferred stock was modified to eliminate an 8% cumulative dividend and to extend the redemption date to July 2017. The 8% cumulative dividend had been accreted using the effective interest method from the time of issue through February 28, 2016, until the 8% cumulative dividend was eliminated on December 20, 2012. The Company recorded preferred stock dividend accretion of $4.2 million and $3.4 million in the years ended December 31, 2012 and 2011, respectively. On December 21, 2012, a dividend of $1.05 per share was declared and paid to holders of common and preferred stock totaling $117.4 million. The dividend payment to the preferred stockholders represented a settlement of accumulated dividends to date, prepayments of future cumulative dividends and participation in additional dividends paid to common stockholders as contractually provided for. The cash dividend was reflected first as a reduction to preferred stock to the extent that such dividend payments were

 

F-21


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

accreted, with any cash paid in excess of this amount recorded as a reduction of retained earnings until exhausted, then as a reduction of additional paid-in-capital until exhausted, and then as accumulated deficit.

6. Common stock and stockholders’ equity (deficit)

Common stock

At December 31, 2012 and 2013 and March 31, 2014 (unaudited), the Company had 150,000,000 shares authorized for issuance. At December 31, 2012 and 2013 and March 31, 2014 (unaudited), there were 80,714,412, 81,420,040 and 81,899,442 shares issued and outstanding, respectively. In July 2012, the Company approved a 3-for-1 split of the Company’s common and preferred stock. All share and per share amounts in these consolidated financial statements have been adjusted to reflect this stock split.

In October 2011, the Company re-incorporated in the State of Delaware and converted its no par value common stock and Series A preferred stock to a par value of $0.0001. The carrying value of common stock was adjusted to state common stock at par value.

In February 2011, the Company issued 26,839,707 shares of Series A preferred stock to its existing stockholders in exchange for the same number of common shares previously held. The common shares exchanged were subsequently cancelled. The cancellation of common shares was accounted for as a 26.8% reverse stock split. All of the share and per share amounts in these consolidated financial statements have been adjusted to reflect the reverse stock split.

On February 24, 2011, the Company amended and restated its Articles of Incorporation to increase the authorized number of post-split shares of common stock from 120.0 million to 150.0 million, and change its status from an S corporation to a C corporation.

In October 2010, the Company converted a convertible promissory note of $0.2 million plus interest of $0.1 million into 7.3 million shares of common stock.

The Company had the following shares of common stock reserved for issuance upon the exercise of equity instruments:

 

(in thousands)    December 31,
2013
     March 31,
2014
 

 

    

 

 

 
            (unaudited)  

Stock options outstanding

     26,724         27,799   

Restricted stock units outstanding

     270         570   

Stock options, restricted stock and RSUs available for future grants

     1,306         541   
  

 

 

    

 

 

 
     28,300         28,910   

 

    

 

 

 

 

F-22


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Equity incentive plan

In August 2010, the Board approved the adoption of the 2010 Equity Incentive Plan (EIP). As amended, the EIP permits the Company to grant up to 32,420,000 shares of the Company’s common stock. The EIP provides for the grant of incentive and nonqualified stock options, restricted stock, restricted stock units (RSUs) and stock appreciation rights to employees, non-employee directors and consultants of the Company. All shares that are cancelled, forfeited or expired are returned to the plan and are available for grant in conjunction with the issuance of new stock awards.

The Board oversees the administration of the Company’s equity plans and generally determines eligibility, vesting schedules and other terms for awards granted under the plans. Stock options under the plan have a maximum contractual term of not more than ten years from the date of grant and are generally exercisable upon vesting. Vesting generally occurs over four years and becomes exercisable at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter. Awards that provide for early exercise are subject to repurchase upon the termination of services prior to vesting. The exercise price of stock options must generally be at least 100% of the fair value of the Company’s common stock on the date of grant as determined by the Board.

 

F-23


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Stock option activity

A summary of the Company’s stock option activity and related information is as follows:

 

     

Shares
available
for grant

    Options outstanding  
(shares in thousands)     Shares     Weighted-
average
exercise
price
    Weighted-
average
grant-
date fair
value
    Total intrinsic
value of
options
exercised
(in thousands)
    Weighted-
average
remaining
contractual
term
(in years)
    Aggregate
intrinsic value
(in thousands)
 

 

 

Outstanding at December 31, 2010:

    3,268        13,043      $ 0.66           

Additional shares authorized

    12,010                         

Options granted

    (14,100     14,100        0.93      $ 1.01         

Restricted stock and early exercised options granted subject to repurchase

    (1,244                      

RSUs granted

    (270                      

Exercised

           (46     0.24        $ 60       

Forfeited/Cancelled

    736        (736     0.72           
 

 

 

         

Outstanding at December 31, 2011:

    400        26,361      $ 0.80           

Additional shares authorized

    2,100                         

Granted

    (1,418     1,418        5.10      $ 5.02         

Exercised

           (2,486     1.11        $ 30,605       

Forfeited/Cancelled

    891        (891     1.43           
 

 

 

         

Outstanding at December 31, 2012:

    1,973        24,402      $ 1.00            8.33      $ 310,454   

Additional shares authorized

    2,000               

Granted

    (2,906     2,906        15.14      $ 8.45         

Exercised

           (345     2.23        $ 4,564       

Forfeited/Cancelled

    239        (239     6.31           
 

 

 

         

Outstanding at December 31, 2013:

    1,306        26,724      $ 2.47            7.55      $ 367,395   
 

 

 

         

Additional shares authorized (unaudited)

    1,000                         

Granted (unaudited)

    (1,571     1,571        16.26      $ 8.80         

RSUs granted (unaudited)

    (300                      

Exercised (unaudited)

           (390     1.33        $ 5,849       

Forfeited/Cancelled (unaudited)

    106        (106     8.45           
 

 

 

         

Outstanding at March 31, 2014 (unaudited):

    541        27,799      $ 3.24            7.62      $ 365,425   
 

 

 

         

Exercisable at December 31, 2013

      20,605      $ 0.84            7.26      $ 316,812   

Vested and expected to vest at December 31, 2013

      25,798      $ 2.32            7.52      $ 358,624   

Exercisable at March 31, 2014 (unaudited)

      21,286      $ 1.00            7.24      $ 327,605   

Vested and expected to vest at March 31, 2014 (unaudited)

      26,975      $ 3.06            7.57      $ 359,710   

 

 

In December 2010, the Company granted a total of 2,400,000 stock options to two employees who are family members of the principal stockholder and Chief Executive Officer (CEO) of the Company. These stock options contain terms similar to other employee stock option grants.

 

F-24


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

The total fair value of stock options vested in the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited) was $1.9 million, $3.0 million, $5.2 million, $1.0 million and $2.6 million, respectively.

The following is a further breakdown of the options outstanding at December 31, 2013:

 

       Options outstanding      Options exercisable  
(options in thousands)    Options
outstanding
     Weighted-
average
remaining
contractual
life (in years)
     Weighted-
average
exercise price
     Options
exercisable
     Weighted-
average
exercise price
 

 

 

Range of exercise prices

              

$    0.18–0.66

     11,451         6.98       $ 0.62         10,594       $ 0.62   

      0.76–0.76

     9,757         7.46         0.76         8,706         0.76   

      1.52–2.96

     2,119         8.05         1.91         1,071         1.83   

      8.30–8.30

     574         8.80         8.30         184         8.30   

  13.72–13.72

     891         9.15         13.72         28         13.72   

  15.40–15.40

     611         9.44         15.40         22         15.40   

  15.59–15.59

     472         9.64         15.59                   

  16.19–16.19

     849         9.88         16.19                   
  

 

 

 

$  0.18–16.19

     26,724         7.55       $ 2.47         20,605       $ 0.84   

 

  

 

 

 

The following is a further breakdown of the options outstanding at March 31, 2014 (unaudited):

 

       Options outstanding      Options exercisable  
(options in thousands)    Options
outstanding
     Weighted-
average
remaining
contractual
life (in years)
     Weighted-
average
exercise price
     Options
exercisable
     Weighted-
average
exercise price
 

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Range of exercise prices

              

$    0.18–0.66

     11,298         7.12       $ 0.62         10,909       $ 0.62   

      0.76–0.76

     9,649         7.22         0.76         8,816         0.76   

      1.52–2.96

     1,958         7.81         1.91         1,063         1.83   

      8.30–8.30

     552         8.56         8.30         206         8.30   

  13.72–13.72

     876         8.90         13.72         242         13.72   

  15.40–15.40

     614         9.19         15.40         48         15.40   

  15.59–15.59

     453         9.40         15.59                   

  16.19–16.19

     834         9.64         16.19                   

  16.22–16.22

     1,143         9.84         16.29                   

  16.39–16.39

     422         9.99         16.39         2         16.39   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

$  0.18–16.39

     27,799         7.62       $ 3.24         21,286       $ 1.00   

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Restricted stock

The Company has granted restricted stock pursuant to its EIP. Restricted stock are share awards that, upon grant, the holder receives restricted shares of the Company’s common stock, subject to

 

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Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

repurchase at the original issuance price upon termination of services prior to vesting. These repurchase terms are considered to be a forfeiture provision and do not result in mark-to-market accounting each reporting period. Restricted stock is legally issued and outstanding. However, restricted stock is only deemed outstanding for basic earnings per share computation purposes upon the lapse of the Company’s right of repurchase.

In June 2011, the Company issued 600,000 shares of restricted stock at a purchase price of $0.0033 per share to a related party for consulting services, which vested on the grant date. The intrinsic value on the date of grant was $0.5 million.

In December 2011, the Company issued 433,500 shares of restricted stock to a consultant at a purchase price of $1.52 per share in accordance with the terms of their service agreements, subject to monthly vesting over a three-year service period.

In October 2013, in connection with the acquisition of General Things, the Company issued 430,000 shares of restricted stock to the two founders, of which 322,500 are subject to monthly vesting over a three-year service period.

Early exercised stock options subject to repurchase

The Company has granted options that provide certain option holders the right to exercise unvested options for shares of restricted stock pursuant to its EIP. Restricted shares issued upon early exercise of stock options are legally issued and outstanding. However, these restricted shares are only deemed outstanding for basic earnings per share computation purposes upon the lapse of the Company’s right of repurchase. Cash received from option holders for exercise of unvested options is treated as a refundable deposit shown as a liability on the accompanying Consolidated Balance Sheets, and reclassified to Stockholders’ Equity (Deficit) as the Company’s repurchase right lapses.

In December 2011, the Company granted 210,000 stock options to a consultant at an exercise price of $1.52 per share in accordance with the terms of his service agreement, subject to monthly vesting over a two-year service period. In December 2012, the stock options were exercised early and the shares were purchased.

 

F-26


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

A summary of the Company’s restricted stock and early-exercised stock options subject to repurchase activity is as follows:

 

(in thousands except for weighted average grant date fair value)    Shares     Weighted-
average
grant date
fair value
     Aggregate
intrinsic
value
 

 

 

Non-vested shares at December 31, 2010

          $       $   

Granted

     1,244        1.68      

Vested

     (600     0.98      
  

 

 

      

Non-vested shares at December 31, 2011

     644        2.44         711   

Vested

     (212     
  

 

 

      

Non-vested shares at December 31, 2012

     432        2.44         5,274   

Granted

     430        16.19         6,962   

Vested

     (375     
  

 

 

      

Non-vested shares at December 31, 2013

     487        11.03         7,628   

Vested (unaudited)

     (89     
  

 

 

      

Non-vested shares at March 31, 2014 (unaudited)

     398        12.03         6,342   

 

 

The weighted average remaining vesting term for the restricted stock and unvested early-exercised stock options subject to repurchase as of December 30, 2013 and March 31, 2014 (unaudited) was 1.4 years and 1.6 years, respectively. The total fair value of restricted stock and early exercised stock options subject to repurchase vested in the year ended December 31, 2012 and 2013 and the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited) were $2.9 million, $6.1 million, $1.0 million and $1.5 million, respectively.

Sharing of proceeds from sale of securities

During the development stage of the Company, the founder and CEO entered into a verbal agreement with a sales employee to share 10% of any proceeds from the sale of equity securities held by the founder and CEO. As a result of the issuance of preferred stock to common stockholders in February 2011, and subsequent sale of these preferred shares by the founder and CEO to third parties, an obligation under this verbal agreement arose. In order to satisfy this obligation and any future obligations that may have arisen out of this verbal agreement, the Company entered into a written agreement and provided the following forms of compensation to the employee:

 

Ÿ  

In March 2011, the Company paid the employee $6.1 million in cash, which was recorded as compensation expense within sales and marketing expense. Also in March 2011, the CEO reimbursed the Company for $6.1 million, which is recorded as a stockholder contribution to additional paid-in capital;

 

Ÿ  

In June 2011, the Company issued the employee an option to purchase 6,584,427 shares of common stock at an exercise price of $0.763 per share. The options vested immediately and have a contractual life of 10 years. $6.8 million of stock compensation expense was recorded in June 2011 within sales and marketing expense as a result of this grant. Upon exercise of this option by the employee, the founder and CEO will contribute an equal number of common shares back to the Company; and

 

F-27


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Ÿ  

In December 2011, the Company issued the employee 270,000 RSUs.

Restricted stock units

The Company has granted RSUs pursuant to its EIP. The Company issued 270,000 RSUs in December 2011 as part of the sharing of proceeds from a sale of securities. There were no RSUs awarded during the years ended December 31, 2012 and 2013.

RSUs are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. The vesting of the December 2011 RSU grant of 270,000 RSUs described above is based on the acquisition of the Company. No stock-based compensation expense has been recognized for this grant because satisfaction of the performance condition is not probable.

In January 2014, the Company issued a total of 300,000 RSUs to employees, comprised of three different grants. Two of the grants, or a total of 200,000 shares, are subject to annual vesting over four years based on continued service. The third grant of 100,000 shares will vest 50% on the four-year anniversary and 50% on the five-year anniversary of the grant date based on continued service.

The weighted average fair value per share of the RSUs awarded in the year ended December 31, 2011 and the three months ended March 31, 2014 (unaudited) was $2.23 and $16.22, respectively. The weighted average fair value per share was calculated based on the fair market value of the Company’s common stock on the grant date. As of December 31, 2013 and March 31, 2014 (unaudited), the fair value of RSUs outstanding was $4.4 million and $9.3 million, respectively.

7. Stock-based compensation

The following table summarizes stock-based compensation expense related to stock options, restricted stock and RSUs for the three years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited), as follows:

 

       Years ended December 31,      Three months ended
March 31,
 
(in thousands)         2011           2012      2013          2013          2014  

 

 
                          (unaudited)  

Stock-based compensation expense by type of award

              

Stock options

   $ 8,518       $ 8,165       $ 8,468       $ 1,623       $ 2,894   

RSUs

                                     179   

Restricted stock

     457         991         2,419         472         964   
  

 

 

 

Total stock-based compensation expense

   $ 8,975       $ 9,156       $ 10,887       $ 2,095       $ 4,037   

 

 

 

F-28


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

The following table summarizes stock-based compensation expense as reported in the Company’s accompanying Consolidated Statements of Operations:

 

       Years ended December 31,     Three months
ended March 31,
 
(in thousands)        2011         2012     2013         2013         2014  

 

   

 

 

   

 

 

 
                       (unaudited)  

Cost of revenue

   $ 122      $ 333      $ 690      $ 220      $ 168   

Research and development

     261        1,452        3,003        441        1,401   

Sales and marketing

     7,690        6,335        5,670        1,204        1,414   

General and administrative

     902        1,036        1,524        230        1,054   
  

 

 

   

 

 

   

 

 

 

Total stock-based compensation expense

     8,975        9,156        10,887        2,095        4,037   

Total tax benefit recognized

     (2,897     (1,091     (1,104     (312     (342
  

 

 

   

 

 

   

 

 

 

Decrease in net income

   $ 6,078      $ 8,065      $ 9,783      $ 1,783      $ 3,695   

 

   

 

 

   

 

 

 

Stock-based compensation expense related to manufacturing personnel that was capitalized into inventory was immaterial for all periods presented.

The amount of unearned stock-based compensation currently estimated to be expensed with respect to unvested stock options at December 31, 2013 and March 31, 2014 (unaudited) was $22.8 million and $32.6 million, respectively. As of each of December 31, 2013 and March 31, 2014 (unaudited), the weighted-average period over which the unearned stock-based compensation is expected to be recognized was 1.0 year. If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense will increase to the extent that the Company grants additional equity awards or assumes unvested equity awards in connection with acquisitions.

Stock option valuation assumptions

The fair value of the options granted was estimated as of the grant date using the Black-Scholes option pricing model assuming the weighted-average assumptions listed in the following table:

 

      Years ended December 31,     Three months ended
March 31,
 
    2011     2012     2013     2013     2014  

 

   

 

 

   

 

 

   

 

 

 
                      (unaudited)  

Expected life (years)

    5.0–6.1        5.1–6.1        5.3–6.1        5.9–6.1        5.4–6.3   

Risk-free interest rate

    1.1%–2.4%        0.8%–2.4%        0.8%–2.4%        1.0%–1.2%        1.8%–2.0%   

Volatility

    56%–59%        56%–60%        56%–60%        56%        55%–56%   

Dividend yield

    0%        0%        0%        0%        0%   

Expected forfeiture rate

    5%        5%-7%        6%        7%        5%   

Weighted average fair value

    $0.98        $5.08        $8.45        $7.41        $8.80   

 

   

 

 

   

 

 

   

 

 

 

 

F-29


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Compensation amortization period

All stock-based compensation is amortized over the requisite service period of the awards, which is generally the same as the vesting period of the awards. The Company amortizes the fair value cost on a straight-line basis over the expected service periods.

Expected life

Expected life represents the period over which the Company anticipates stock-based awards to be outstanding. As the Company has undergone significant operational and structural changes, the historical exercise data do not provide a reasonable basis upon which to estimate expected life. As a result, the Company used the simplified method, as provided under Staff Accounting Bulletin Topic 14.D, “Share-Based Payment,” to calculate the expected term estimate based on the options’ vesting term and contractual terms. Under the simplified method, the expected life is equal to the average of the stock-based award’s weighted average vesting period and its contractual term.

Expected volatility

Expected volatility is a measure of the amount by which the stock price is expected to fluctuate. The Company estimates the expected volatility of its stock options at their grant date by taking the average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of the options.

Risk-free interest rate

The risk-free interest rate is the estimated average interest rate based on U.S. Treasury zero-coupon notes with terms consistent with the expected life of the awards.

Expected dividends

The Company concluded that cash dividends paid prior to being converted to a C corporation from an S corporation were solely for meeting stockholders’ tax liabilities as a pass-through entity. The cash dividend in 2012 was structured as a one-off event to return value to the stockholders, as discussed in Note 5, “Redeemable Convertible Preferred Stock.” The Company may from time to time contemplate capital transactions, including for example a nonrecurring dividend to create a liquidity event for its stockholders. However, the Company does not anticipate paying any recurring cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of 0% in stock option valuation models.

Expected forfeitures

Stock-based compensation expense recognized in the Consolidated Statements of Operations for the three years ended December 31, 2013 and three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited) are based on awards that are expected to vest less estimated forfeitures. The Company estimates the forfeiture rate of its stock-based awards based on an analysis of actual forfeitures, employee turnover and other factors. The impact from a forfeiture rate adjustment would be recognized in full in the period in which the forfeiture rate changes

 

F-30


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

and, if the actual number of future forfeitures differs from prior estimates, the Company may record adjustments to stock-based compensation, if necessary.

Determining the fair value of the company’s common stock

Determining the fair value of the Company’s common stock requires complex and subjective judgment and estimates. There is inherent uncertainty in making these judgments and estimates. The absence of an active market for the Company’s common stock required the Board to estimate the fair value of the common stock for purposes of setting the exercise price of the options and estimating the fair value of the common stock at each meeting at which options were granted based on factors such as the valuations of comparable companies, the status of the Company’s development and sales efforts, revenue growth, independent third-party valuations and additional objective and subjective factors relating to the Company’s business. The Company performed its analysis in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants entitled Valuation of Privately Held Company Equity Securities Issued as Compensation. The fair value of the underlying common stock will be determined by the Board until such time as its common stock is listed on an established stock exchange.

Stock option modifications

During 2012, the Company modified options to purchase 250,000 shares of common stock of three employees to accelerate vesting and extend the time allowed to exercise the stock options in conjunction with termination of employment. The Company recorded a charge of $1.1 million related to the modification of these awards, of which $1.0 million was recorded to sales and marketing expense and the remaining amounts to research and development and general and administrative expenses based on the employees’ functional role within the Company. During 2013, the Company modified options to purchase 8,438 shares of common stock to accelerate vesting and extend the time allowed to exercise the stock options after termination of employment. The Company recorded a charge of $0.1 million related to the modification of this award to cost of revenue, based on the employee’s functional role within the Company.

Compensation cost recognized upon employee sale of shares to the CEO

In December 2012, eight employees sold 760,500 shares of their common stock for $13.0 million to the Company’s CEO. The stock was sold at $17.08 per share, which was greater than the determined fair value of the common stock at the time of sale. The fair value was determined by the Board, based on the Company’s development and sales efforts, revenue growth, independent third-party valuations and additional objective and subjective factors relating to the Company’s business. The Company determined that the amount paid by the Company’s CEO exceeded the estimated fair value of these shares by $2.6 million and concluded that the value transferred to employees in excess of the fair value of shares sold was additional compensation to the selling employees. As a result, the Company recorded compensation expense of $2.6 million, of which $0.3 million was recorded to research and development, $1.7 million was recorded to sales and marketing and $0.6 million was recorded to general and administrative expense in the accompanying Consolidated Statements of Operations, based on the employees’ functional roles within the Company. Of the 760,500 shares sold, the Company repurchased 240,000 shares from two employees who are family members of the Company’s CEO.

 

F-31


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Restricted stock and early exercised options subject to repurchase

In June 2011, the Company granted a total of 600,000 shares of restricted stock at a purchase price of $0.0033 per share to two family members of the CEO for consulting services, which vested on the grant date. These shares of restricted stock were accounted for at fair value. General and administrative expense related to these options for the year ended December 31, 2011 was $0.5 million.

In December 2011, the Company granted 433,500 shares of restricted stock and 210,000 stock options to two consultants that the Company sponsors at an exercise price of $1.52 per share in accordance with the terms of their service agreements, subject to monthly vesting over a three-year service period and a two-year service period, respectively. Sales and marketing expense related to these restricted shares for the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited) was $1,000, $1.9 million, $3.5 million, $0.8 million and $0.8 million, respectively.

In October 2013, pursuant to the acquisition of General Things, the Company issued 430,000 shares of restricted stock to the two founders, of which 322,500 are subject to monthly vesting over a three-year service period. Research and development expense related to these restricted shares for the year ended December 31, 2013 and the three months ended March 31, 2014 (unaudited) was $0.3 million and $0.4 million, respectively.

The amount of unearned stock-based compensation currently estimated to be expensed with respect to unvested non-employee share-based payment awards at December 31, 2013 and March 31, 2014 (unaudited) was $7.4 million and $6.2 million, respectively. As of December 31, 2013 and March 31, 2014 (unaudited), the weighted-average period over which the unearned stock-based compensation is expected to be recognized was 1.4 years and 1.6 years, respectively.

Restricted stock units

In January 2014, the Company issued a total of 300,000 RSUs to employees, comprised of three different grants. Two of the grants, or a total of 200,000 shares, are subject to annual vesting over four years based on continued service. The third grant of 100,000 shares will vest 50% on the four-year anniversary and 50% on the five-year anniversary based on continued service. General and administrative expense related to these RSUs for the three months ended March 31, 2014 (unaudited) was $0.2 million. The amount of unearned stock-based compensation currently estimated to be expensed related to these RSUs at March 31, 2014 (unaudited) was $4.7 million. As of March 31, 2014 (unaudited), the weighted-average period over which the unearned stock-based compensation is expected to be recognized was 4.2 years.

Non-employee options

In December 2011, the Company granted options to purchase 90,000 shares of common stock to consultants at an exercise price of $1.52, which vested on the grant date. Sales and marketing expense related to these options for the year ended December 31, 2011 was $0.2 million.

In April 2013, the Company granted options to purchase 44,000 shares of common stock to two contractors at an exercise price of $15.40. In September 2013, one of the contractors was

 

F-32


Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

terminated and the other contractor was converted to an employee on October 1, 2013. Sales and marketing expense related to these options was $0.2 million in 2013. Non-employee stock compensation expense is included in the stock-based compensation tables in this footnote.

8. Net income per share attributable to common stockholders

Basic and diluted net income per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company considers its redeemable convertible preferred stock to be participating securities. Prior to December 20, 2012, the holders of the Company’s Series A preferred stock were entitled to receive cumulative dividends at the annual rate of 8% per share per annum, payable prior and in preference to any dividends on any shares of the Company’s common stock. In the event a dividend was paid on common stock, the holders of preferred stock were entitled to a proportionate share of any such dividend as if they were holders of common stock (on an as-if converted basis). All participating dividends paid on the Series A preferred stock reduced accrued past or future preferred dividends by such amount. On December 20, 2012, the Company’s Series A preferred stock was modified to eliminate the 8% cumulative dividend. The holders of the Series A preferred stock do not have a contractual obligation to share in losses. In addition, the Company considers shares issued upon the early exercise of options subject to repurchase and non-vested restricted shares to be participating securities, as the holders of these shares have a nonforfeitable right to dividends. In accordance with the two-class method, earnings allocated to these participating securities and the related number of outstanding shares of the participating securities, which include contractual participation rights in undistributed earnings, have been excluded from the computation of basic and diluted net income (loss) per share attributable to common stockholders.

Under the two-class method, net income attributable to common stockholders after deduction of preferred stock dividends is determined by allocating undistributed earnings between the common stock and the participating securities based on their respective rights to receive dividends. In computing diluted net income attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. Basic net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. All participating securities are excluded from basic weighted-average common shares outstanding. Diluted net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding, including all potentially dilutive common shares, if the effect of each class of potential shares of common stock is dilutive.

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

The following table presents the calculations of basic and diluted net income per share attributable to common stockholders:

 

       Year ended December 31,     Three months ended
March 31,
 
(in thousands, except per share amounts)    2011     2012     2013     2013     2014  

 

 
                       (unaudited)  

Numerator:

          

Net income

   $ 24,612      $ 32,262      $ 60,578      $ 23,035      $ 11,049   

Less: common stock distributed earnings

     (5,071     (84,828                     

Less: preferred stock distributed earnings, including accumulated accretion

     (5,815     (26,927                     

Less: unvested early exercised options and restricted stock distributed earnings

            (454                     

Less: undistributed earnings allocable to:

          

holders of preferred stock

                   (16,521     (6,295     (2,996

holders of unvested early exercised options and restricted stock

                   (206     (84     (44
  

 

 

 

Undistributed net income (loss) attributable to common stockholders—basic

   $ 13,726      $ (79,947   $ 43,851      $ 16,656      $ 8,009   
  

 

 

 

Add: adjustments to net income for dilutive securities allocable to:

          

holders of preferred stock

                   2,281        860        437   

holders of unvested early exercised options and restricted stock

                   28        12        6   
  

 

 

 

Undistributed net income (loss) attributable to common stockholders—diluted

   $ 13,726      $ (79,947   $ 46,160      $ 17,528      $ 8,452   
  

 

 

 

Distributed earnings to common stockholders

   $ 5,071      $ 84,828      $      $      $   
  

 

 

 

Denominator:

          

Weighted-average common shares—basic

     73,481        74,226        81,018        80,768        81,582   

Effect of potentially dilutive securities:

          

Stock options and RSUs

     5,070               17,923        17,689        19,201   
  

 

 

 

Weighted-average common shares—diluted

     78,551        74,226        98,941        98,457        100,783   
  

 

 

 

Net income per share attributable to common stockholders:

          

Distributed earnings—basic

   $ 0.07      $ 1.15      $      $      $   

Undistributed earnings—basic

     0.19        (1.08     0.54        0.21        0.10   
  

 

 

 

Basic net income per share

   $ 0.26      $ 0.07      $ 0.54      $ 0.21      $ 0.10   
  

 

 

 

Distributed earnings—diluted

   $ 0.06      $ 1.15      $      $      $   

Undistributed earnings—diluted

     0.18        (1.08     0.47        0.18        0.08   
  

 

 

 

Diluted net income per share

   $ 0.24      $ 0.07      $ 0.47      $ 0.18      $ 0.08   

 

 

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

The following potentially dilutive shares of common stock subject to options, unvested stock awards and redeemable convertible preferred stock were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:

 

       Year ended December 31,      Three months
ended March 31,
 
(in thousands)    2011      2012      2013      2013      2014  

 

    

 

 

    

 

 

 
                          (unaudited)  

Series A redeemable convertible preferred stock

     28,744         30,523         30,523         30,523         30,523   

Stock options

     7,107         24,402         1,409         439         3,634   

Unvested stock awards and stock options

     2         432         380         409         451   
  

 

 

    

 

 

    

 

 

 
     35,853         55,357         32,312         31,371         34,608   

 

    

 

 

    

 

 

 

Unaudited pro forma net income per share

Unaudited pro forma basic and diluted net income per share were computed to give effect to the assumed conversion of Series A preferred stock into common stock in connection with the closing of the Company’s initial public offering using the if converted method as though the conversion had occurred as of January 1, 2013 or the original date of issuance, if later.

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

The following table presents the calculations of unaudited pro forma basic and diluted net income per share:

 

       Year ended
December 31,
    Three months
ended
March 31,
 

 

 
     2013     2014  
(in thousands, except per share amounts)             

Numerator:

    

Net income

   $ 60,578      $ 11,049   

Less: amount allocable to unvested early exercised options and restricted stock

     (206     (44
  

 

 

 

Undistributed net income (loss) attributable to common stockholders- basic

   $ 60,372      $ 11,005   

Add: adjustment of net income for dilutive securities allocable to unvested early exercised options and restricted stock

     28        6   
  

 

 

 

Undistributed net income (loss) attributable to common stockholders- diluted

   $ 60,400      $ 11,011   
  

 

 

 

Denominator:

    

Weighted-average common shares outstanding

     81,018        81,582   

Pro forma adjustment to reflect automatic conversion of Series A redeemable convertible preferred stock

     30,523        30,523   
  

 

 

 

Pro forma weighted-average shares used to compute net income per share attributable to common stockholders—basic:

     111,541        112,105   

Effect of potentially dilutive securities:

    

Stock options and RSUs

     17,923        19,201   
  

 

 

 

Pro forma weighted-average shares used to compute net income per share attributable to common stockholders—diluted:

     129,464        131,306   
  

 

 

 

Pro forma net income per share attributable to common stockholders:

    

Distributed earnings—basic

   $      $   

Undistributed earnings—basic

     0.54        0.10   
  

 

 

 

Basic

   $ 0.54      $ 0.10   

Distributed earnings—diluted

   $      $   

Undistributed earnings—diluted

     0.47        0.08   
  

 

 

 

Diluted

   $ 0.47      $ 0.08   

 

 

Supplemental unaudited pro forma net income per share

Supplemental unaudited pro forma basic and diluted net income per share were computed to give effect to the assumed conversion of Series A preferred stock into common stock immediately prior to the closing of the Company’s initial public offering, as well as the number of additional shares that would have been required to be issued to repay the outstanding syndicated senior

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

secured credit facility balance of $111.0 million at March 31, 2014 (unaudited) assuming the issuance of such shares at the assumed initial offering price of $22.50, the midpoint of the price range set forth on the cover page of the Company’s initial public offering prospectus. The numerator in the supplemental pro forma basic and diluted net income per share calculation has been adjusted to include the pro forma adjustments discussed above and to reverse interest expense, net of tax on the credit facility, which is assumed to be repaid using a portion of the net proceeds of the Company’s initial public offering of its common stock.

The following table presents the calculations of unaudited supplemental pro forma basic and diluted net income per share:

 

(in thousands, except per share amounts)    Year ended
December 31,
2013
    Three months
ended
March 31,
2014
 

 

 

Net income

   $ 60,578      $ 11,049   

Less: amount allocable to unvested early exercised options and restricted stock

     (215     (47

Pro forma adjustment to reverse interest expense related to repayment of credit facility, net of tax

     2,942        575   
  

 

 

   

 

 

 

Net income used in computing supplemental pro forma undistributed net income per share attributable to common stockholders—basic

     63,305        11,578   

Add: adjustment of net income for dilutive securities allocable to unvested early exercised options and restricted stock

     30        7   
  

 

 

   

 

 

 

Net income used in computing supplemental pro forma undistributed net income per share attributable to common stockholders—diluted

   $ 63,335      $ 11,585   
  

 

 

   

 

 

 

Denominator:

    

Weighted-average common shares outstanding used in computing pro forma net income attributable to common stockholders-basic

     111,541        112,105   

Pro forma adjustment to include additional shares required to be issued to generate proceeds to repay credit facility

     4,933        4,933   
  

 

 

   

 

 

 

Denominator for supplemental pro forma net income per share attributable to common stockholders-basic:

     116,474        117,038   

Effect of potentially dilutive securities:

    

Stock options and RSUs

     17,923        19,201   
  

 

 

   

 

 

 

Denominator for supplemental pro forma net income per share attributable to common stockholders-diluted:

     134,397        136,239   

Supplemental pro forma net income per share attributable to common stockholders:

    

Distributed earnings—basic

   $      $   

Undistributed earnings—basic

   $ 0.54      $ 0.10   
  

 

 

   

 

 

 

Basic

   $ 0.54      $ 0.10   

Distributed earnings—diluted

              

Undistributed earnings—diluted

   $ 0.47      $ 0.09   
  

 

 

   

 

 

 

Diluted

   $ 0.47      $ 0.09   

 

 

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

9. Financing arrangements

Credit facility

On December 21, 2012, the Company entered into a $170.0 million syndicated senior secured credit facility consisting of a $120.0 million three-year term loan facility and a $50.0 million four-year revolving credit facility. The Company received net proceeds of $127.6 million, net of $2.4 million of debt issuance and lender costs. The debt issuance and lender costs were allocated between the term loan facility and the revolving credit facility based on the maximum lending commitment amounts. The debt issuance costs allocated to the term loan facility are reported as deferred charges and the lender costs allocated to the term loan facility are included in the carrying value of the term loan as debt discount. The deferred issuance and lender costs allocated to the term loan facility are being amortized to interest expense over the contractual term of the term loan facility using the effective interest method. Costs allocated to the revolving credit facility are deferred and amortized using the straight-line method over the four year contractual term of the revolving credit facility. Borrowings under the credit facility are collateralized by substantially all of the assets of the Company.

The term loan facility has scheduled quarterly principal repayments due on the last day of each quarter of $1.5 million per quarter in 2013, $3.0 million per quarter in 2014 and $6.0 million for the first three quarters of 2015 with the balance of $84.0 million due on December 21, 2015. The interest rate is based on the 6-month adjusted LIBOR (London Interbank Offered Rate) plus 2.5%. The initial contractual interest rate is 3.06% and will adjust every six months. The inception date effective interest rate was 3.71%. The Company may prepay the term loan at any time, without penalty. Mandatory additional principal prepayments may be required based on excess cash flows of the Company. The Company’s excess cash flows, as defined in the credit facility, for 2013 triggered a contractual principal prepayment obligation of $48.5 million, which amount has been classified as a current liability as of December 31, 2013 and March 31, 2014 (unaudited). In April 2014, the Company amended the credit facility agreement for its term loan to extend the due date for this contractual principal prepayment from April 2014 to December 2014.

As of December 31, 2013 and March 31, 2014 (unaudited), $114.0 million and $111.0 million of the term loan was outstanding, respectively. The remaining unamortized discount was $0.4 million and $0.3 million as of December 31, 2013 and March 31, 2014 (unaudited), respectively. The effective interest rate on the term loan was 3.79% on December 31, 2013 and March 31, 2014 (unaudited).

The revolving credit facility matures on December 21, 2016. Principal can be paid and re-borrowed during the term of the revolving credit facility. The interest rate is based on the 3-month adjusted LIBOR plus 2.5%. The initial interest rate was 2.81% and will adjust quarterly for any balance outstanding. Mandatory additional principal repayments may be required based on excess cash flows of the Company once the term loan facility has been fully repaid. As of December 31, 2013 and March 31, 2014 (unaudited), zero of the revolving credit facility was drawn down. As of December 31, 2013 and March 31, 2014 (unaudited), $20.0 million of the revolving credit facility was committed to a standby letter of credit. In April 2014, the $20.0 million standby letter of credit was terminated.

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

The credit agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. The credit agreement contains an acceleration clause for certain events related to the Company’s financial creditworthiness, including a financial covenant that requires the Company to maintain specific consolidated ratios. As of December 31, 2013 and March 31, 2014 (unaudited), the Company was in compliance with all covenants.

Line of credit

Prior to the credit facility in December 2012, the Company had a line of credit agreement which provided for borrowings of up to $15.0 million, which was later amended to increase the maximum amount of borrowings up to $50.0 million, with interest at the bank’s prime rate. Borrowings under this line of credit were collateralized by substantially all of the assets of the Company. During 2012, the Company failed to provide a required pledge agreement upon creation of a foreign subsidiary, failed to provide audited financial statements within 120 days after year end and did not meet the quarterly net income covenant for the quarter ended September 30, 2012. All covenant defaults were waived by the bank. In December 2012, the line of credit was cancelled due to the new credit facility that was entered in December 2012.

License financing arrangement

In August 2013, the Company entered into a Stadium Builders License Agreement (License Agreement) with the Santa Clara Stadium Authority. As part of the License Agreement, the Company will have rights during the agreement term to season tickets for a National Football League team. The cost of the license was $4.0 million, of which $3.2 million was financed with the Santa Clara Stadium Authority at an 8.5% fixed interest rate over the course of the first ten years of the new stadium. Interest was to begin accruing on March 1, 2014. The financing arrangement requires ten annual payments of $0.4 million, with an option to pay off the principal at any time without any prepayment penalty. As of December 31, 2013, the Company had made a payment of $0.4 million, and recorded a long term asset of $4.0 million and a short term liability of $3.6 million on the accompanying Consolidated Balance Sheets related to this License Agreement. In January and February 2014, the Company paid down the remaining $3.6 million related to the license agreement with the Santa Clara Stadium Authority. As of March 31, 2014, there were no further financial obligations related to this License Agreement outstanding.

Loan agreement

In December 2010, the Company entered into a loan agreement with a bank which provided for borrowings up to $5.0 million and bore interest at the bank’s prime rate plus 1.75%. The loan agreement expired on December 27, 2011, with no funds borrowed.

CineForm noteholders note payable

As part of the acquisition consideration of CineForm, Inc., the Company assumed $760,000 of the outstanding balance due to CineForm Noteholders. See Note 15, “Acquisition of CineForm.” The

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

note balance was payable in six equal quarterly installments plus accrued interest at 7%. This note was fully repaid in 2012.

10. Income taxes

Income before income tax consisted of the following:

 

       Years ended December 31,  
(in thousands)   

2011

    

2012

     2013  

 

  

 

 

 

Domestic

   $ 38,791       $ 38,714       $ 57,251   

Foreign

             14,496         34,078   
  

 

 

 
   $ 38,791       $ 53,210       $ 91,329   

 

 

Income tax expense consisted of the following:

 

       Years ended December 31,  
(in thousands)    2011     2012     2013  

 

   

 

 

 

Current:

      

Federal

   $ 16,687      $ 19,984      $ 28,856   

State

     4,323        (493     1,634   

Foreign

            3,578        8,058   
  

 

 

   

 

 

 

Total current

     21,010        23,069        38,548   
  

 

 

   

 

 

 

Deferred:

      

Federal

     (5,962     (2,247     (7,268

State

     (869     126        (861

Foreign

                   332   
  

 

 

   

 

 

 

Total deferred

     (6,831     (2,121     (7,797
  

 

 

   

 

 

 

Income tax expense

   $ 14,179      $ 20,948      $ 30,751   

 

   

 

 

 

Undistributed earnings of $36.9 million of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes have been provided thereon. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred the Company would be subject to additional U.S. income taxes (subject to adjustment for foreign tax credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practical.

 

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Table of Contents
Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

Income tax expense reconciles to the amount computed by applying the federal statutory rate (35%) to income before income taxes as follows:

 

       Years ended December 31,  
     2011     2012     2013  
(in thousands, except percentage)    $     %     $     %     $     %  

 

   

 

 

   

 

 

 

Reconciliation to statutory rate:

            

Tax at federal statutory rate

   $ 13,577        35.0%      $ 18,623        35.0%      $ 31,965        35.0%   

State taxes, net of federal benefit

     2,229        5.8        1,384        2.6        2,344        2.6   

Impact of foreign operations

                   (211     (0.4     (113     (0.1

Stock-based compensation

     540        1.4        1,385        2.6        2,982        3.3   

S corporation status benefit

     (1,082     (2.8                            

S corporation conversion—DTA setup

     (965     (2.5                            

Tax credits

     (211     (0.5     (415     (0.8     (5,637     (6.2

Other

     91        0.3        182        0.3        (790     (0.9
  

 

 

   

 

 

   

 

 

 
   $ 14,179        36.6%      $ 20,948        39.4%      $ 30,751        33.7%   

 

   

 

 

   

 

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows:

 

       December 31,  
(in thousands)    2012     2013  

 

   

 

 

 

Components of deferred tax assets and liabilities

    

Deferred tax assets:

    

Net operating loss carryforwards

   $ 746      $ 252   

Stock-based compensation

     3,477        3,475   

Accruals and reserves

     6,973        15,463   
  

 

 

   

 

 

 

Gross deferred tax assets

     11,196        19,190   

Valuation allowance

     (204       
  

 

 

   

 

 

 

Total deferred tax assets

     10,992        19,190   

Deferred tax liabilities:

    

Depreciation and amortization

     (1,998     (3,063

Intangible assets

     (1,214     (550
  

 

 

   

 

 

 

Total deferred tax liabilities

     (3,212     (3,613
  

 

 

   

 

 

 

Net deferred tax assets

   $ 7,780      $ 15,577   

 

   

 

 

 

Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company’s historical operating performance and the U.S. cumulative net profits in prior periods, the Company believes it is more likely than not that deferred tax assets will be realized.

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

As of December 31, 2013, the Company’s federal and state net operating loss carryforwards for income tax purposes were $0.4 million and $0.2 million, respectively. If not utilized, the federal and state losses will begin to expire in 2022 and 2014, respectively. Utilization of these federal and state tax credit carryforwards are subject to an annual utilization limitation of $1.2 million due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

Uncertain income tax positions

The Company has adopted ASC 740-10 “Accounting for Uncertainty in Income Taxes.” ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company’s total amounts of gross unrecognized tax benefits as of December 31, 2013 was $9.9 million, which represented an increase in unrecognized tax benefits by $5.5 million during 2013. If recognized, $9.4 million of these unrecognized tax benefits (net of federal benefit) would be recorded as a reduction of future income tax provision for the year ending December 31, 2013.

A reconciliation of the beginning and ending amount of the unrecognized income tax benefits during the years ended December 31, 2012 and 2013 are as follows:

 

       December 31,  
(in thousands)    2011      2012      2013  

 

 

Gross balance at January 1

   $       $ 966       $ 4,439   

Gross increase related to current year tax positions

     171         3,473         5,280   

Gross increase related to prior year tax positions

     795                 179   
  

 

 

    

 

 

    

 

 

 
   $ 966       $ 4,439       $ 9,898   

 

 

The Company’s policy is to account for interest and penalties as income tax expense. As of the December 31, 2013, the Company had accrued no interest or penalties related to unrecognized tax benefits.

It is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next 12 months. However, the range of the reasonably possible change cannot be reliably estimated.

The Company files income tax returns in the U.S. federal jurisdiction, certain U.S. states and Hong Kong. The Company is subject to U.S. federal income tax examination for calendar tax years ending 2010 through 2013, from 2009 through 2013 for state tax purposes and 2013 for Hong Kong. The U.S. federal and U.S. state taxing authorities may choose to audit tax returns for tax years beyond the statute of limitation period due to significant tax attribute carryforwards from prior years, making adjustments only to carryforward attributes.

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

The Company was contacted for audit in December 2013 by the Internal Revenue Service for the 2011 tax year which included a partial year S corporation and partial year C corporation return. At this time, the Company is not able to estimate the potential impact that the examination may have on income tax expense. If the examination is resolved unfavorably, there is a possibility it may have a material negative impact on the Company’s results of operations.

11. Related parties

Beginning in fiscal year 2013, the Company entered into agreements for certain contract manufacturing and engineering services with a company affiliated with one of its investors. In 2013 and the three months ended March 31, 2014 (unaudited), the Company made payments of $3.6 million and $8.4 million, respectively, for services rendered. As of December 31, 2013 and March 31, 2014 (unaudited), the Company had accounts payable associated with this vendor of $3.9 million and $2.6 million, respectively.

In the second quarter of fiscal year 2013, the Company settled an outstanding legal matter with one of the CEO’s family members for $0.2 million.

In the second quarter of fiscal year 2013, the Company loaned one of its executive officers $150,000 pursuant to a demand payment loan that did not bear interest, which was fully repaid in March 2014.

In the third quarter of fiscal year 2013, the Company entered into an agreement with a company affiliated with the son of one of the members of the Board to acquire certain naming rights to a sprint kart race track. As consideration for these naming rights, the Company will pay a total of $0.5 million in installments beginning in October 2013 over the naming rights period. In addition to the fee, the Company will also provide the company with 100 GoPro capture devices at no cost each year during the term of the agreement, which is three years. As of March 31, 2014 (unaudited), the Company has paid $0.2 million related to this agreement.

In December 2013, the Company entered into a separation agreement with the Company’s former Chief Financial Officer, pursuant to which the Company paid him cash severance of $0.3 million.

In fiscal year 2013 and the first quarter of fiscal year 2014, the Company incurred and expensed chartered aircraft fees for the use of the CEO’s private plane, for which $0.2 million was accrued as of March 31, 2014 (unaudited).

Other related party transactions involving the Company’s CEO are discussed in Note 6, “Common stock and stockholders’ equity (deficit)” and Note 7, “Stock-based compensation.”

 

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Index to Financial Statements

GoPro, Inc.

Notes to consolidated financial statements

 

 

12. Commitments, contingencies and guarantees

The following table summarizes the Company’s contractual commitments as of December 31, 2013:

 

(in thousands)    Total      1 year
(fiscal
2014)
     2-3 years
(fiscal
2015
and
2016)
     4-5 years
(fiscal
2017 and
2018)
     More than
5 years
(beyond
fiscal
2018)
 

 

 

Term loan principal and interest(1)

   $ 118,606       $ 63,652       $ 54,954       $       $   

Operating leases(2)

     32,243         7,681         13,368         10,614         580   

Sponsorship commitments(3)

     34,423         18,526         15,596         301           

License financing arrangement(4)

     3,600         3,600                           

Other contractual commitments(5)

     4,365         1,896         2,469                   

Capital equipment purchase commitments(6)

     3,607         3,607                           
  

 

 

 

Total contractual cash obligations

   $ 196,844       $ 98,962       $ 86,387       $ 10,915       $ 580   

 

 

 

(1)   See Note 9, “Financing arrangements.” Interest payments were calculated using the applicable rate as of December 31, 2013.

 

(2)   The Company leases its facilities under long-term operating leases, which expire at various dates through May 2019. The lease agreements frequently include leasehold improvement incentives, escalating lease payments, renewal provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs or defined rent increases.

 

(3)   The Company sponsors sporting events and athletes as part of its marketing efforts. In many cases, the Company enters into multi-year agreements with event organizers and athletes.

 

(4)   In August 2013, the Company entered into a license agreement with the Santa Clara Stadium Authority which gave it rights during the agreement term to season tickets for a National Football League team. The cost of the license was $4.0 million, of which $3.6 million remains to be paid as of December 31, 2013 and was recorded as a short-term liability on the accompanying Consolidated Balance Sheet .

 

(5)   In 2013, the Company purchased software licenses and engaged outside consultants to assist with upgrading or implementing its financial and IT systems, which require payments over multiple years.

 

(6)   The Company enters into contracts to acquire equipment for tooling and molds as part of its manufacturing operations. In addition, the Company incurs purchase commitments related to the manufacturing of its POP displays by third parties. The Company has revised the previously disclosed amount for capital equipment purchase commitments as of December 31, 2013 to correct this amount.

 

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GoPro, Inc.

Notes to consolidated financial statements

 

 

The following table summarizes the Company’s contractual commitments as of March 31, 2014 (unaudited):

 

(in thousands)    Total      1 year
(remaining
9 months
fiscal
2014)
     2-3 years
(fiscal
2015
and
2016)
     4-5 years
(fiscal
2017 and
2018)
     More than
5 years
(beyond
fiscal
2018)
 

 

 

Term loan principal and interest(1)

   $ 115,523       $ 60,569       $ 54,954       $       $   

Operating leases(2)

     31,150         6,436         13,520         10,614         580   

Sponsorship commitments(3)

     22,129         9,967         11,861         301           

Other contractual commitments(4)

     5,465         1,760         3,705                   

Capital equipment purchase commitments(5)

     8,339         8,339                           
  

 

 

 

Total contractual cash obligations

   $ 182,606       $ 87,071       $ 84,040       $ 10,915       $ 580   

 

 

 

(1)   See Note 9, “Financing arrangements.” Interest payments were calculated using the applicable rate as of March 31, 2014 (unaudited).

 

(2)   The Company leases its facilities under long-term operating leases, which expire at various dates through May 2019. The lease agreements frequently include leasehold improvement incentives, escalating lease payments, renewal provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs or defined rent increases.

 

(3)   The Company sponsors sporting events and athletes as part of its marketing efforts. In many cases, the Company enters into multi-year agreements with event organizers and athletes.

 

(4)   The Company purchases software licenses and engages outside consultants to assist with upgrading or implementing its financial and IT systems, which require payments over multiple years.

 

(5)   The Company enters into contracts to acquire equipment for tooling and molds as part of its manufacturing operations. In addition, the Company incurs purchase commitments related to the manufacturing of its POP displays by third parties.

Rent expense for the years ended December 31, 2011, 2012 and 2013 and for the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited) was $0.4 million, $1.9 million, $3.9 million, $0.7 million and $1.3 million, respectively.

Legal proceedings

From time to time, the Company is involved in legal proceedings in the ordinary course of business. The Company believes that the outcome of any existing litigation, either individually or in the aggregate, will not have a material impact on the results of operations, financial condition or cash flows of the Company.

Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

 

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GoPro, Inc.

Notes to consolidated financial statements

 

 

Product warranty

As of December 31, 2013, $3.7 million of the warranty liability was recorded as an element of accrued liabilities and $0.2 million was recorded as an element of other long-term liabilities. As of March 31, 2014 (unaudited), $2.4 million of the warranty liability was recorded as an element of accrued liabilities and $0.2 million was recorded as an element of other long-term liabilities.

The following table summarizes the warranty liability activity:

 

       Years ended December 31,     Three months
ended
March 31,
 
(in thousands)    2011     2012     2013     2014  

 

 
                       (unaudited)  

Beginning balances

   $ 116      $ 589      $ 1,937      $ 3,870   

Charged to cost of revenue

     1,644        2,821        7,380        271   

Settlements of warranty claims

     (1,171     (1,473     (5,447     (1,590
  

 

 

 

Ending balances

   $ 589      $ 1,937      $ 3,870      $ 2,551   

 

 

13. Employee retirement plan

Effective January 1, 2009, the Company established a 401(k) defined contribution retirement plan (Retirement Plan) covering U.S. full-time employees. The Retirement Plan provides for voluntary employee contributions from 1% to 86% of annual compensation, subject to a maximum limit allowed by Internal Revenue Service guidelines.

In March 2014, the Company modified its Retirement Plan to include an employer matching contribution. The Company will make a matching contribution equal to the employee’s 401(k) deferral up to 4% of their 401(k) eligible compensation per pay period. The matching contribution is retroactive to January 1, 2014. As of March 31, 2014 (unaudited), the Company had expensed and accrued $0.6 million for this matching program.

14. Concentrations of risk and segment information

Segment information

The Company operates as one operating segment as it only reports financial information on an aggregate and consolidated basis to its CEO, who is the Company’s chief operating decision maker.

Customer concentration

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables. The Company believes that the credit risk in its trade receivables is mitigated by the Company’s credit evaluation process, relatively short collection terms and dispersion of its customer base. The Company generally does not require collateral and losses on trade receivables have historically been within management’s expectations.

As of December 31, 2012, one distributor customer accounted for 10% of the Company’s net accounts receivable balance. As of December 31, 2012 and 2013 and March 31, 2014 (unaudited),

 

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GoPro, Inc.

Notes to consolidated financial statements

 

 

one retail customer accounted for 47%, 21% and 32% of the Company’s net accounts receivable balance, respectively. As of December 31, 2013 and March 31, 2014 (unaudited), a second retail customer accounted for 11% and 12% of the Company’s net accounts receivable balance. As of December 31, 2013, a third retail customer accounted for 14% of the Company’s net accounts receivable balance.

In 2013 and the three months ended March 31, 2014 (unaudited), the Company sold accounts receivables, without recourse, of $71.1 million and $31.3 million, respectively, from a retail customer to a third-party banking institution. Factoring fees of $0.6 million and $0.3 million in 2013 and the three months ended March 31, 2014 (unaudited) related to the sale of trade accounts receivable were included in interest expense.

Customers with revenue equal to or greater than 10% of total revenue for the years ended December 31, 2011, 2012 and 2013, and for the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited) were as follows:

 

       Years ended December 31,      Three months
ended
March 31,
 
       2011        2012        2013        2013        2014  

 

 
                          (unaudited)  

A (retailer)

     15%         15%         17%         14%         13%   

B (distributor)

     *         *         *         *         10%   

 

 

 

*   Less than 10% of total revenue for the period indicated

Supplier concentration

The Company relies on third parties for the supply and manufacture of its capture devices. In instances where a supply and manufacture agreement does not exist or suppliers fail to perform their obligations, the Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers on time, if at all.

The Company also relies on third parties with whom it outsources supply chain activities related to inventory warehousing, order fulfillment, distribution and other direct sales logistics. The Company cannot be sure that these parties will perform their obligations as expected or that any cost savings, or other benefits will be derived from the efforts of these parties. If any of these parties breaches or terminates their agreement with the Company or otherwise fails to perform their obligations in a timely manner, the Company’s financial results may be adversely affected.

 

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GoPro, Inc.

Notes to consolidated financial statements

 

 

Geographic and other information

Revenue by geographic region, based on ship-to destinations, was as follows:

 

       Year ended December 31,      Three months ended
March 31,
 
(in thousands)    2011      2012      2013      2013      2014  

 

    

 

 

    

 

 

    

 

 

 
                          (unaudited)  

Americas

   $ 168,450       $ 314,135       $ 557,285       $ 133,474       $ 125,166   

Europe, Middle East and Africa

     51,328         157,587         311,674         87,783         80,107   

Asia and Pacific area countries

     14,460         54,294         116,778         33,800         30,443   
  

 

 

    

 

 

    

 

 

 
   $ 234,238       $ 526,016       $ 985,737       $ 255,057       $ 235,716   

 

    

 

 

    

 

 

 

Revenue in the United States, which is included in the Americas geographic region, was $151.4 million, $278.7 million, $498.5 million, $115.5 million and $110.7 million for the years ended December 31, 2011, 2012 and 2013 and for the three months ended March 31, 2013 (unaudited) and March 31, 2014 (unaudited), respectively.

As of December 31, 2012 and 2013 and March 31, 2014 (unaudited) long-lived assets, which represent property and equipment, located outside the United States, primarily China, were $4.0 million, $6.0 million and $7.1 million, respectively.

The Company does not disclose revenue by product category as it does not track sales incentives and other revenue adjustments by product category to report such data.

15. Acquisitions

CineForm, Inc.

On February 25, 2011, the Company acquired all of the shares of CineForm. CineForm was a provider of professional editing compression and decompression (CODEC) software that made high definition (HD) and three dimensional (3D) editing faster and more convenient without sacrificing quality. The acquisition of CineForm enabled GoPro to utilize CineForm’s compression and other proprietary technologies to enhance the video image quality of its cameras.

The total acquisition consideration for CineForm of $9.9 million consisted of $8.0 million paid at the closing (net of $0.2 million cash acquired), a holdback of $0.9 million for indemnification of representations made by the acquiree, assumption of $0.8 million of CineForm notes payable and assumption of $0.3 million of vested employee stock options. The holdback amount and notes payable were payable in six equal quarterly installments, plus 7% interest accrued on the note payable. In addition, the Company recorded acquisition-related transaction costs of $0.3 million, which were included in general and administrative expense in the accompanying Consolidated Statements of Operations.

 

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GoPro, Inc.

Notes to consolidated financial statements

 

 

The Company has calculated the fair value of the tangible and intangible assets acquired to allocate the purchase price as of the acquisition date. The excess of purchase price over the aggregate fair values was recognized as goodwill. Based upon these calculations, the purchase price of the transaction was allocated as follows:

 

(in thousands)    Estimated
useful life
(in years)
     Purchase
price
 

 

 

Purchased intangible assets:

     

Developed technology

     6       $ 5,330   

Customer relationships

     3         170   

Tradename

     5         664   

Noncompete agreements

     2         150   

Goodwill (non-tax deductible)

        4,233   

Net deferred tax liabilities

        (488

Other assets and liabilities acquired, net of cash

        (146
     

 

 

 

Total assets acquired

      $ 9,913   
     

 

 

 

Cash paid

      $ 7,955   

Options issued

        339   

CineForm note

        760   

Deferred cash (holdback)

        859   
     

 

 

 

Total consideration issued in the acquisition

      $ 9,913   

 

    

 

 

 

The fair values of the intangible assets were determined using the income approach with significant inputs that are not observable in the market. Key assumptions included expected future cash flows and discount rates consistent with the assessment of risk. Purchased intangible assets are amortized using a straight-line amortization method over their estimated useful lives. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets were the synergies in products that can be leveraged by the Company and the acquisition of an assembled workforce of experienced software engineers.

The results of operations of CineForm are included in the accompanying Consolidated Statements of Operations from the date of acquisition. The pro forma financial information has not been presented as the Company’s consolidated results of operations presented herein materially reflect the full effects of the acquisition for the fiscal years since the acquisition closed on February 25, 2011.

General Things

On October 18, 2013, the Company completed the acquisition of 100% of the shares of General Things, a leading digital design and software studio based in San Francisco, California for aggregate acquisition consideration of $17.0 million, comprised of $10.0 million of cash and $7.0 million related to 430,000 shares of the Company’s common stock. The cash consideration includes retention bonuses of $1.7 million and the shares of the Company’s common stock includes 322,500 unvested stock awards. The acquisition is expected to advance the Company’s business back-end and consumer-facing web development.

 

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GoPro, Inc.

Notes to consolidated financial statements

 

 

Of the aggregate acquisition consideration, approximately $10.1 million was determined to be the accounting purchase price attributable to the portion of cash and common stock for which there is no remaining requisite service period. The Company expects to record $6.9 million as compensation expense over the requisite service periods following the acquisition.

The Company also recorded acquisition-related transaction costs of $0.3 million, which were included in general and administrative expenses during the year ended December 31, 2013.

The Company has calculated the fair value of the tangible and intangible assets acquired to allocate the purchase price as of the acquisition date. The excess of purchase price over the aggregate fair values was recognized as goodwill. Based upon these calculations, the purchase price of the transaction was allocated as follows:

 

(in thousands)    Estimated
useful life
(in years)
     Purchase
price
 

Purchased intangible asset:

     

Noncompete agreements

     2       $ 161   

Goodwill (non-tax deductible)

        9,862   

Other assets and liabilities acquired, net of cash

        84   
     

 

 

 

Total assets acquired

      $ 10,107   

 

 

The fair value of the intangible asset was determined using the income approach with significant inputs that are not observable in the market. Key assumptions included expected future cash flows and discount rates consistent with the assessment of risk. The purchased intangible asset will be amortized using a straight-line amortization method over its estimated useful lives. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets were the synergies in products that can be leveraged by the Company and the acquisition of an assembled workforce of experienced software engineers.

The results of operations of General Things are included in the accompanying Consolidated Statements of Operations from the date of acquisition. Pro forma results of operations for the General Things acquisition have not been presented because they are not material to the Company’s consolidated results of operations.

16. Subsequent events

The Company has performed an evaluation of subsequent events through March 14, 2014, the date that the audited annual consolidated financial statements were issued.

In January 2014, the Company granted to its employees stock options to purchase 1,142,750 shares of the Company’s common stock at a weighted average exercise price of $16.22 per share. In addition, the Company issued 300,000 RSUs.

In January 2014, the Company amended one of its sponsorship agreements, which would have expired in 2015, to expire in 2014. This reduced the Company’s sponsorship commitments by $12.8 million.

 

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GoPro, Inc.

Notes to consolidated financial statements

 

 

On February 5, 2014, the Company changed its name from Woodman Labs, Inc. to GoPro, Inc.

In January and February 2014, the Company paid down the remaining $3.6 million related to the license agreement with the Santa Clara Stadium Authority.

17. Subsequent events (unaudited)

The Company has performed an evaluation of subsequent events through May 9, 2014, the date that the unaudited interim consolidated financial statements were issued.

In April 2014, the Company amended the credit agreement for its syndicated senior secured credit facility to extend the due date for the $48.5 million contractual principal prepayment from April 2014 to December 2014. In addition, the $20.0 million standby letter of credit on the Company’s revolving credit facility was terminated.

On May 1, 2014, the Company granted to certain employees options to purchase 247,622 shares of the Company’s common stock at a weighted average exercise price of $16.39 per share.

On May 28, 2014, the Financial Accounting Standards Board issued a new accounting standard update on revenue from contracts with customers, which supercedes the revenue recognition requirements in Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the Codification. The new guidance adheres to the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, the new guidance lists five steps that entities should follow, including identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the entity satisfies a performance obligation. The new guidance becomes effective for the Company on January 1, 2017, with retrospective application permitted. Early application is not permitted. The Company is currently assessing the impact of this new guidance.

On May 30, 2014 and June 3, 2014, the Board approved the number of shares of common stock reserved for issuance under the EIP to be increased by 4,900,000 and 2,600,000 shares, respectively.

On May 30, 2014, the Company granted to certain employees options to purchase 309,600 shares of the Company’s common stock at an exercise price of $18.40 per share.

In May 2014, the Company amended the outstanding stock options granted to the former Chief Financial Officer to facilitate the net exercise of those options and subsequently repurchased 41,154 shares of common stock from the former Chief Financial Officer’s estate at a purchase price of $18.40 per share.

On June 2, 2014, the Company granted to certain employees and a director options to purchase 79,587 shares of the Company’s common stock at an exercise price of $18.40 per share and 1,630 RSUs.

 

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GoPro, Inc.

Notes to consolidated financial statements

 

 

On June 3, 2014, the Company granted to certain employees options to purchase 2,427,106 shares of the Company’s common stock, of which an option to purchase 2,227,106 shares was granted to the newly appointed President of the Company. In addition, the Company issued the President 248,749 RSUs and the CEO 4,500,000 RSUs. Of the 4,500,000 RSUs issued to the CEO, 1,500,000 RSUs vested immediately, 1,500,000 RSUs vest over a three-year period with the attainment of a milestone stock price for 30 consecutive days, and 1,500,000 RSUs vest over a three-year period with the attainment of a second milestone stock price for 30 consecutive days.

In June 2014, the CEO purchased seven automobiles from the Company for a total purchase price of $0.3 million.

 

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LOGO

We have passionate ideas about what’s possible in life. Our passions lead us to pursue experiences and realities that expand our world and inspire those around us. GoPro’s focus is to help you capture and share life’s most passionate experiences and to celebrate them with others. Like how a day on the mountain with friends is better than one spent alone, the sharing of our collective experiences makes our lives more meaningful, more fun. Versatile capture devices are what we make. Enabling you to capture and share your life is what we do. This is your life...GoPro. Nicholas Woodman Founder and CEO


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LOGO

Gopro® Be a HERO.


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Part II

Information not required in prospectus

Item 13. Other expenses of issuance and distribution

The following table sets forth the costs and expenses to be paid by the Registrant in connection with the sale of the shares of Class A common stock being registered hereby. All amounts are estimates except for the SEC registration fee, the FINRA filing fee and NASDAQ listing fee.

 

SEC registration fee

   $ 63,277   

FINRA filing fee

     74,192   

NASDAQ listing fee

     225,000   

Printing and engraving

     400,000   

Legal fees and expenses

     2,350,000   

Accounting fees and expenses

     1,450,000   

Road show expenses

     500,000   

Transfer agent and registrar fees and expenses

     30,000   

Miscellaneous

     57,531   
  

 

 

 

Total

   $ 5,150,000   

 

 

Item 14. Indemnification of directors and officers

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, the Securities Act.

As permitted by the Delaware General Corporation Law, the Registrant’s restated certificate of incorporation contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:

 

Ÿ  

any breach of the director’s duty of loyalty to the Registrant or its stockholders;

 

Ÿ  

acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

Ÿ  

under Section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases); and

 

Ÿ  

any transaction from which the director derived an improper personal benefit.

As permitted by the Delaware General Corporation Law, the Registrant’s amended and restated bylaws provide that:

 

Ÿ  

the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;

 

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Ÿ  

the Registrant may indemnify its other employees and agents as set forth in the Delaware General Corporation Law;

 

Ÿ  

the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and

 

Ÿ  

the rights conferred in the amended and restated bylaws are not exclusive.

Prior to the closing of this offering, the Registrant intends to enter into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant’s restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, executive officer or employee of the Registrant regarding which indemnification is sought. Reference is also made to Section 9(c) of the Underwriting Agreement, which provides for the indemnification of executive officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant’s restated certificate of incorporation, amended and restated bylaws and the indemnification agreements entered into or to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant’s directors and executive officers for liabilities arising under the Securities Act.

The Registrant has directors’ and officers’ liability insurance for securities matters.

Certain of the Registrant’s directors (Michael Marks and Edward Gilhuly) are also indemnified by their respective employers with respect to their service on the Registrant’s board of directors.

Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:

 

Exhibit document    Number  

 

 

Form of Underwriting Agreement

     1.01   

Form of Restated Certificate of Incorporation of the Registrant

     3.02   

Form of Amended and Restated Bylaws of the Registrant

     3.04   

Investors’ Rights Agreement, dated as of February 25, 2011, by and among the Registrant and certain investors of the Registrant, as amended March 10, 2011

     4.02   

Form of Indemnification Agreement

     10.01   

 

 

Item 15. Recent sales of unregistered securities

Since January 1, 2011, the Registrant has issued and sold the following securities:

(1) Since January 1, 2011, the Registrant has granted stock options under its 2010 Equity Incentive Plan to purchase 21,568,650 shares of its Class B common stock (net of expirations, forfeitures and cancellations) to a total of 780 employees, directors, consultants and other service providers, with exercise prices ranging from $0.1833 to $18.40 per share. Of these, options to purchase 1,407,907 shares of Class B common stock have been exercised to date for aggregate consideration of $2,291,913, at exercise prices ranging from $0.1833 to $15.40 per share.

 

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(2) From June 29, 2011 to December 31, 2011, the Registrant has granted restricted stock awards under its 2010 Equity Incentive Plan of 1,033,500 shares of its Class B common stock to a total of three employees, directors, consultants and other service providers for aggregate consideration of $659,475.00, with purchase prices ranging from $0.0033 to $1.5167 per share.

(3) In February and March 2011, the Registrant entered into a Series A Preferred Stock Purchase Agreement pursuant to which it issued and sold to accredited investors an aggregate of 7,894,632 shares of Series A preferred stock, at a purchase price of $2.533367 per share, for aggregate consideration of $19,999,998. In connection with the closing of this offering, these shares of Series A preferred stock will convert into 7,894,632 shares of Class B common stock.

(4) In June and December 2011, the Registrant granted options under its 2010 Equity Incentive Plan to purchase 6,584,427 shares of its Class B common stock at an exercise price of $0.7633 per share and 270,000 restricted stock units to an employee.

(5) On October 18, 2013, the Registrant granted 430,000 shares of its Class B common stock to two individuals in connection with the acquisition of General Things, Inc.

(6) On January 29, 2014, the Registrant granted an aggregate of 300,000 restricted stock units to two employees under its 2010 Equity Incentive Plan.

(7) In June 2014, the Registrant granted an aggregate of 4,750,379 restricted stock units to two employees and a director under its 2010 Equity Incentive Plan. Of these restricted stock units, 1,500,000 have been settled to date.

The offers, sales and issuances of the securities described in paragraphs (1), (2), (4) and (6) above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Rule 701 promulgated under the Securities Act as transactions pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were the Registrant’s employees, directors or bona fide consultants and received the securities under its stock option plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.

The offers, sales and issuances of the securities described in paragraphs (3) and (5) above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Rule 506 of Regulation D promulgated thereunder in that the issuance of securities to the accredited investors did not involve a public offering. 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 affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D.

 

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Item 16. Exhibits and financial statement schedules

(a) Exhibits

 

Exhibit
number
    Exhibit title

 

 

    1.01     

Form of Underwriting Agreement.

    3.01      Form of Restated Certificate of Incorporation of the Registrant, to be effective prior to the effective date of this registration statement.
    3.02   Form of Restated Certificate of Incorporation of the Registrant, to be effective in connection with the closing of this offering.
    3.03  

Bylaws of the Registrant.

    3.04   Form of Amended and Restated Bylaws of the Registrant, to be effective in connection with the closing of this offering.
    4.01  

Form of Registrant’s Class A common stock certificate.

    4.02   Investors’ Rights Agreement, dated as of February 25, 2011, by and among the Registrant and certain investors, as amended.
    5.01      Opinion of Fenwick & West LLP regarding the legality of the securities being registered.
  10.01   Form of Indemnity Agreement by and between the Registrant and each of its directors and executive officers.
  10.02   2010 Equity Incentive Plan, as amended, and form of stock option agreement and restricted stock unit agreement.
  10.03     

2014 Equity Incentive Plan and forms thereunder.

  10.04     

2014 Employee Stock Purchase Plan and forms thereunder.

  10.05  

Offer Letter to Nina Richardson from the Registrant, dated February 8, 2013.

  10.06  

Offer Letter to Paul Crandell from the Registrant, dated July 29, 2011.

  10.07  

Offer Letter to Jack Lazar from the Registrant, dated January 17, 2014.

  10.08  

Offer Letter to Sharon Zezima from the Registrant, dated August 23, 2013.

  10.09  

Form of Change in Control Severance Agreement.

  10.10      Amended and Restated Change in Control Severance Agreement dated June 8, 2014, by and between Jack Lazar and the Registrant.
  10.11   Contribution Agreement dated December 28, 2011 by and between Nicholas Woodman and the Registrant.
  10.12   Office Lease Agreement, dated as of November 1, 2011, by and between Locon San Mateo, LLC and the Registrant, as amended, and other leases for the Registrant’s headquarters.
  10.13   Credit Agreement, dated as of December 27, 2011, by and between Wells Fargo Bank, National Association and the Registrant, as amended.
  10.14 †*    Design, Manufacturing and Supply Agreement, dated as of August 18, 2011, by and between Chicony Electronics Co. Ltd. and the Registrant.
  10.15   Credit Agreement, dated as of December 21, 2012, by and among J.P. Morgan Securities LLC, Citibank, N.A., Barclays Bank PLC, Silicon Valley Bank and the Registrant, as amended.
  10.16      Employment Letter to Nicholas Woodman from the Registrant, dated June 2, 2014.
  10.17      Offer Letter to Anthony Bates from the Registrant, dated June 2, 2014.
  10.18      Amended and Restated Change in Control Severance Agreement dated June 8, 2014 by and between Nina Richardson and the Registrant.
  21.01  

List of subsidiaries.

 

II-4


Table of Contents
Index to Financial Statements
Exhibit
number
     Exhibit title

 

 

  23.01      

Consent of Fenwick & West LLP (included in Exhibit 5.01).

  23.02       Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
  24.01    Power of Attorney (included on signature page of the registration statement on Form S-1 filed on May 19, 2014).
  24.02       Power of Attorney (included on signature page)

 

 

 

*   Filed previously.

 

  Confidential treatment requested.

(b) Financial statement schedules.

All financial statement schedules are omitted because they are not applicable or the information is included in the Registrant’s consolidated financial statements or related notes.

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 provisions described in Item 14 above, 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 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; and

(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.

 

II-5


Table of Contents
Index to Financial Statements

Signatures

Pursuant to the requirements of the Securities Act, 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 Mateo, State of California, on June 11, 2014.

 

GOPRO, INC.

By:

  /s/ Nicholas Woodman
 

Nicholas Woodman

Chief Executive Officer

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

 

Name

  

Title

  

Date

By:  

 

 

/s/ Nicholas Woodman

Nicholas Woodman

  

Chief Executive Officer and Chairman

(Principal Executive Officer)

  

June 11, 2014

By:

 

 

/s/ Jack Lazar

Jack Lazar

  

Chief Financial Officer

(Principal Financial and Accounting Officer)

   June 11, 2014

By:

 

 

*

Michael Marks

  

Director

   June 11, 2014

By:

 

 

*

John Ball

  

Director

   June 11, 2014

By:

 

 

*

Edward Gilhuly

  

Director

   June 11, 2014

By:

 

 

*

Kenneth Goldman

  

Director

   June 11, 2014

 

*By:

 

 

/s/ Jack Lazar

Jack Lazar, Attorney-in-fact

     

Power of attorney

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Nicholas Woodman and Jack Lazar, and each of them, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

 

Name

  

Title

  

Date

By:  

 

 

/s/ Anthony Bates

Anthony Bates

  

President and Director

  

June 11, 2014

By:  

 

 

/s/ Peter Gotcher

Peter Gotcher

  

Director

  

June 11, 2014


Table of Contents
Index to Financial Statements

Exhibit index

 

Exhibit
number
    Exhibit title

 

 

  1.01      Form of Underwriting Agreement.
  3.01      Form of Restated Certificate of Incorporation of the Registrant, to be effective prior to the effective date of this registration statement.
  3.02   Form of Restated Certificate of Incorporation of the Registrant, to be effective in connection with the closing of this offering.
  3.03   Bylaws of the Registrant.
  3.04   Form of Amended and Restated Bylaws of the Registrant, to be effective in connection with the closing of this offering.
  4.01   Form of Registrant’s Class A common stock certificate.
  4.02   Investors’ Rights Agreement, dated as of February 25, 2011, by and among the Registrant and certain investors, as amended.
  5.01      Opinion of Fenwick & West LLP regarding the legality of the securities being registered.
  10.01   Form of Indemnity Agreement by and between the Registrant and each of its directors and executive officers.
  10.02   2010 Equity Incentive Plan, as amended, and form of stock option agreement and restricted stock unit agreement.
  10.03      2014 Equity Incentive Plan and forms thereunder.
  10.04      2014 Employee Stock Purchase Plan and forms thereunder.
  10.05   Offer Letter to Nina Richardson from the Registrant, dated February 8, 2013.
  10.06   Offer Letter to Paul Crandell from the Registrant, dated July 29, 2011.
  10.07   Offer Letter to Jack Lazar from the Registrant, dated January 17, 2014.
  10.08   Offer Letter to Sharon Zezima from the Registrant, dated August 23, 2013.
  10.09   Form of Change in Control Severance Agreement.
  10.10      Amended and Restated Change in Control Severance Agreement dated June 8, 2014 by and between Jack Lazar and the Registrant.
  10.11   Contribution Agreement dated December 28, 2011 by and between Nicholas Woodman and the Registrant.
  10.12   Office Lease Agreement, dated as of November 1, 2011, by and between Locon San Mateo, LLC and the Registrant, as amended, and other leases for the Registrant’s headquarters.
  10.13   Credit Agreement, dated as of December 27, 2011, by and between Wells Fargo Bank, National Association and the Registrant, as amended.
  10.14 †*    Design, Manufacturing and Supply Agreement, dated as of August 18, 2011, by and between Chicony Electronics Co. Ltd. and the Registrant.
  10.15   Credit Agreement, dated as of December 21, 2012, by and among J.P. Morgan Securities LLC, Citibank, N.A., Barclays Bank PLC, Silicon Valley Bank and the Registrant, as amended.
  10.16      Employment Letter to Nicholas Woodman from the Registrant, dated June 2, 2014.
  10.17      Offer Letter to Anthony Bates from the Registrant, dated June 2, 2014.
  10.18      Amended and Restated Change in Control Severance Agreement dated June 8, 2014 by and between Nina Richardson and the Registrant.
  21.01   List of subsidiaries.
  23.01      Consent of Fenwick & West LLP (included in Exhibit 5.01).
  23.02      Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
  24.01   Power of Attorney (included on signature page of the registration statement on Form S-1 filed on May 19, 2014).
  24.02      Power of Attorney (included on signature page)

 

 

 

*   Filed previously.

 

  Confidential treatment requested.

Exhibit 1.01

GOPRO, INC.

                 Shares of Class A Common Stock

Underwriting Agreement

            , 2014

J.P. Morgan Securities LLC

Citigroup Global Markets Inc.

Barclays Capital Inc.

As Representatives of the

several Underwriters listed

in Schedule 1 hereto

c/o J.P. Morgan Securities LLC

383 Madison Avenue

New York, New York 10179

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

c/o Barclays Capital Inc.

745 Seventh Avenue

New York, NY 10019

Ladies and Gentlemen:

GoPro, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several Underwriters listed in Schedule 1 hereto (the “Underwriters”), for whom you are acting as representatives (the “Representatives”), an aggregate of                  shares of Class A Common Stock, par value $ 0.0001 per share, of the Company, and certain stockholders of the Company named in Schedule 2 hereto (the “Selling Stockholders”) propose to sell, severally and not jointly, to the several Underwriters an aggregate of                  shares of Class A Common Stock of the Company (collectively, the “Underwritten Shares”). In addition, certain of the Selling Stockholders propose to sell, at the option of the Underwriters, up to an additional                  shares of Class A Common Stock of the Company (collectively, the “Option Shares”). The Underwritten Shares and the Option Shares are herein referred to as the “Shares”. The shares of Class A Common Stock of the Company to be outstanding after giving effect to the sale of the Shares are referred to herein as the “Stock”.

J.P. Morgan Securities LLC has agreed to reserve a portion of the Shares to be purchased by it under this Agreement, up to                  Shares, for sale to certain of the Company’s


employees, other than directors, officers and Selling Stockholders, and other parties related to the Company (collectively, “Participants”), as set forth in the Prospectus (as hereinafter defined) under the heading “Underwriting” (the “Directed Share Program”). The Shares to be sold by J.P. Morgan Securities LLC and its affiliates pursuant to the Directed Share Program are referred to hereinafter as the “Directed Shares”. Any Directed Shares not orally confirmed for purchase by any Participant by          [        ] [A/P].M., New York City time on the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus.

The Company and the Selling Stockholders hereby confirm their agreement with the several Underwriters concerning the purchase and sale of the Shares, as follows:

1. Registration Statement . The Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Securities Act”), a registration statement (File No.  333-196083 ), including a prospectus, relating to the Shares. Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A, 430B or 430C under the Securities Act to be part of the registration statement at the time of its effectiveness (“Rule 430 Information”), is referred to herein as the “Registration Statement”; and as used herein, the term “Preliminary Prospectus” means each prospectus included in such registration statement (and any amendments thereto) before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in the Registration Statement at the time of its effectiveness that omits Rule 430 Information, and the term “Prospectus” means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Shares. If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the “Rule 462 Registration Statement”), then any reference herein to the term “Registration Statement” shall be deemed to include such Rule 462 Registration Statement. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Statement and the Prospectus.

At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively with the pricing information set forth on Annex B hereto, the “Pricing Disclosure Package”): a Preliminary Prospectus dated             , 20     and each “free-writing prospectus” (as defined pursuant to Rule 405 under the Securities Act) listed on Annex B hereto.

“Applicable Time” means [        ] [A/P].M., New York City time, on             , 20    .

2. Purchase of the Shares by the Underwriters .

(a) On the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, (i) the Company agrees to issue and sell, and each of the Selling Stockholders agrees, severally and not jointly, to sell, the Underwritten Shares to the several Underwriters as provided in this Agreement, and (ii) each Underwriter, agrees, severally and not jointly, to purchase at a price per share (the “Purchase Price”) of $         from the

 

2


Company the respective number of Underwritten Shares set forth opposite such Underwriter’s name in Schedule 1 hereto and from each of the Selling Stockholders the number of Underwritten Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Underwritten Shares to be sold by each of the Selling Stockholders as set forth opposite their respective names in Schedule 2 hereto by a fraction, the numerator of which is the aggregate number of Underwritten Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule 1 hereto and the denominator of which is the aggregate number of Underwritten Shares to be purchased by all the Underwriters from all of the Selling Stockholders hereunder. The public offering price of the Shares is not in excess of the price recommended by Piper Jaffray & Co., acting as a “qualified independent underwriter” within the meaning of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

In addition, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, (i) certain of the Selling Stockholders each agrees, severally and not jointly, as and to the extent indicated in Schedule 2 hereto, to sell, the Option Shares to the several Underwriters as provided in this Agreement, and (ii) the Underwriters, shall have the option to purchase, severally and not jointly, from each of such Selling Stockholders the Option Shares at the Purchase Price less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Shares but not payable on the Option Shares. If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule 1 hereto (or such number increased as set forth in Section 12 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company and the Selling Stockholders by the several Underwriters, subject, however, to such adjustments to eliminate any fractional Shares as the Representatives in their sole discretion shall make. Any such election to purchase Option Shares shall be made in proportion to the maximum number of Option Shares to be sold by each Selling Stockholder as set forth in Schedule 2 hereto.

The Underwriters may exercise the option to purchase Option Shares at any time in whole, or from time to time in part, on or before the thirtieth day following the date of the Prospectus, by written notice from the Representatives to the Company and the Attorneys-in-Fact (as defined below). Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date or later than the tenth full business day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 12 hereof). Any such notice shall be given at least two business days prior to the date and time of delivery specified therein.

(b) The Company and the Selling Stockholders understand that the Underwriters intend to make a public offering of the Shares as soon after the effectiveness of this Agreement as in the judgment of the Representatives is advisable, and initially to offer the Shares on the

 

3


terms set forth in the Prospectus. The Company and the Selling Stockholders acknowledge and agree that the Underwriters may offer and sell Shares to or through any affiliate of an Underwriter.

(c) Payment for the Shares shall be made by wire transfer in immediately available funds to the accounts specified by the Company and the Attorneys-in-Fact or any of them (with regard to payment to the Selling Stockholders), to the Representatives in the case of the Underwritten Shares, at the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, CA 94304 at 10:00 A.M., New York City time, on             , 20    , or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representatives, the Company and the Attorneys-in-Fact may agree upon in writing or, in the case of the Option Shares, on the date and at the time and place specified by the Representatives in the written notice of the Underwriters’ election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the “Closing Date”, and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the “Additional Closing Date”.

Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date or the Additional Closing Date, as the case may be, with any transfer taxes payable in connection with the sale of such Shares duly paid by the Company and the Selling Stockholders, as applicable. Delivery of the Shares shall be made through the facilities of The Depository Trust Company (“DTC”) unless the Representatives shall otherwise instruct. The certificates for the Shares will be made available for inspection and packaging by the Representatives at the office of DTC or its designated custodian not later than 1:00 P.M., New York City time, on the business day prior to the Closing Date or the Additional Closing Date, as the case may be.

(d) Each of the Company and each Selling Stockholder acknowledges and agrees that the Underwriters are acting solely in the capacity of an arm’s length contractual counterparty to the Company and the Selling Stockholders with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company, the Selling Stockholders or any other person. Additionally, neither the Representatives nor any other Underwriter is advising the Company, the Selling Stockholders or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company and the Selling Stockholders shall consult with their own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Underwriters shall have no responsibility or liability to the Company or the Selling Stockholders with respect thereto. Any review by the Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Company or the Selling Stockholders.

 

4


3. Representations and Warranties of the Company . The Company represents and warrants to each Underwriter and the Selling Stockholders that:

(a) Preliminary Prospectus . No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, complied in all material respects with the applicable requirements of the Securities Act, and no Preliminary Prospectus, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in any Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof.

(b) Pricing Disclosure Package . The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof.

(c) Issuer Free Writing Prospectus . Other than the Registration Statement, the Preliminary Prospectus and the Prospectus, the Company (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, used, authorized, approved or referred to and will not prepare, use, authorize, approve or refer to any “written communication” (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents and representatives (other than a communication referred to in clause (i) below) an “Issuer Free Writing Prospectus”) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex B hereto, each electronic road show and any other written communications approved in writing in advance by the Representatives, which approval shall not be unreasonably withheld. Each such Issuer Free Writing Prospectus, if any, complied in all material respects with the applicable provisions of the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to the extent required thereby) and, when taken together with the Preliminary Prospectus accompanying, or delivered prior to delivery of, such Issuer Free Writing Prospectus, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in each such Issuer Free Writing Prospectus or Preliminary Prospectus in reliance upon and in conformity with information relating to any Underwriter

 

5


furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Issuer Free Writing Prospectus or Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof.

(d) Emerging Growth Company . From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

(e) Testing-the-Waters Materials . The Company (i) has not alone engaged in any Testing-the-Waters Communications and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications other than those listed on Annex C hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act. Any individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, complied in all material respects with the applicable provisions of Securities Act, and when taken together with the Pricing Disclosure Package as of the Applicable Time, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(f) Registration Statement and Prospectus . The Registration Statement has been declared effective by the Commission. No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and, to the knowledge of the Company, no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Shares has been initiated or threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will as of the Closing Date or any Additional Closing Date comply in all material respects with the applicable provisions of the Securities Act, and did not as of the applicable effective date and will not as of the Closing Date or any Additional Closing Date contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Additional Closing Date, as the case may be, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in

 

6


reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof.

(g) Financial Statements . The financial statements (including the related notes thereto) of the Company and its consolidated subsidiaries included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods covered thereby, and any supporting schedules included in the Registration Statement present fairly the information required to be stated therein; and the other historical financial information of the Company and its consolidated subsidiaries included in the Registration Statement, the Pricing Disclosure Package and the Prospectus has been derived from the accounting records of the Company and its consolidated subsidiaries and presents fairly in all material respects the information shown thereby all disclosures contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations under the Securities Act) comply with Regulation G of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Item 10 of Regulation S-K under the Securities Act, to the extent applicable. There are no financial statements (historical or pro forma) that are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not included as required.

(h) No Material Adverse Change . Since the date of the most recent financial statements of the Company included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) there has not been any change in the capital stock (other than the issuance of shares of Class B Common Stock upon exercise of stock options or settlement of restricted stock units described as outstanding in, and the grant of options, awards and restricted stock units under existing equity incentive plans described in, the Registration Statement, the Pricing Disclosure Package and the Prospectus), short-term debt or long-term debt of the Company or any of its subsidiaries, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the business, properties, management, financial position, stockholders’ equity, results of operations or prospects of the Company and its subsidiaries taken as a whole; (ii) neither the Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole; and (iii) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business that is material to the Company and its subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action,

 

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order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

(i) Organization and Good Standing . The Company and each of its subsidiaries have been duly organized and are validly existing and in good standing (or the jurisdictional equivalent) under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all corporate power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, properties, management, financial position, stockholders’ equity, results of operations or prospects of the Company and its subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement (a “Material Adverse Effect”). The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21 to the Registration Statement, except for those subsidiaries omitted from Exhibit 21 because, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary.

(j) Capitalization . The Company has an authorized capitalization as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Capitalization”; all the outstanding shares of capital stock of the Company (including the Shares to be sold by the Selling Stockholders) have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights) or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights or options; the capital stock of the Company conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and all the outstanding shares of capital stock or other equity interests of each subsidiary owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and non-assessable (except, in the case of any foreign subsidiary, for directors’ qualifying shares) and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party. The form of certificates for the Shares conforms to the corporate law of the jurisdiction of the Company’s incorporation and to any requirements of the Company’s organizational agreements.

(k) Stock Options . With respect to the stock options (the “Stock Options”) granted pursuant to the stock-based compensation plans of the Company and its subsidiaries (the “Company Stock Plans”), (i) each Stock Option intended to qualify as an “incentive stock

 

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option” under Section 422 of the Code so qualifies, (ii) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each such grant was made in accordance in all material respects with the terms of the Company Stock Plans, the applicable provisions of the Exchange Act and other applicable laws and regulatory rules or requirements and (iv) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company included in the Registration Statement, to the extent required under GAAP to be accounted for in such financial statements.

(l) Due Authorization . The Company has full right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and the consummation by it of the transactions contemplated hereby has been duly and validly taken.

(m) Underwriting Agreement . This Agreement has been duly authorized, executed and delivered by the Company.

(n) The Shares . The Shares to be issued and sold by the Company hereunder have been duly authorized by the Company and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable and will conform to the descriptions thereof set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights and, in the case of the Shares to be sold by the Selling Stockholders, validly issued, fully paid and non-assessable.

(o) No Violation or Default . Neither the Company nor any of its subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, have a Material Adverse Effect.

(p) No Conflicts . The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares by the Company, the issuance by the Company of the Shares to be issued upon the exercise of the Options (as defined below) and the consummation by the Company of the transactions contemplated by this Agreement will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a

 

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default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company or any of its subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, have a Material Adverse Effect.

(q) No Consents Required . No consent, approval, authorization, order, license, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement, except for the registration of the Shares under the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications as may be required by NASDAQ or FINRA and under applicable state and foreign securities laws in connection with the purchase and distribution of the Shares by the Underwriters.

(r) Legal Proceedings . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is or can reasonably be expected to be a party or to which any property of the Company or any of its subsidiaries is or can reasonably be expected to be the subject that, individually or in the aggregate, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to have a Material Adverse Effect; to the knowledge of the Company, no such investigations, actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or by others; and (i) there are no current or pending legal, governmental or regulatory actions, suits or proceedings that are required under the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

(s) Independent Accountants . PricewaterhouseCoopers LLP, who have certified certain financial statements of the Company and its subsidiaries is an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.

(t) Title to Real and Personal Property . The Company and its subsidiaries own no real property and have valid and marketable rights to lease or otherwise use, all items of real and

 

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personal property and assets that are material to the respective businesses of the Company and its subsidiaries taken as a whole, in each case, except as disclosed in the Registration Statement, free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

(u) Title to Intellectual Property . The Company and its subsidiaries each own or possess the right to use all material patents, patent rights, trademarks, trade names, service marks and service names (including all goodwill associated with use of the same), copyrights, license rights, inventions, know-how (including trade secrets and other unpatented and unpatentable proprietary or confidential information, systems or procedures) and other technology and intellectual property rights, including the right to sue for past, present and future infringement, misappropriation or dilution of any of the same (“Intellectual Property”) used by them in the conduct of their business as conducted and as proposed to be conducted in the Registration Statement, the Pricing Disclosure Package and the Prospectus (“Company Intellectual Property”) and to the knowledge of the Company, the conduct of their respective businesses will not conflict in any material respect with any such rights of others. The Company and its subsidiaries have not received any notice of any claim of infringement, misappropriation or conflict with any such rights of others in connection with its Company Intellectual Property that would reasonably be expected to have a Material Adverse Effect. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) to the Company’s knowledge, there are no third parties who have or will be able to establish rights to any Company Intellectual Property, except for the retained rights of the owners of Company Intellectual Property which is licensed to the Company or its subsidiaries; (ii) there is no pending, or to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the Company’s rights or any of its subsidiaries’ rights in or to any Company Intellectual Property that, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries is aware of any facts which could form a reasonable basis for any such action, suit, proceeding or claim; (iii) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity, enforceability or scope of any Company Intellectual Property that, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries is aware of any facts which could form a reasonable basis for any such action, suit, proceeding or claim; (iv) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company or any of its subsidiaries infringes or misappropriates any Intellectual Property or other proprietary rights of others that, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries is aware of any facts which could form a reasonable basis for any such action, suit, proceeding or claim; (v) to the Company’s knowledge, there is no patent or patent application that contains claims that interfere with the issued or pending claims of any Company Intellectual Property; and (vi) to the Company’s knowledge, no Company Intellectual Property has been obtained or is being used by the Company or any of its subsidiaries in violation of any contractual obligation binding on the Company or any of its subsidiaries, or otherwise in violation of the rights of any persons. The

 

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Company and its subsidiaries have taken all reasonable steps necessary to secure interests in the Company Intellectual Property from their employees, consultants, agents and contractors. There are no outstanding options, licenses or agreements of any kind relating to the Company Intellectual Property owned by the Company or any of its subsidiaries that are required to be described in the Registration Statement, the General Disclosure Package and the Prospectus and are not described in all material respects. The Company and its subsidiaries are not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property of any other person or entity that are required to be set forth in the Prospectus and are not described in all material respects. No government funding, facilities or resources of a university, college, other educational institution or research center or funding from third parties was used in the development of any Company Intellectual Property that is owned or purported to be owned by the Company or any of its subsidiaries, and no governmental agency or body, university, college, other educational institution or research center has any claim or right in or to any Company Intellectual Property that is owned or purported to be owned by the Company or any of its subsidiaries. The Company and its subsidiaries use all software and other materials distributed under a “free,” “open source,” or similar licensing model (including but not limited to the GNU General Public License, GNU Lesser General Public License and GNU Affero General Public License) (“Open Source Materials”) in material compliance with all license terms applicable to such Open Source Materials. Neither the Company nor any of its subsidiaries has used or distributed any Open Source Materials in a manner that requires or has required (i) the Company or any of its subsidiaries to permit reverse engineering of any products or services of the Company or any of its subsidiaries, or any software code or other technology owned by the Company or any of its subsidiaries; or (ii) any products or services of the Company or any of its subsidiaries, or any software code or other technology owned by the Company or any of its subsidiaries, to be (A) disclosed or distributed in source code form, (B) licensed for the purpose of making derivative works, or (C) redistributed at no charge, except, in the case of each of (i) and (ii) above, such as would not reasonably be expected to be material to the Company and its subsidiaries taken as a whole.

(v) No Undisclosed Relationships. No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of its subsidiaries, on the other, that is required by the Securities Act to be described in the Registration Statement and the Prospectus and that is not so described in such documents and in the Pricing Disclosure Package. As of the date of the initial filing of the Registration Statement, there were no outstanding personal loans made, directly or indirectly, by the Company to any director or executive officer of the Company.

(w) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof received by the Company as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Investment Company Act”).

 

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(x) Taxes. The Company and its subsidiaries have paid all federal, state, local and foreign taxes and filed all tax returns required to be paid or filed through the date hereof; and except as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there is no tax deficiency that has been, or would reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets, except where the failure to pay or file, or when such deficiency would not individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(y) Licenses and Permits. The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except where the failure to possess or make the same would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or as would not reasonably be expected to have a Material Adverse Effect, neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course.

(z) No Labor Disputes. No labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is contemplated or threatened, and the Company is not aware of any existing or imminent labor disturbance by, or dispute with, the employees of any of its or its subsidiaries’ principal suppliers, contractors or customers, except as would not reasonably be expected to have a Material Adverse Effect.

(aa) Compliance with and Liability under Environmental Laws. (i) The Company and its subsidiaries (a) are, and at all prior times were, in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions, judgments, decrees, orders and the common law relating to pollution or the protection of the environment, natural resources or human health or safety, including those relating to the generation, storage, treatment, use, handling, transportation, Release or threat of Release of Hazardous Materials (collectively, “Environmental Laws”), (b) have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct their respective businesses, (c) have not received notice of any actual or potential liability under or relating to, or actual or potential violation of, any Environmental Laws, including for the investigation or remediation of any Release or threat of Release of Hazardous Materials, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice, (d) are not conducting or paying for, in whole or in part, any investigation, remediation or other corrective action pursuant to any Environmental Law at any location, and (e) are not a party to any order, decree or agreement that imposes any obligation or liability under any Environmental Law, and (ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except in the case of each of (i) and (ii) above, for any such matter, as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as described

 

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in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) there are no proceedings that are pending, or that are known by the Company to be contemplated, against the Company or any of its subsidiaries under any Environmental Laws in which a governmental entity is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed against the Company or any of its subsidiaries, (b) to the Company’s knowledge there are no facts or issues regarding compliance with Environmental Laws, or liabilities or other obligations under Environmental Laws, including the Release or threat of Release of Hazardous Materials, that would reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Company and its subsidiaries, and (c) none of the Company and its subsidiaries anticipates making capital expenditures relating to any Environmental Laws that are material to the Company and its subsidiaries taken as a whole.

(bb) Hazardous Materials. There has been no storage, generation, transportation, use, handling, treatment, Release or threat of Release of Hazardous Materials by, relating to or caused by the Company or any of its subsidiaries (or, to the knowledge of the Company and its subsidiaries, any other entity, including any predecessor, for whose acts or omissions the Company or any of its subsidiaries is or could reasonably be expected to be liable) at, on, under or from any property or facility now or previously owned, operated or leased by the Company or any of its subsidiaries, or at, on, under or from any other property or facility, in violation of any Environmental Laws, or that could reasonably be expected to result in any liability under any Environmental Law, except for any violation or liability which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. “Hazardous Materials” means any material, chemical, substance, waste, pollutant, contaminant, compound, mixture, or constituent thereof, in any form or amount, including petroleum (including crude oil or any fraction thereof) and petroleum products, natural gas liquids, asbestos and asbestos containing materials, naturally occurring radioactive materials, brine, and drilling mud, regulated or which can give rise to liability under any Environmental Law. “Release” means any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, or migrating in, into or through the environment, or in, into, from or through any building or structure.

(cc) Compliance with ERISA. (i) Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each, a “Plan”) has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to, ERISA and the Code, except for noncompliance that could not reasonably be expected to result in material liability to the Company or its subsidiaries; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption that could reasonably be expected to result in a material liability to the Company or its subsidiaries; (iii) for each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, as applicable, has been

 

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satisfied (without taking into account any waiver thereof or extension of any amortization period) and is reasonably expected to be satisfied in the future (without taking into account any waiver thereof or extension of any amortization period); (iv) the fair market value of the assets of each Plan exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan); (v) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur that either has resulted, or could reasonably be expected to result, in material liability to the Company or its subsidiaries; (vi) neither the Company nor any member of the Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC, in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA); and (vii) there is no pending audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any other governmental agency or any foreign regulatory agency with respect to any Plan that could reasonably be expected to result in material liability to the Company or its subsidiaries. None of the following events has occurred or is reasonably likely to occur: (x) a material increase in the aggregate amount of contributions required to be made to all Plans by the Company or its subsidiaries in the current fiscal year of the Company and its subsidiaries compared to the amount of such contributions made in the Company and its subsidiaries’ most recently completed fiscal year; or (y) a material increase in the Company and its subsidiaries’ “accumulated post-retirement benefit obligations” (within the meaning of Statement of Financial Accounting Standards 106) compared to the amount of such obligations in the Company and its subsidiaries’ most recently completed fiscal year.

(dd) Disclosure Controls. The Company and its subsidiaries maintain an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that has been designed to comply with the requirements of the Exchange Act and that has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

(ee) Accounting Controls. The Company and its subsidiaries, taken as a whole, maintain a system of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that has been designed to comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, the principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets

 

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at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no material weaknesses in the Company’s internal controls. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

(ff) Insurance. The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption insurance, which insurance is in amounts and insures against such losses and risks as the Company reasonably believes are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received written notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business in all material respects.

(gg) No Unlawful Payments. Neither the Company nor any of its subsidiaries nor any director, officer, or employee of the Company or any of its subsidiaries nor, to the knowledge of the Company, any agent, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government or regulatory official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom, or any other applicable anti-bribery or anti-corruption laws; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.

(hh) Compliance with Money Laundering Laws . The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all

 

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jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental or regulatory agency (collectively, the “Anti-Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental or regulatory agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

(ii) No Conflicts with Sanctions Laws. Neither the Company nor any of its subsidiaries, directors, officers or employees, nor, to the knowledge of the Company, any agent, or affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. Government, (including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company, any of its subsidiaries located, organized or resident in a country or territory that is the subject or the target of Sanctions, including, without limitation, Cuba, Burma (Myanmar), Iran, North Korea, Sudan and Syria (each, a “Sanctioned Country”); and the Company will not directly or indirectly use the proceeds of the offering of the securities hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or the target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions. Except as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, for the past 5 years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any material dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

(jj) No Restrictions on Subsidiaries. No subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s properties or assets to the Company or any other subsidiary of the Company.

(kk) No Broker’s Fees. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against the Company or any of its subsidiaries or any Underwriter for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares.

 

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(ll) No Registration Rights. Except for such rights as have been duly exercised or waived, no person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission, the issuance and sale of the Shares by the Company or, to the knowledge of the Company, the sale of the Shares to be sold by the Selling Stockholders hereunder.

(mm) No Stabilization. The Company has not taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.

(nn) Margin Rules. The application of the proceeds received by the Company from the issuance, sale and delivery of the Shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus will not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.

(oo) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made by the Company or reaffirmed without a reasonable basis or has been disclosed by the Company other than in good faith.

(pp) Statistical and Market Data. Nothing has come to the attention of the Company that has caused the Company to believe that the statistical, industry-related and market-related data included in the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects, and such data agree with the sources on which they are based or from which they are derived.

(qq) The Options. The unissued Shares issuable upon the exercise of options (the “Options”) to be exercised by certain of the Selling Stockholders (the “Optionholders”) have been duly authorized by the Company and validly and reserved for issuance, and at the time of delivery to the Underwriters with respect to such Shares, such Shares will be issued and delivered in accordance with the provisions of the stock option agreements between the Company and such Selling Stockholders pursuant to which such Options were granted (the “Option Agreements”) and will be validly issued, fully paid and non-assessable and will conform to the description thereof in Pricing Disclosure Package and the Prospectus.

(rr) The Option Agreements. The Options were duly authorized and issued pursuant to the Option Agreements and constitute valid and binding obligations of the Company and the Optionholders are entitled to the benefits provided by the Option Agreements; the Option Agreements were duly authorized, executed and delivered and constitute valid and legally binding agreements enforceable against the Company in accordance with their terms except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally or by equitable principles relating to enforceability; and the Options and the Option Agreements conform to the descriptions thereof in Pricing Disclosure Package and the Prospectus.

 

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(ss) Sarbanes-Oxley Act. There is and has been no failure on the part of the Company or, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”), including Section 402 related to loans and Sections 302 and 906 related to certifications.

(tt) Status under the Securities Act. At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405 under the Securities Act. The Company has paid the registration fee due under Rule 457 under the Securities Act for the registration of the Shares under the Securities Act.

(uu) Directed Share Program . The Company represents and warrants that (i) the Registration Statement, the Pricing Disclosure Package and the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectuses comply in all material respects, and any further amendments or supplements thereto will comply in all material respects, with any applicable laws or regulations of foreign jurisdictions in which the Pricing Disclosure Package, the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States. The Company has not offered, or caused the underwriters to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer or supplier’s level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.

4. Representations and Warranties of the Selling Stockholders . Each of the Selling Stockholders severally and not jointly represents and warrants to each Underwriter and the Company that:

(a) Required Consents; Authority. Except for the registration under the Securities Act of the Shares and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws or FINRA in connection with the purchase and distribution of the Shares by the Underwriters, all consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and the Power of Attorney (the “Power of Attorney”) and the Custody Agreement (the “Custody Agreement”) hereinafter referred to, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained; and such Selling Stockholder has full right, power and authority to enter into this Agreement, the Power of Attorney and the Custody Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; this Agreement, the Power of Attorney and the Custody Agreement have each been duly authorized, executed and delivered by such Selling Stockholder.

 

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(b) No Conflicts. The execution, delivery and performance by such Selling Stockholder of this Agreement, the Power of Attorney and the Custody Agreement, the sale of the Shares to be sold by such Selling Stockholder and the consummation by such Selling Stockholder of the transactions contemplated herein or therein will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of such Selling Stockholder pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of such Selling Stockholder or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory agency; except in the case of clauses (i) and (iii) hereof, for such conflicts, breaches, violations or defaults as would not, individually or in the aggregate, impair in any material respect such Selling Stockholder’s ability to perform its obligations hereunder and thereunder.

(c) Title to Shares. Such Selling Stockholder has good and valid title to the Shares to be sold at the Closing Date or the Additional Closing Date, as the case may be, by such Selling Stockholder hereunder (other than the Shares to be issued upon exercise of Options), free and clear of all liens, encumbrances, equities or adverse claims; such Selling Stockholder will have, immediately prior to the Closing Date or the Additional Closing Date, as the case may be, assuming due issuance of any Shares to be issued upon exercise of Options, good and valid title to the Shares to be sold at the Closing Date or the Additional Closing Date, as the case may be, by such Selling Stockholder, free and clear of all liens, encumbrances, equities or adverse claims; and, upon delivery of the certificates representing such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or adverse claims, will pass to the several Underwriters.

(d) No Stabilization. Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.

(e) Pricing Disclosure Package. Solely to the extent that any statements or omissions made in the Pricing Disclosure Package are made in reliance upon and in conformity with Selling Stockholder Information furnished to the Company in writing by such Selling Stockholder expressly for use therein, the Pricing Disclosure Package, as of the Applicable Time did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the representations and warranties set forth in this section 4(e) are limited in all respects to statements or omissions made in reliance upon and in conformity with information relating to such Selling Stockholder furnished to the Company in

 

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writing by such Selling Stockholder expressly for use in the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendment or supplement thereto; it being understood and agreed that such information furnished by such Selling Stockholder consists only of (A) the legal name, address and the number and type of shares of capital stock owned by such Selling Stockholder (including any information about beneficial ownership, voting power and investment control of such shares) before and after the offering, and (B) the other information (excluding percentages) with respect to the Selling Stockholder which appears in the table (and corresponding footnotes) under the caption “Principal and Selling Stockholders” in the Registration Statement, any Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus (the “Selling Stockholder Information”).

(f) Issuer Free Writing Prospectus and Written Testing-the-Waters Communication. Other than the Registration Statement, the Preliminary Prospectus and the Prospectus, such Selling Stockholder (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, used, authorized, approved or referred to and will not prepare, use, authorize, approve or refer to any Issuer Free Writing Prospectus or Written Testing-the-Waters Communication, other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex B or Annex C hereto, each electronic road show and any other written communications approved in writing in advance by the Company and the Representatives.

(g) Registration Statement and Prospectus. The Registration Statement did not and any such post-effective amendment thereto when it becomes effective will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Additional Closing Date, as the case may be, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the representations and warranties set forth in this Section 4(g) are limited to statements or omissions made in reliance upon and in conformity with the Selling Stockholder Information.

(h) Material Information. As of the date hereof, as of the Closing Date and as of the Additional Closing Date, as the case may be, that the sale of the Shares by such Selling Stockholder is not and will not be prompted by any material information concerning the Company which is not set forth in the Registration Statement, the Pricing Disclosure Package or the Prospectus.

Each of the Selling Stockholders severally and not jointly represents and warrants that certificates in negotiable form or book-entry securities representing all of the Shares to be sold by such Selling Stockholders hereunder other than any such Shares to be issued upon the exercise of Options, have been, and each of the Selling Stockholders who is selling Shares upon the exercise of Options represents and warrants that duly completed and executed irrevocable Option exercise notices, in the forms specified by the relevant Option Agreement, with respect to all of

 

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the Shares to be sold by such Selling Stockholders hereunder have been, placed in custody under a Custody Agreement relating to such Shares, in the form heretofore furnished to you, duly executed and delivered by such Selling Stockholder to American Stock Transfer & Trust Company, LLC as custodian (the “Custodian”), and that such Selling Stockholder has duly executed and delivered Powers of Attorney, in the form heretofore furnished to you, appointing the person or persons indicated in Schedule II hereto, and each of them, as such Selling Stockholder’s Attorneys-in-fact (the “Attorneys-in-Fact” or any one of them the “Attorney-in Fact”) with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided herein, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder, to authorize (if applicable) the exercise of the Options to be exercised with respect to the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement.

Each of the Selling Stockholders, severally and not jointly, specifically agrees that the Shares represented by the certificates or the irrevocable Option exercise notice, in either case held in custody for such Selling Stockholder under the Custody Agreement, are subject to the interests of the Underwriters hereunder, and that the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable prior to their termination in accordance with their respective terms. Each of the Selling Stockholders, severally and not jointly, specifically agrees that the obligations of such Selling Stockholder hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder, or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership, corporation or similar organization, by the dissolution of such partnership, corporation or organization, or by the occurrence of any other event. If any individual Selling Stockholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership, corporation or similar organization should be dissolved, or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing such Shares shall be delivered by or on behalf of such Selling Stockholder in accordance with the terms and conditions of this Agreement and the Custody Agreement, and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event.

5. Further Agreements of the Company . The Company covenants and agrees with each Underwriter that:

(a) Required Filings. The Company will file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act, will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act; and will furnish copies of the Prospectus and each Issuer Free Writing Prospectus (to the extent not previously delivered) to the Underwriters in New York City prior to 10:00 A.M., New York City time, on the business day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request.

 

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(b) Delivery of Copies. The Company will deliver, if requested, without charge, (i) to the Representatives, three signed copies of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each Underwriter (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined below), as many copies of the Prospectus (including all amendments and supplements thereto and each Issuer Free Writing Prospectus) as the Representatives may reasonably request. As used herein, the term “Prospectus Delivery Period” means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares by any Underwriter or dealer.

(c) Amendments or Supplements, Issuer Free Writing Prospectuses. Before using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement or the Prospectus, the Company will furnish to the Representatives and counsel for the Underwriters a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not prepare, use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Representatives reasonably objects.

(d) Notice to the Representatives. The Company will advise the Representatives promptly, and confirm such advice in writing (which may be by electronic mail), (i) when the Registration Statement has become effective; (ii) when any amendment to the Registration Statement has been filed or becomes effective; (iii) when any supplement to the Prospectus, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication or any amendment to the Prospectus has been filed or distributed; (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or the receipt of any comments from the Commission relating to the Registration Statement or any other request by the Commission for any additional information including, but not limited to, any request for information concerning any Testing-the-Waters Communication; (v) of the issuance by the Commission of any order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package, the Prospectus or any Written Testing-the-Waters Communication or the initiation or threatening of any proceeding, if the Company gains knowledge of such proceeding, for that purpose or pursuant to Section 8A of the Securities Act; (vi) of the occurrence of any event or development within the Prospectus Delivery Period as a result of which the Prospectus, the Pricing Disclosure Package, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the Pricing Disclosure Package, any such Issuer Free Writing Prospectus or Written Testing-the-Waters Communication is delivered to a purchaser, not misleading; and

 

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(vii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or if the Company gains knowledge of such, the initiation or threatening of any proceeding for such purpose; and the Company will use its reasonable best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package, the Prospectus or any Written Testing-the-Waters Communication or suspending any such qualification of the Shares and, if any such order is issued, will use its reasonable best efforts to obtain as soon as possible the withdrawal thereof.

(e) Ongoing Compliance. (1) If during the Prospectus Delivery Period (i) any event or development shall occur or condition shall exist as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Prospectus to comply with the Securities Act, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with the Securities Act and (2) if at any time prior to the Closing Date (i) any event or development shall occur or condition shall exist as a result of which the Pricing Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Pricing Disclosure Package to comply with the Securities Act, the Company will immediately notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish to the Underwriters and to such dealers as the Representatives may designate, such amendments or supplements to the Pricing Disclosure Package as may be necessary so that the statements in the Pricing Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, be misleading or so that the Pricing Disclosure Package will comply with law.

(f) Blue Sky Compliance. If required by applicable law, the Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and will continue such qualifications in effect so long as required for distribution of the Shares; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

 

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(g) Earning Statement. The Company will make generally available to its security holders and the Representatives as soon as practicable an earnings statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the “effective date” (as defined in Rule 158) of the Registration Statement.

(h) Clear Market. For a period of 180 days after the date of the Prospectus, the Company will not (i) 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, or file with the Commission a registration statement under the Securities Act relating to, any shares of Stock or any securities convertible into or exercisable or exchangeable for Stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise, without the prior written consent of J.P. Morgan Securities LLC, other than (1) the Shares to be sold hereunder, (2) any shares of Stock of the Company issued upon the exercise of options or settlement of restricted stock units granted under Company Stock Plans, sales of shares pursuant to the Company’s employee stock purchase plan and grants of equity awards granted under the Company’s Stock Plans, in each case as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (3) the filing of the Company of registration statements on Form S-8 with respect to employee benefit plans described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (4) the issuance by the Company of shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock, in an aggregate amount not to exceed 10% of the Company’s outstanding securities, determined as of the Closing Date, in connection with one or more acquisitions of a company or a business, assets or technology of another person or entity, joint ventures, commercial relationships or strategic alliances (including but not limited to marketing or distribution arrangements, collaboration agreements or intellectual property license agreements) provided in the case of clauses (2) and (4) above, the recipients of the Common Stock have signed a lock-up agreement in substantially the form of Exhibit A hereto for the balance of the 180-day restricted period.

If J.P. Morgan Securities LLC, agrees to release or waive the restrictions set forth in a lock-up agreement described in Section 8(m) hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.

The Company further agrees that it will not release any security holder from, or waive any provision of, any lock-up or similar agreement between the Company and any security holder without the prior written consent J.P. Morgan Securities LLC.

 

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(i) Use of Proceeds. The Company will apply the net proceeds from the sale of the Shares as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading “Use of Proceeds”.

(j) No Stabilization. The Company will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Stock.

(k) Exchange Listing. The Company will use its best efforts to list for quotation the Shares on the NASDAQ Global Select Market (the “NASDAQ Market”).

(l) Reports. Until the third anniversary of the date hereof, the Company will furnish to the Representatives, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange or automatic quotation system; provided the Company will be deemed to have furnished such reports and financial statements to the Representatives to the extent they are filed on EDGAR.

(m) Record Retention. The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.

(n) Filings. The Company will file with the Commission such reports as may be required by Rule 463 under the Securities Act.

(o) Investment Company. The Company will not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of its subsidiaries to register as an investment company under the Investment Company Act.

(p) Transfer Agent. The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Class A Common Stock.

(q) Directed Share Program. The Company will comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.

(r) Emerging Growth Company . The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of Shares within the meaning of the Securities Act and (ii) completion of the 180-day restricted period referred to in Section 5(h) hereof.

(s) LOYAL3 Fees . The Company agrees to pay all reasonably documented fees and disbursements of counsel for the Underwriters incurred in connection with the LOYAL3 platform, such fees and disbursements not to exceed $30,000.

 

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6. Further Agreements of the Selling Stockholders . Each of the Selling Stockholders, severally and not jointly, covenants and agrees with each Underwriter that:

(a) Tax Form. It will deliver to the Representatives prior to or at the Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by the Treasury Department regulations in lieu thereof) in order to facilitate the Underwriters’ documentation of their compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated.

(b) No Stabilization. The Selling Stockholder will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Stock.

(c) No Written Materials. The Selling Stockholder agrees that it will not prepare or have prepared on its behalf or use or refer to, any “free writing prospectus” (as defined in Rule 405 under the Securities Act), and agrees that it will not distribute any written materials in connection with the offer or sale of the Shares.

(d) Selling Stockholder Information. During the Prospectus Delivery Period, the Selling Stockholder will advise the Representatives promptly, and will confirm such advice in writing to the Representatives, of any change in the information relating to the Selling Stockholder in the Registration Statement, the Prospectus or any document comprising the Pricing Disclosure Package.

7. Certain Agreements of the Underwriters . Each Underwriter hereby represents and agrees that:

(a) It has not used, authorized use of, referred to or participated in the planning for use of, and will not use, authorize use of, refer to or participate in the planning for use of, any “free writing prospectus”, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no “issuer information” (as defined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex B or prepared pursuant to Section 3(c) or Section 4(f) above (including any electronic road show approved in advance by the Company), or (iii) any free writing prospectus prepared by such underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an “Underwriter Free Writing Prospectus”).

(b) It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares unless such terms have previously been included in a free writing prospectus filed with the Commission; provided that Underwriters may use a term sheet substantially in the form of Annex D hereto without the consent of the Company; provided further that any Underwriter using such term sheet shall notify the Company, and provide a copy of such term sheet to the Company, prior to, or substantially concurrently with, the first use of such term sheet.

(c) It is not subject to any pending proceeding under Section 8A of the Securities Act with respect to the offering (and will promptly notify the Company and the Selling Stockholders if any such proceeding against it is initiated during the Prospectus Delivery Period).

 

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8. Conditions of Underwriters’ Obligations. The obligation of each Underwriter to purchase the Underwritten Shares on the Closing Date or the Option Shares on the Additional Closing Date, as the case may be, as provided herein is subject to the performance by the Company and each of the Selling Stockholders of their respective covenants and other obligations hereunder as the case may be, and to the following additional conditions:

(a) Registration Compliance; No Stop Order. No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose or pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission; the Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and in accordance with Section 5(a) hereof; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representatives.

(b) Representations and Warranties. The respective representations and warranties of the Company and the Selling Stockholders contained herein shall be true and correct on the date hereof and on and as of the Closing Date or the Additional Closing Date, as the case may be; and the statements of the Company and its officers and of each of the Selling Stockholders and their officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or the Additional Closing Date, as the case may be.

(c) No Downgrade. Subsequent to the earlier of (A) the Applicable Time and (B) the execution and delivery of this Agreement, if there are any debt securities or preferred stock of or guaranteed by the Company or any of its subsidiaries that are rated by a “nationally recognized statistical rating organization”, as such term is defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act, (i) no downgrading shall have occurred in the rating accorded any such debt securities or preferred stock and (ii) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook with respect to, its rating of any such debt securities or preferred stock (other than an announcement with positive implications of a possible upgrading).

(d) No Material Adverse Change. No event or condition of a type described in Section 3(h) hereof shall have occurred or shall exist, which event or condition is not described in the Pricing Disclosure Package (excluding any amendment or supplement thereto) and the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.

 

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(e) Officer’s Certificate. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, (x) a certificate of the chief executive officer and the chief financial officer in each such person’s capacity as an officer of the Company and not in his individual capacity (i) confirming that such officers have carefully reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and, to the knowledge of such officers, the representations of the Company set forth in Sections 3(b) and 3(f) hereof are true and correct on and as of such date, (ii) confirming that the other representations and warranties of the Company in this Agreement are true and correct and that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such date and (iii) to the effect set forth in paragraphs (a), (c) and (d) above and (y) a certificate of each of the Selling Stockholders, in form and substance reasonably satisfactory to the Representatives, (A) confirming that the representations of such Selling Stockholder set forth in Sections 4(e), 4(f) and 4(g) hereof is true and correct and (B) confirming that the other representations and warranties of such Selling Stockholder in this agreement are true and correct and that the such Selling Stockholder has complied with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to such Closing Date.

(f) Comfort Letters. On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, PricewaterhouseCoopers LLP shall have furnished to the Representatives, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type customarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided , that the letter delivered on the Closing Date or the Additional Closing Date, as the case may be, shall use a “cut-off” date no more than three business days prior to such Closing Date or such Additional Closing Date, as the case may be.

(g) Opinion and 10b-5 Statement of Counsel for the Company. Fenwick & West LLP, counsel for the Company, shall have furnished to the Representatives, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, to the effect set forth in Annex A-1 hereto.

(h) Opinion of Counsel for the Selling Stockholders. Whalen LLP, counsel for the Selling Stockholders, shall have furnished to the Representatives, at the request of the Selling Stockholders, their written opinion, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, to the effect set forth in Annex A-2 hereto.

(i) Opinion and 10b-5 Statement of Counsel for the Underwriters. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion and 10b-5 statement of Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.

 

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(j) No Legal Impediment to Issuance and/or Sale. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares by the Company or the sale of the Shares by the Selling Stockholders; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares by the Company or the sale of the Shares by the Selling Stockholders.

(k) Good Standing. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, satisfactory evidence of the good standing of the Company and its subsidiaries in their respective jurisdictions of organization and their good standing as foreign entities in such other jurisdictions as the Representatives may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.

(l) Exchange Listing. The Shares to be delivered on the Closing Date or Additional Closing Date, as the case may be, shall have been approved for listing on the NASDAQ Market, subject to official notice of issuance.

(m) Lock-up Agreements. The “lock-up” agreements, each substantially in the form of Exhibit A hereto, between you and certain shareholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Stock or certain other securities, delivered to you on or before the date hereof, shall be full force and effect on the Closing Date or Additional Closing Date, as the case may be.

(n) Additional Documents. On or prior to the Closing Date or the Additional Closing Date, as the case may be, the Company and the Selling Stockholders shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request.

All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.

9. Indemnification and Contribution.

(a) Indemnification of the Underwriters by the Company. The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, directors, officers, employees and agents and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue

 

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statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, (ii) or any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Securities Act, any Written Testing-the-Waters Communication, any road show as defined in Rule 433(h) under the Securities Act (a “road show”) or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (c) below.

The Company also agrees to indemnify and hold harmless, Piper Jaffray & Co., its affiliates, directors and officers and each person, if any, who controls Piper Jaffray & Co. within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities incurred as a result of Piper Jaffray & Co.’s participation as a “qualified independent underwriter” within the meaning of FINRA Rule 5121 in connection with the offering of the Shares.

(b) Indemnification of the Underwriters by the Selling Stockholders. Each of the Selling Stockholders severally and not jointly and in proportion to the number of Shares to be sold by such Selling Stockholder hereunder agrees to indemnify and hold harmless each Underwriter, its affiliates, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication or any Applicable Time Information, it being understood and agreed that the only such information furnished by such Selling Stockholder consists only of such Selling Stockholder’s Selling Stockholder Information. Notwithstanding the foregoing provisions, the liability of a Selling Stockholder pursuant to this subsection (b) shall be limited in the aggregate to an amount equal to the aggregate Purchase Price (less underwriting discounts and commissions) of the Shares sold by such Selling Stockholder under this Agreement (the “Selling Stockholder Proceeds”) less any amounts that such Selling Stockholder is obligated to pay under subsection (e) below.

 

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Each of the Selling Stockholders severally in proportion to the number of Shares to be sold by such Selling Stockholder hereunder relative to the total number of Shares to be sold in the offering also agrees to indemnify and hold harmless Piper Jaffray & Co., its affiliates, directors and officers and each person, if any, who controls Piper Jaffray & Co. within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities incurred as a result of Piper Jaffray & Co.’s participation as a “qualified independent underwriter” within the meaning of FINRA Rule 5121 in connection with the offering of the Shares.

(c) Indemnification of the Company and the Selling Stockholders. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of the Selling Stockholders to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, any road show or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the [                    ] paragraph under the caption “Underwriting” and the information contained in the [                    ] paragraph under the caption “Underwriting”.

(d) Notice and Procedures. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to the preceding paragraphs of this Section 9, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under the preceding paragraphs of this Section 9. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person in such proceeding and shall pay the reasonable fees and expenses of such counsel related to such proceeding, as incurred and the Indemnifying Person shall have the right to participate therein. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified

 

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Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such reasonable fees and expenses shall be paid or reimbursed as they are incurred; provided , however , that if indemnity may be sought pursuant to the second paragraph of Section 9(a) or 9(b) above in respect of such proceeding, then in addition to such separate firm of the Underwriters, their affiliates and such control persons of the Underwriters the indemnifying party shall be liable for the fees and expenses of not more than one separate firm (in addition to any local counsel) for Piper Jaffray & Co. in its capacity as a “qualified independent underwriter”, its affiliates, directors, officers and all persons, if any, who control Piper Jaffray & Co. within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act. Any such separate firm for any Underwriter, its affiliates, directors and officers and any control persons of such Underwriter shall be designated in writing by J.P. Morgan Securities LLC, any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the Company shall be designated in writing by the Company and any such separate firm for the Selling Stockholders shall be designated in writing by the Attorneys-in-Fact or any one of them. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.

(e) Contribution. If the indemnification provided for in paragraphs (a), (b) and (c) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid

 

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or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters or Piper Jaffray & Co. in its capacity as a “qualified independent underwriter”, as the case may be, on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters or Piper Jaffray & Co. in its capacity as a “qualified independent underwriter”, as the case may be, on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters or Piper Jaffray & Co. in its capacity as a “qualified independent underwriter”, as the case may be, on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company and the Selling Stockholders from the sale of the Shares and the total underwriting discounts and commissions received by the Underwriters in connection therewith, in each case as set forth in the table on the cover of the Prospectus, or the fee to be received by Piper Jaffray & Co. in its capacity as a “qualified independent underwriter”, as the case may be, bear to the aggregate offering price of the Shares. The relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters or Piper Jaffray & Co. in its capacity as a “qualified independent underwriter”, as the case may be, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Selling Stockholders or by the Underwriters or Piper Jaffray & Co. in its capacity as a “qualified independent underwriter”, as the case may be, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the foregoing provisions, the liability of a Selling Stockholder pursuant to this subsection (e) shall be limited in the aggregate to an amount equal to the Selling Stockholder Proceeds less any amounts that such Selling Stockholder is obligated to pay under subsection (b) above.

(f) Limitation on Liability. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to paragraph (e) above were determined by pro rata allocation (even if the Selling Stockholders or the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (e) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (e) above shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other reasonable expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of paragraphs (e) and (f), in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Shares exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

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(g) Non-Exclusive Remedies. The remedies provided for in this Section 9 paragraphs (a) through (l) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.

(h) Selling Stockholder Limits of Liability . Notwithstanding anything to the contrary in this Agreement, the aggregate liability of each Selling Stockholder under such Selling Stockholder’s representations and warranties contained in this Agreement, under any certificate or agreement delivered pursuant to this Agreement, under the indemnity and contribution agreements contained in this Section 9, the reimbursement obligations under Section 13 or otherwise pursuant to this Agreement shall not exceed such Selling Stockholder’s Selling Stockholder Proceeds; provided , however , that this Section 9(h) shall not affect the obligation under Section 13(b) of any Selling Stockholder who fails to tender its Shares.

(i) Directed Share Program Indemnification. The Company agrees to indemnify and hold harmless J.P. Morgan Securities LLC, its affiliates, directors and officers and each person, if any, who controls J.P. Morgan Securities LLC within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each a “J.P. Morgan Securities LLC Entity”) from and against any and all losses, claims, damages and liabilities (including, without limitation, any reasonable legal fees and other reasonable expenses incurred in connection with defending or investigating any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of the J.P. Morgan Securities LLC Entities.

(j) In case any proceeding (including any governmental investigation) shall be instituted involving any J.P. Morgan Securities LLC Entity in respect of which indemnity may be sought pursuant to paragraph (g) above, the J.P. Morgan Securities LLC Entity seeking indemnity shall promptly notify the Company in writing and the Company, upon request of the J.P. Morgan Securities LLC Entity, shall retain counsel reasonably satisfactory to the J.P. Morgan Securities LLC Entity to represent the J.P. Morgan Securities LLC Entity and any others the Company may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any J.P. Morgan Securities LLC Entity shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such J.P. Morgan Securities LLC Entity unless (i) the Company and such J.P. Morgan Securities LLC Entity shall have mutually agreed to the retention of such counsel, (ii) the Company has failed within a reasonable time to retain

 

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counsel reasonably satisfactory to such J.P. Morgan Securities LLC Entity, (iii) the J.P. Morgan Securities LLC Entity shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Company or (iv) the named parties to any such proceeding (including any impleaded parties) include both the Company and the J.P. Morgan Securities LLC Entity and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not, in respect of the legal expenses of the J.P. Morgan Securities LLC Entities in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for all J.P. Morgan Securities LLC Entities. The Company shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Company agrees to indemnify the J.P. Morgan Securities LLC Entities from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time any J.P. Morgan Securities LLC Entity shall have requested the Company to reimburse such J.P. Morgan Securities LLC Entity for reasonable fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Company agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Company of the aforesaid request and (ii) the Company shall not have reimbursed such J.P. Morgan Securities LLC Entity in accordance with such request prior to the date of such settlement. The Company shall not, without the prior written consent of J.P. Morgan Securities LLC, effect any settlement of any pending or threatened proceeding in respect of which any J.P. Morgan Securities LLC Entity is or could have been a party and indemnity could have been sought hereunder by such J.P. Morgan Securities LLC Entity, unless (x) such settlement includes an unconditional release of the J.P. Morgan Securities LLC Entities from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of the J.P. Morgan Securities Entity.

(k) To the extent the indemnification provided for in paragraph (h) above is unavailable to a J.P. Morgan Securities LLC Entity or insufficient in respect of any losses, claims, damages or liabilities referred to therein (other than as a result of the limitations imposed on indemnification described in paragraph (h) above), then the Company in lieu of indemnifying the J.P. Morgan Securities LLC Entity thereunder, shall contribute to the amount paid or payable by the J.P. Morgan Securities LLC Entity as a result of such losses, claims, damages or liabilities (1) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the J.P. Morgan Securities LLC Entities on the other hand from the offering of the Directed Shares or (2) if the allocation provided by clause 9(j)(1) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(j)(1) above but also the relative fault of the Company on the one hand and of the J.P. Morgan Securities LLC Entities on the other hand in connection with any statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the J.P. Morgan Securities LLC Entities on the other hand in connection with the offering of the Directed Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Directed Shares (before deducting expenses) and the total

 

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underwriting discounts and commissions received by the J.P. Morgan Securities LLC Entities for the Directed Shares, bear to the aggregate public offering price of the Directed Shares. If the loss, claim, damage or liability is caused by an untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact, the relative fault of the Company on the one hand and the J.P. Morgan Securities LLC Entities on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or the omission or alleged omission relates to information supplied by the Company or by the J.P. Morgan Securities LLC Entities and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

(l) The Company and the J.P. Morgan Securities LLC Entities agree that it would be not just or equitable if contribution pursuant to paragraph (j) above were determined by pro rata allocation (even if the J.P. Morgan Securities LLC Entities were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (j) above. The amount paid or payable by the J.P. Morgan Securities LLC Entities as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the J.P. Morgan Securities LLC Entities in connection with investigating or defending such any action or claim. Notwithstanding the provisions of paragraph (i) above, no J.P. Morgan Securities LLC Entity shall be required to contribute any amount in excess of the amount by which the total price at which the Directed Shares distributed to the public were offered to the public exceeds the amount of any damages that such J.P. Morgan Securities LLC Entity has otherwise been required to pay. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in paragraphs (h) through (k) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

(m) The indemnity and contribution provisions contained in paragraphs (h) through (k) shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any J.P. Morgan Securities LLC Entity or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Directed Shares.

10. Effectiveness of Agreement . This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

11. Termination . This Agreement may be terminated in the absolute discretion of the Representatives, by notice to the Company and the Selling Stockholders, if after the execution and delivery of this Agreement and prior to the Closing Date or, in the case of the Option Shares, prior to the Additional Closing Date (i) trading generally shall have been suspended or materially limited on or by any of the New York Stock Exchange or The NASDAQ Stock Market; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall

 

37


have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representatives, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.

12. Defaulting Underwriter.

(a) If, on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter defaults on its obligation to purchase the Shares that it has agreed to purchase hereunder on such date, the non-defaulting Underwriters may in their discretion arrange for the purchase of such Shares by other persons satisfactory to the Company and the Selling Stockholders on the terms contained in this Agreement. If, within 36 hours after any such default by any Underwriter, the non-defaulting Underwriters do not arrange for the purchase of such Shares, then the Company and the Selling Stockholders shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Underwriters to purchase such Shares on such terms. If other persons become obligated or agree to purchase the Shares of a defaulting Underwriter, either the non-defaulting Underwriters or the Company and the Selling Stockholders may postpone the Closing Date or the Additional Closing Date, as the case may be, for up to five full business days in order to effect any changes that in the opinion of counsel for the Company, counsel for the Selling Stockholders or counsel for the Underwriters may be necessary in the Registration Statement and the Prospectus or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Registration Statement and the Prospectus that effects any such changes. As used in this Agreement, the term “Underwriter” includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 12, purchases Shares that a defaulting Underwriter agreed but failed to purchase.

(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters, the Company and the Selling Stockholders as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, does not exceed one-eleventh of the aggregate number of Shares to be purchased on such date, then the Company and the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares that such Underwriter agreed to purchase hereunder on such date plus such Underwriter’s pro rata share (based on the number of Shares that such Underwriter agreed to purchase on such date) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made.

(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters, the Company and the Selling Stockholders as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, exceeds one-eleventh of the aggregate amount of Shares to be purchased on such date, or if the Company and the Selling Stockholders shall not exercise the right described in paragraph (b)

 

38


above, then this Agreement or, with respect to any Additional Closing Date, the obligation of the Underwriters to purchase Shares on the Additional Closing Date shall terminate without liability on the part of the non-defaulting Underwriters. Any termination of this Agreement pursuant to this Section 12 shall be without liability on the part of the Company, except that the Company and the Selling Stockholders will continue to be liable for the payment of expenses as set forth in Section 13 hereof and except that the provisions of Section 9 hereof shall not terminate and shall remain in effect.

(d) Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company, the Selling Stockholders or any non-defaulting Underwriter for damages caused by its default.

13. Payment of Expenses.

(a) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, any Pricing Disclosure Package and the Prospectus (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii) the fees and expenses of the Company’s counsel and independent accountants; (iv) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Shares under the state or foreign securities or blue sky laws of such jurisdictions as the Representatives may designate and the preparation, printing and distribution of a Blue Sky Memorandum (including the related fees and expenses of counsel for the Underwriters); (v) the cost of preparing stock certificates; (vi) the costs and charges of any transfer agent and any registrar; (vii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA (including the fees and expenses of Piper Jaffray & Co., acting as “qualified independent underwriter” within the meaning of the aforementioned Rule 5121 of FINRA, such legal fees not to exceed $50,000 in the aggregate (excluding filing fees); (ix) all expenses incurred by the Company in connection with any “road show” presentation to potential investors such that the Company and the Underwriters will each bear their respective travel and lodging expenses in connection with any such presentations, with costs of chartered aircraft to be shared equally by the Company on the one hand, and the Underwriters on the other; (x) all expenses and application fees related to the listing of the Shares on the NASDAQ Market; and (xi) all of the fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program. Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and the Selling Stockholders will pay or cause to be paid the fees of Whalen LLP in the respective amounts agreed to be paid by the Company on the one hand and the Selling Stockholders on the other.

 

39


(b) If (i) this Agreement is terminated pursuant to clause (ii) of Section 11, (ii) the Company or the Selling Stockholders for any reason fail to tender the Shares for delivery to the Underwriters other than as a result of a termination pursuant to Section 11 or (iii) the Underwriters decline to purchase the Shares for any reason permitted under this Agreement other than as a result of a termination pursuant to Section 11, the Company agrees to reimburse the Underwriters for all out-of-pocket costs and expenses (including the reasonable fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement and the offering contemplated hereby.

14. Persons Entitled to Benefit of Agreement . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and any controlling persons referred to in Section 9 hereof. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Shares from any Underwriter shall be deemed to be a successor merely by reason of such purchase.

15. Survival . The respective indemnities, rights of contribution, representations, warranties and agreements of the Company, the Selling Stockholders and the Underwriters contained in this Agreement or made by or on behalf of the Company, the Selling Stockholders or the Underwriters pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company, the Selling Stockholders or the Underwriters.

16. Certain Defined Terms . For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under the Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed in New York City; and (c) the term “subsidiary” has the meaning set forth in Rule 405 under the Securities Act.

17. Miscellaneous .

(a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives c/o J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358); Attention: Equity Syndicate Desk, c/o Citigroup Global Markets Inc. General Counsel (fax no.: (212) 816-7912) and confirmed to the General Counsel, Citigroup Global Markets Inc., at 388 Greenwich Street, New York, New York, 10013, Attention: General Counsel; and c/o Barclays Capital Inc., 745 Seventh Avenue, New York, New York 10019, Attention: Syndicate Registration. Notices to the Company shall be given to it at GoPro, Inc., 3000 Clearview Way, San Mateo, CA 94402 (fax:            ); Attention: General Counsel. Notices to the Selling Stockholders shall be given to the Attorneys-in-Fact at                     ,                     ,                     , (Fax:                    ); Attention:                     .

 

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(b) Governing Law. This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such state.

(c) Counterparts. This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.

(d) Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

(e) Headings. The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

 

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If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.

 

Very truly yours,
GOPRO, INC.
By:  

 

  Title:
SELLING STOCKHOLDERS
By:  

 

  Name:
  Title:
By:  

 

  Name:
  Title:
As Attorneys-in-Fact acting on behalf of each of the Selling Stockholders named in Schedule 2 to this Agreement.

 

Accepted: As of the date first written above

 

J.P. Morgan Securities LLC

Citigroup Global Markets Inc.

Barclays Capital Inc.

 

Acting severally on behalf of themselves and on behalf of the several Underwriters listed in Schedule 1 hereto.

By:   J.P. Morgan Securities LLC
By:  

 

  Name:
  Title:

 

42


By:   Citigroup Global Markets Inc.
By:  

 

  Name:
  Title:
By:   Barclays Capital Inc.
By:  

 

  Name:
  Title:

 

43


Schedule 1

 

Underwriter

   Number of Shares

J. P. Morgan Securities LLC

  

Citigroup Global Markets Inc.

  

Barclays Capital Inc.

  

Allen & Company LLC

  

Stifel, Nicolaus & Company, Incorporated

  

Robert W. Baird & Co. Incorporated

  

MCS Capital Markets LLC

  

Piper Jaffray & Co.

  

Raymond James & Associates, Inc.

  
  

 

Total

  
  

 

 

Sch. 1-1


Schedule 2

 

Selling Stockholders :    Number of
Underwritten Shares :
   Number of
Option Shares :
     
     
     

Exhibit 3.01

RESTATED CERTIFICATE OF INCORPORATION OF

GOPRO, INC.

GoPro, Inc., a Delaware corporation, hereby certifies as follows:

1. The name of the corporation is GoPro, Inc. The date of the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was August 24, 2011 under the name Woodman Labs, Inc.

2. This Restated Certificate of Incorporation has been duly adopted in accordance with Sections 103, 242 and 245 of the General Corporation Law of the State of Delaware (and by the requisite vote of stockholders acting by written consent without a meeting pursuant to Section 228 of the General Corporation Law of the State of Delaware) and restates, integrates and further amends the provisions of the existing Restated Certificate of Incorporation of the Corporation, as heretofore amended.

3. The text of the existing Restated Certificate of Incorporation of the Corporation, as heretofore amended, is hereby amended and restated to read in its entirety as follows:

ARTICLE I: NAME

The name of the corporation is GoPro, Inc. (the “ Company ”).

ARTICLE II: REGISTERED OFFICE

The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle, Delaware 19808. The name of its registered agent at such address is Corporation Service Company.

ARTICLE III: PURPOSE

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 ).

ARTICLE IV: AUTHORIZED SHARES

The total number of shares of all classes of stock which the Corporation shall have authority to issue is 336,000,000, which shall be divided into three classes as follows: (a) 150,000,000 shares of Class A Common Stock, $0.0001 par value per share (“ Class A Common Stock ”), (b) 150,000,000 shares of Class B Common Stock, $0.0001 par value per share (“ Class B Common Stock ” and together with the Class A Common Stock, the “ Common Stock ”), and (c) 36,000,000 shares of Preferred Stock, $0.0001 par value per share (“ Preferred Stock ”). Shares of Preferred Stock may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such terms, rights, powers (including voting powers) and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein. As of the effective date of this Restated Certificate of Incorporation (this “ Restated Certificate ”), 36,000,000 shares of the authorized Preferred Stock are hereby designated as “ Series A Preferred Stock .” The number of authorized shares of Class A Common Stock and Class B Common Stock may be increased or decreased (but not below the number of


shares thereof then outstanding) by the affirmative vote of the holders of capital stock representing a majority of the voting power of all the then-outstanding shares of capital stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the General Corporation Law, and no vote of the holders of the Class A Common Stock or Class B Common Stock voting separately as a class shall be required therefor. The following is a statement of the designations and the rights, powers (including voting powers) and preferences, and the qualifications, limitations or restrictions thereof, in respect of each class of capital stock of the Corporation.

Immediately upon the effectiveness of the filing of this Restated Certificate with the Secretary of State of the State of Delaware (the “ Effective Time ”), each share of Common Stock issued and outstanding immediately prior to the Effective Time (the “ Old Common Stock ”) shall be reclassified as one share of Class B Common Stock (the “ Reclassification ”). All of the shares of Class B Common Stock issued in the Reclassification shall, pursuant to a resolution adopted by the Board of Directors of the Corporation, be uncertificated shares, and the person registered on the Corporation’s books as the owner of any share or shares of Old Common Stock shall be registered on the Corporation’s books as the owner of the share or shares of Class B Common Stock issued upon reclassification thereof. Each stock certificate that immediately prior to the Effective Time represented shares of Old Common Stock shall, from and after the Effective Time, be deemed to be cancelled, shall be null and void, and shall no longer represent any interest in the Corporation’s capital stock. The Corporation shall not be obligated to issue any certificate or certificates representing shares of Class B Common Stock issued pursuant to the Reclassification

 

A. DEFINITIONS

For purposes of this Article IV, the following definitions apply:

1. “ Board shall mean the Board of Directors of the Corporation.

2. “ Common Stock shall mean the Common Stock, $0.0001 par value, of the Corporation.

3. “ Corporation shall mean this corporation.

4. “ Original Issue Date shall mean the date on which the first share of Series A Preferred Stock is issued by the Corporation.

5. “ Original Issue Price shall mean $2.5333. The Original Issue Price shall be as adjusted for any stock splits or combinations of the Series A Preferred Stock, stock dividends on the Series A Preferred Stock, recapitalizations of the Series A Preferred Stock or the like with respect to the Series A Preferred Stock.

6. “ Permitted Repurchases shall mean the repurchase by the Corporation of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Corporation or a Subsidiary that are subject to restricted stock purchase agreements or stock option exercise agreements under which the Corporation has the option to repurchase such shares: (i) at cost, upon the occurrence of certain events, such as the termination of employment or services; or (ii) at any price pursuant to the Corporation’s exercise of a right of first refusal to repurchase such shares.

 

2


7. “ Preferred Stock shall mean the Series A Preferred Stock.

8. “ Series A Preferred Stock shall mean the Series A Preferred Stock, $0.0001 par value, of the Corporation.

9. “ Subsidiary shall mean any corporation of which at least fifty percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations.

 

B. COMMON STOCK

The following rights, powers and preferences, and restrictions, qualifications and limitations, shall apply to the Common Stock. Unless otherwise indicated, references to “Sections” in this Part B of this Article IV refer to sections of this Part B.

1. General . The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

2. Equal Status . Except as otherwise required by law or as expressly set forth in this Part B of this Article IV, each share of Class A Common Stock shall have the same rights and powers as, rank equally to, share ratably with and be identical in all respects and in all matters to, each share of Class B Common Stock.

3. Number of Votes . Except as otherwise set forth herein or as required by law, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single class on all matters submitted to a vote of the stockholders generally. Each outstanding share of Class B Common Stock shall entitle the holder thereof, as such, to ten (10) votes, and each outstanding share of Class A Common Stock shall entitle the holder thereof, as such, to one (1) vote. Unless otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Restated Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Restated Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) or pursuant to the General Corporation Law.

4. Dividends and Distributions . Dividends and other distributions may be declared and paid on shares of the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to applicable law and any preferential dividend, distribution or other rights of the holders of any then outstanding series of Preferred Stock. Without the affirmative vote of the holders of Class A Common Stock representing a majority of the voting power of the outstanding shares of Class A Common Stock, voting separately as a single class, and the affirmative vote of the holders of Class B Common Stock representing a majority of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class, the Corporation may not declare and pay any dividends or make other distributions with respect to any class of Common Stock unless at the same time the Corporation declares and pays a ratable dividend or makes a ratable distribution with respect to each

 

3


outstanding share of Common Stock, regardless of class. For purposes of the preceding sentence, dividends or other distributions payable in (i) shares of a class of Common Stock; (ii) voting securities of the Corporation or voting securities of any entity that is a wholly owned subsidiary of the Corporation (“ Voting Securities ”); or (iii) securities (including options, warrants or other rights) convertible into, or exercisable or exchangeable for, Voting Securities (“ Exchangeable Securities ”) shall be deemed ratable if, and only if:

(a) In the case of dividends or other distributions payable in shares of a class of Common Stock, (i) only shares of Class A Common Stock are distributed with respect to Class A Common Stock; (ii) only shares of Class B Common Stock are distributed with respect to Class B Common Stock; and (iii) the number of shares of Class A Common Stock payable on each share of Class A Common Stock pursuant to such dividend or other distribution is equal to the number of shares of Class B Common Stock payable on each share of Class B Common Stock pursuant to such dividend or other distribution;

(b) In the case of dividends or other distributions payable in Voting Securities, either (x) such dividend or other distribution is identical with respect to each class of Common Stock and is approved by the affirmative vote of the holders of Class B Common Stock representing a majority of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class; or (y) (i) such Voting Securities are identical with respect to each class of Common Stock in all respects except as provided in subsections (ii), (iii) and (iv) of clause (y) of this Section 4(b); (ii) the voting rights of such Voting Security paid to the holders of Class A Common Stock are substantially similar to those of the Class A Common Stock; (iii) the voting rights of such Voting Security paid to the holders of Class B Common Stock are substantially similar to those of the Class B Common Stock; (iv) such Voting Security paid to the holders of Class B Common Stock is convertible into the Voting Security paid to the holders of Class A Common Stock upon terms and conditions that are substantially similar to the terms and conditions applicable to the conversion of Class B Common Stock into Class A Common Stock; and (v) the number of such Voting Securities payable on each share of Class A Common Stock pursuant to such dividend or other distribution is equal to the number of such Voting Securities payable on each share of Class B Common Stock pursuant to such dividend or other distribution; and

(c) In the case of dividends or other distributions payable in Exchangeable Securities, either (x) such dividend or other distribution is identical with respect to each class of Common Stock and is approved by the affirmative vote of the holders of Class B Common Stock representing a majority of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class; or (y) (i) such Exchangeable Securities are identical with respect to each class of Common Stock in all respects except as provided in subsections (ii), (iii) and (iv) of clause (y) of this Section 4(c); (ii) the voting rights of each Voting Security underlying the Exchangeable Security paid to the holders of Class A Common Stock are substantially similar to those of the Class A Common Stock; (iii) the voting rights of each Voting Security underlying the Exchangeable Security paid to the holders of Class B Common Stock are substantially similar to those of the Class B Common Stock; (iv) each Voting Security underlying the Exchangeable Security paid to the holders of Class B Common Stock is convertible into the Voting Security underlying the Exchangeable Security paid to the holders of Class A Common Stock upon terms and conditions that are substantially similar to the terms and conditions applicable to the conversion of Class B Common Stock into Class A Common Stock; and (v) the number of such Exchangeable Securities payable on each share of Class A Common

 

4


Stock pursuant to such dividend or other distribution shall be equal to the number of such Exchangeable Securities payable on each share of Class B Common Stock pursuant to such dividend or other distribution.

5. Reclassifications. Without the affirmative vote of the holders of Class A Common Stock representing a majority of the voting power of the outstanding shares of Class A Common Stock, voting separately as a single class, and the affirmative vote of the holders of Class B Common Stock representing a majority of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class, neither the shares of Class A Common Stock nor the shares of Class B Common Stock may be subdivided, combined, reclassified or otherwise changed unless the shares of the other class of Common Stock are concurrently subdivided, combined, reclassified or otherwise changed in the same proportion and in the same manner. For purposes of the preceding sentence, any reclassification or other change of Class A Common Stock or Class B Common Stock into (i) Voting Securities or (ii) Exchangeable Securities shall be deemed undertaken in the same proportion and in the same manner as shares of the other class of Common Stock if, and only if:

(a) In the case of a reclassification or other change of Class A Common Stock or Class B Common Stock into Voting Securities, either (x) such reclassification or other change is identical with respect to each class of Common Stock and is approved by the affirmative vote of the holders of Class B Common Stock representing a majority of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class; or (y) (i) such Voting Securities are identical with respect to each class of Common Stock in all respects except as provided in subsections (ii), (iii) and (iv) of clause (y) of this Section 5(a); (ii) the voting rights of the Voting Security into which the Class A Common Stock has been reclassified or otherwise changed are substantially similar to those of the Class A Common Stock; (iii) the voting rights of the Voting Security into which the Class B Common Stock has been reclassified or otherwise changed are substantially similar to those of the Class B Common Stock; (iv) such Voting Security into which the Class B Common Stock has been reclassified or otherwise changed is convertible into the Voting Security into which the Class A Common Stock has been reclassified or otherwise changed upon terms and conditions that are substantially similar to the terms and conditions applicable to the conversion of Class B Common Stock into Class A Common Stock; and (v) the number of such Voting Securities into which the Class A Common Stock has been reclassified or otherwise changed is equal to the number of such Voting Securities into which the Class B Common Stock has been reclassified or otherwise changed; and

(b) In the case of a reclassification or other change of Class A Common Stock or Class B Common Stock into Exchangeable Securities, either (x) such reclassification or other change is identical with respect to each class of Common Stock and approved by the affirmative vote of the holders of Class B Common Stock representing a majority of the voting power of the outstanding shares of Class B Common Stock; or (y) (i) such Exchangeable Securities are identical with respect to each class of Common Stock in all respects except as provided in subsections (ii), (iii) and (iv) of clause (y) of this Section 5(b); (ii) the voting rights of each Voting Security underlying the Exchangeable Security into which the Class A Common Stock has been reclassified or otherwise changed are substantially similar to those of the Class A Common Stock; (iii) the voting rights of each Voting Security underlying the Exchangeable Security into which the Class B Common Stock has been reclassified or otherwise changed are substantially similar to those of the Class B Common Stock; (iv) each Voting Security underlying the Exchangeable Security into which the Class B Common Stock

 

5


has been reclassified or otherwise changed is convertible into each Voting Security underlying the Exchangeable Security into which the Class A Common Stock has been reclassified or otherwise changed upon terms and conditions that are substantially similar to the terms and conditions applicable to the conversion of Class B Common Stock into Class A Common Stock; and (v) the number of such Exchangeable Securities into which the Class A Common Stock has been reclassified or otherwise changed is equal to the number of such Exchangeable Securities into which the Class B Common Stock has been reclassified or otherwise changed.

6. Liquidation. Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of Common Stock shall be entitled to receive ratably all assets of the Corporation available for distribution to its stockholders, subject to any preferential or other rights of the holders of any series of Preferred Stock then outstanding.

7. Merger. The affirmative vote of the holders of Class A Common Stock representing a majority of the voting power of the outstanding shares of Class A Common Stock, voting separately as a single class, and the affirmative vote of the holders of Class B Common Stock representing a majority of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class, shall be required to approve any merger or consolidation of the Corporation (whether or not the Corporation is the surviving entity) requiring a vote of the Corporation’s stockholders under applicable law unless, upon the consummation of such merger or consolidation, holders of each class of Common Stock will receive (or be entitled to receive) the same per share consideration in the merger. Without limiting the circumstances in which the holders of each class of Common Stock may be deemed to have received equal per share consideration upon the consummation of a merger or consolidation of the Corporation (whether or not the Corporation is the surviving entity), for purposes of the preceding sentence, holders of each class of Common Stock will be deemed to have received the same per share consideration of (i) voting securities of the Corporation or any other entity (“ Merger Voting Securities ”) or (ii) securities convertible into, or exchangeable for, Merger Voting Securities (“ Merger Exchangeable Securities ”) if:

(a) With respect to Merger Voting Securities, (i) the Merger Voting Securities to be received by holders of Class A Common Stock and Class B Common Stock are identical with respect to each class of Common Stock in all respects except as provided in subsections (ii), (iii) and (iv) of this Section 7(a); (ii) the voting rights of the Merger Voting Security to be received by the holders of Class A Common Stock are substantially similar to those of the Class A Common Stock; (iii) the voting rights of the Merger Voting Security to be received by the holders of Class B Common Stock are substantially similar to those of the Class B Common Stock; (iv) the Merger Voting Security to be received by the holders of Class B Common Stock is convertible into the Merger Voting Security to be received by the holders of Class A Common Stock upon terms and conditions that are substantially similar to the terms and conditions applicable to the conversion of Class B Common Stock into Class A Common Stock; and (v) the number of Merger Voting Securities to be received for each share of Class A Common Stock is equal to the number of Merger Voting Securities to be received for each share of Class B Common Stock; and

(b) With respect to Merger Exchangeable Securities, (i) the Merger Exchangeable Securities to be received by holders of Class A Common Stock and Class B Common Stock are identical with respect to each class of Common Stock in all respects except as provided in subsections (ii), (iii) and (iv) of this Section 7(b); (ii) the voting rights of each

 

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Merger Voting Security underlying the Merger Exchangeable Security to be received by the holders of Class A Common Stock are substantially similar to those of the Class A Common Stock; (iii) the voting rights of each Merger Voting Security underlying the Merger Exchangeable Security to be received by the holders of Class B Common Stock are substantially similar to those of the Class B Common Stock; (iv) each Merger Voting Security underlying the Merger Exchangeable Security to be received by the holders of Class B Common Stock is convertible to each Merger Voting Security underlying the Merger Exchangeable Security to be received by the holders of Class A Common Stock upon terms and conditions that are substantially similar to the terms and conditions applicable to the conversion of Class B Common Stock into Class A Common Stock; and (v) the number of Merger Exchangeable Securities to be received for each share of Class A Common Stock is equal to the number of Merger Exchangeable Securities to be received for each share of Class B Common Stock.

8. Determinations of “Substantially Similar” and “Same Per Share Consideration” . For purposes of Sections 4, 5 and 7, the Board of Directors shall have the sole power and authority to make all determinations regarding whether or not a characteristic of a security is “substantially similar” to that of another security and for purposes of Section 7, the Board of Directors shall have the sole power and authority to make all determinations regarding whether or not holders of each class of Common Stock will be entitled to receive the same per share consideration. All such determinations made by the Board of Directors shall be final, conclusive and binding.

9. Class B Common Stock Conversion

9.1 Optional Conversion . Each share of Class B Common Stock shall be convertible into one (1) fully paid and nonassessable share of Class A Common Stock at the option of the holder thereof at any time upon written notice to the Corporation. Before any record holder of Class B Common Stock shall be entitled to convert any of such holder’s shares of such Class B Common Stock into shares of Class A Common Stock, such holder shall deliver an instruction, duly signed and authenticated in accordance with any procedures set forth in the Bylaws of the Corporation or any policies of the Corporation then in effect, at the principal corporate office of the Corporation or of any transfer agent for the Class B Common Stock, and shall give written notice to the Corporation at its principal corporate office of such holder’s election to convert the same and shall state therein the name or names in which the shares of Class A Common Stock issuable on conversion thereof are to be registered on the books of the Corporation. The Corporation shall, as soon as practicable thereafter, register on the Corporation’s books ownership of the number of shares of Class A Common Stock to which such record holder of Class B Common Stock, or to which the nominee or nominees of such record holder, shall be entitled as aforesaid. Such conversion shall be deemed to have occurred immediately prior the close of business on the date such notice of the election to convert is received by the Corporation, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock as of such date.

9.2 Automatic Conversion . Each share of Class B Common Stock shall automatically be converted into one (1) fully paid and nonassessable share of Class A Common Stock immediately prior to the close of business on the earlier of the date, if any, (i) on which the outstanding shares of Class B Common Stock represent less than ten percent (10%) of the aggregate number of shares of Common Stock then outstanding, or (ii) specified by the

 

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affirmative vote of the holders of Class B Common Stock representing not less than a majority of the voting power of the outstanding shares of Class B Common Stock, voting separately as a single class (either of the events so specified being the “ Automatic Conversion ”). The Corporation shall provide notice of the Automatic Conversion of shares of Class B Common Stock pursuant to this Section 9.2 to record holders of such shares of Class B Common Stock as soon as practicable following the Automatic Conversion; provided , however , that the Corporation may satisfy such notice requirements by providing such notice prior to the Automatic Conversion. Such notice shall be provided by any means then permitted by the General Corporation Law; provided , however , that no failure to give such notice nor any defect therein shall affect the validity of the Automatic Conversion. Upon and after the Automatic Conversion, the person registered on the Corporation’s books as the record holder of the shares of Class B Common Stock so converted immediately prior to the Automatic Conversion shall be registered on the Corporation’s books as the record holder of the shares of Class A Common Stock issued upon Automatic Conversion of such shares of Class B Common Stock, without further action on the part of the record holder thereof. Immediately upon the effectiveness of the Automatic Conversion, the rights of the holders of shares of Class B Common Stock as such shall cease, and the holders shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock into which such shares of Class B Common Stock were converted.

9.3 Conversion on Transfer . Each share of Class B Common Stock shall automatically, without further action by the Corporation or the holder thereof, be converted into one (1) fully paid and nonassessable share of Class A Common Stock, upon the occurrence of a Transfer (as defined below), other than a Permitted Transfer (as defined below), of such share of Class B Common Stock

9.4 Policies and Procedures . The Corporation may, from time to time, establish such policies and procedures, not in violation of applicable law or this Restated Certificate of Incorporation or the Bylaws, relating to the conversion of shares of the Class B Common Stock into shares of Class A Common Stock as it may deem necessary or advisable. If the Corporation has reason to believe that a Transfer that is not a Permitted Transfer has occurred, the Corporation may request that the purported transferor furnish affidavits or other evidence to the Corporation as it reasonably deems necessary to determine whether a Transfer that is not a Permitted Transfer has occurred, and if such transferor does not within ten (10) days after the date of such request furnish sufficient (as determined by the Board of Directors) evidence to the Corporation (in the manner provided in the request) to enable the Corporation to determine that no such Transfer has occurred, any such shares of Class B Common Stock, to the extent not previously converted, shall be automatically converted into shares of Class A Common Stock and such conversion shall thereupon be registered on the books and records of the Corporation.

9.5 Definitions .

(a) “Family Member shall mean with respect to any natural person who is a Qualified Stockholder (as defined below), the spouse, domestic partner, parents, grandparents, lineal descendents, siblings and lineal descendants of siblings of such Qualified Stockholder. Lineal descendants shall include adopted persons, but only so long as they are adopted during minority.

 

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(b) “Qualified Stockholder shall mean (i) the record holder of a share of Class B Common Stock; (ii) each natural person who, prior to the Effective Time, Transferred shares of capital stock of the Corporation to a Permitted Entity that is or becomes a Qualified Stockholder; (iii) each natural person who Transferred shares of, or equity awards for, Class B Common Stock (including any Option exercisable or Convertible Security exchangeable for or convertible into shares of Class B Common Stock) to a Permitted Entity that is or becomes a Qualified Stockholder; and (iv) a Permitted Transferee.

(c) “Permitted Entity shall mean with respect to a Qualified Stockholder (a) a Permitted Trust (as defined below) solely for the benefit of (i) such Qualified Stockholder, (ii) one or more Family Members of such Qualified Stockholder and/or (iii) any other Permitted Entity of such Qualified Stockholder, or (b) any general partnership, limited partnership, limited liability company, corporation or other entity exclusively owned by (i) such Qualified Stockholder, (ii) one or more Family Members of such Qualified Stockholder and/or (iii) any other Permitted Entity of such Qualified Stockholder.

(d) “Transfer of a share of Class B Common Stock shall mean any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law, including, without limitation, a transfer of a share of Class B Common Stock to a broker or other nominee (regardless of whether there is a corresponding change in beneficial ownership), or the transfer of, or entering into a binding agreement with respect to, Voting Control (as defined below) over such share by proxy or otherwise; provided , however , that the following shall not be considered a “Transfer” within the meaning of this Section 9:

(i) the granting of a revocable proxy to officers or directors of the Corporation at the request of the Board of Directors in connection with actions to be taken at an annual or special meeting of stockholders;

(ii) entering into a voting trust, agreement or arrangement (with or without granting a proxy) solely with stockholders who are holders of Class B Common Stock that (A) is disclosed either in a Schedule 13D filed with the Securities and Exchange Commission or in writing to the Secretary of the Corporation, (B) either has a term not exceeding one (1) year or is terminable by the holder of the shares subject thereto at any time and (C) does not involve any payment of cash, securities, property or other consideration to the holder of the shares subject thereto other than the mutual promise to vote shares in a designated manner; or

(iii) the pledge of shares of Class B Common Stock by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction for so long as such stockholder continues to exercise Voting Control over such pledged shares; provided , however , that a foreclosure on such shares or other similar action by the pledgee shall constitute a Transfer unless such foreclosure or similar action qualifies as a Permitted Transfer.

A Transfer shall also be deemed to have occurred with respect to a share of Class B Common Stock beneficially held by (i) an entity that is a Permitted Entity, if there occurs any act or circumstance that causes such entity to no longer be a Permitted Entity or (ii) an entity that is a Qualified Stockholder, if there occurs a Transfer on a cumulative basis of a majority of the voting

 

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power of the voting securities of such entity or any direct or indirect Parent of such entity, other than a Transfer to parties that are holders of voting securities of any such entity or Parent of such entity.

(e) “Parent of an entity shall mean any entity that directly or indirectly owns or controls a majority of the voting power of the voting securities of such entity.

(f) “Permitted Transfer shall mean, and be restricted to, any Transfer of a share of Class B Common Stock:

(i) by a Qualified Stockholder to (A) one or more Family Members of such Qualified Stockholder, or (B) any Permitted Entity of such Qualified Stockholder; or

(ii) by a Permitted Entity of a Qualified Stockholder to (A) such Qualified Stockholder or one or more Family Members of such Qualified Stockholder, or (B) any other Permitted Entity of such Qualified Stockholder.

(g) “Permitted Transferee shall mean a transferee of shares of Class B Common Stock received in a Transfer that constitutes a Permitted Transfer.

(h) “Permitted Trust shall mean a bona fide trust where each trustee is (i) a Qualified Stockholder, (ii) a Family Member or (iii) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies and bank trust departments.

(i) “Voting Control shall mean, with respect to a share of Class B Common Stock, the power (whether exclusive or shared) to vote or direct the voting of such share by proxy, voting agreement or otherwise.

(j) “Convertible Securities shall mean securities (other than shares of Class B Common Stock) convertible into or exchangeable for Class A Common Stock or Class B Common Stock, either directly or indirectly.

(k) Options shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Class A Common Stock, Class B Common Stock or Convertible Securities.

9.6 Status of Converted Stock . In the event any shares of Class B Common Stock are converted into shares of Class A Common Stock pursuant to this Section 9, the shares of Class B Common Stock so converted shall be retired and shall not be reissued by the Corporation.

9.7 Effect of Conversion on Payment of Dividends . Notwithstanding anything to the contrary in Sections 9.1, 9.2 or 9.3, if the date on which any share of Class B Common Stock is converted into Class A Common Stock pursuant to the provisions of Sections 9.1, 9.2 or 9.3 occurs after the record date for the determination of the holders of Class B Common Stock entitled to receive any dividend or distribution to be paid to on the shares of Class B Common Stock, the holder of such shares of Class B Common Stock as of such record date will be entitled to receive such dividend or distribution on such payment date; provided,

 

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that, notwithstanding any other provision of this Restated Certificate of Incorporation, to the extent that any such dividend or distribution is payable in shares of Class B Common Stock (or in the Voting Securities or Exchangeable Securities payable on shares of Class B Common Stock), such dividend or distribution shall be deemed to have been declared, and shall be payable in, shares of Class A Common Stock (or, if applicable, the Voting Securities or Exchangeable Securities payable on shares of Class A Common Stock) and no shares of Class B Common Stock (or the Voting Securities or Exchangeable Securities payable on shares of Class B Common Stock) shall be issued in payment thereof.

9.8 Reservation . The Corporation shall at all times reserve and keep available, out of its authorized and unissued shares of Class A Common Stock, solely for the purpose of effecting conversions of shares of Class B Common Stock into Class A Common Stock, such number of duly authorized shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock. If at any time the number of authorized and unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock, the Corporation shall promptly take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, obtaining the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. All shares of Class A Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and non-assessable shares. The Corporation shall take all such action as may be necessary to ensure that all such shares of Class A Common Stock may be so issued without violation of any applicable law or regulation.

 

C. PREFERRED STOCK

The following rights, powers and preferences, and restrictions, qualifications and limitations, shall apply to the Preferred Stock. Unless otherwise indicated, references to “Sections” in this Part C of this Article IV refer to sections of this Part C.

1. Dividends . In each calendar year, the holders of the then outstanding Series A Preferred Stock and Common Stock shall be entitled to receive, when, as and if declared by the Board, out of any funds and assets of the Corporation legally available therefor, dividends in an amount to be determined by the Board at such time (the “ Participating Dividends ”). Payments of any Participating Dividend to the holders of Series A Preferred Stock or Common Stock shall be paid pro rata, on an equal priority, pari passu basis according to the number of shares of Common Stock held by such holders on the record date for such Participating Dividend, where each such holder of shares of Series A Preferred Stock, as such, is to be treated for this purpose as holding the greatest whole number of shares of Common Stock then issuable upon conversion of all shares of Series A Preferred Stock held by such holder pursuant to Section 4. Participating Dividends on the Series A Preferred Stock and Common Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Series A Preferred Stock or Common Stock by reason of the fact that the Corporation shall fail to declare or pay Participating Dividends on the Series A Preferred Stock or Common Stock in any amount in any calendar year or any fiscal year of the Corporation, whether or not the earnings of the Corporation in any calendar year or fiscal year were sufficient to pay Participating Dividends in whole or in part.

 

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Subject to any approvals otherwise required by this Restated Certificate, any repurchases by the Corporation of shares of its capital stock or other distributions by the Corporation to its stockholders in respect of their shares of capital stock (including by way of dividends) may be made without regard to any preferential dividends arrear amount or any preferential rights amount (as such terms are defined in Section 500(b) of the California Corporations Code).

2. Liquidation Preference . In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (in each case, a “ Deemed Liquidation Event ”), the funds and assets that may be legally distributed to the Corporation’s stockholders (the “ Available Funds and Assets ”) shall be distributed to stockholders in the following manner:

2.1 Series A Preferred Stock . The holders of each share of Series A Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Common Stock, an amount per share equal to the greater of: (i) the Original Issue Price plus declared but unpaid dividends on the Series A Preferred Stock pursuant to Section 1; or (ii) the dollar amount that such holder of Series A Preferred would have received had it converted to Common Stock (pursuant to Section 4 hereof) immediately prior to such Deemed Liquidation Event. If upon any liquidation, dissolution or winding up of the Corporation, the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series A Preferred Stock of their full preferential amount described in this subsection, then the entire Available Funds and Assets shall be distributed among the holders of the then outstanding Series A Preferred Stock pro rata, according to the number of outstanding shares of Series A Preferred Stock held by each holder thereof.

2.2 Remaining Assets . If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Series A Preferred Stock of their full preferential amounts described above in this Section 2, then all such remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof.

2.3 Deemed Liquidation Events . Unless otherwise approved by vote of the holders of at least a majority of the shares of the Series A Preferred Stock, each of the following transactions shall be deemed to be a Deemed Liquidation Event: (a) any reorganization by way of share exchange, consolidation or merger, in one transaction or series of related transactions (each, a “ combination transaction ”)), in which the Corporation is a constituent corporation or is a party with another entity if, as a result of such combination transaction, the voting securities of the Corporation that are outstanding immediately prior to the consummation of such combination transaction do not represent, or are not converted into, securities of the surviving entity of such combination transaction (or such surviving entity’s parent entity if the surviving entity is owned by the parent entity) that, immediately after the consummation of such combination transaction, together possess at least a majority of the total voting power of all securities of such surviving entity (or its parent entity, if applicable) that are outstanding immediately after the consummation of such combination transaction; or (b) a 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 of the assets or intellectual property of the Corporation (other than any such sale, lease, transfer, exclusive license or other disposition of less than all or substantially all of the assets or intellectual property of the Corporation in the ordinary course of business).

 

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2.4 Non-Cash Consideration . If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined by the Board in good faith, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

(a) The method of valuation of securities not subject to investment representation letter or other similar restrictions on free marketability shall be as follows:

(i) unless otherwise specified in a definitive agreement for the acquisition of the Corporation, if the securities are then traded on a national securities exchange, then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) calendar day period ending three (3) trading days prior to the distribution; and

(ii) if (i) above does not apply but the securities are actively traded over-the-counter, then, unless otherwise specified in a definitive agreement for the acquisition of the Corporation, the value shall be deemed to be the average of the closing bid prices over the thirty (30) day period ending three (3) days prior to the distribution; and

(iii) if there is no active public market as described in clauses (i) or (ii) above, then the value shall be the fair market value thereof, as determined in good faith by the Board.

(b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in subsections (a)(i), (a)(ii) or (a)(iii) of this subsection to reflect the approximate fair market value thereof, as determined in good faith by the Board.

3. Redemption .

3.1 Mandatory Redemption .

(a) Request for Redemption . Subject to the terms and conditions of this Section 3 and subject to any liquidation preference rights which may have been previously invoked under Section 2 hereof, to the extent that any outstanding shares of Series A Preferred Stock have not been redeemed or converted into Common Stock, the Corporation shall, upon the vote or action by written consent at any time after July 1, 2017, of the holders of a majority of the then outstanding shares of Series A Preferred Stock, redeem, on a date not later than the date that is three hundred sixty five days (365) days following its receipt of such written redemption request (such date referred to hereafter as the “ Redemption Date ”), a number of shares of Series A Preferred Stock equal to one hundred percent (100%) of the shares of Series A Preferred Stock that are outstanding on the Redemption Date; provided that immediately following any such redemption, the Corporation shall have outstanding a class of common shares that is not subject to redemption. The Series A Preferred Stock shall be redeemed in cash at the redemption price specified in Section 3.2 below and shall be paid from any source of funds legally available therefor, until all outstanding shares of Series A Preferred Stock to be redeemed have been redeemed or converted to Common Stock as provided in Section 4 or the request for redemption has been withdrawn or terminated as provided below.

 

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(b) Withdrawal or Termination of Request . A redemption request may be withdrawn or terminated upon the request of the holders of a majority of the issued and outstanding shares of Series A Preferred Stock on the date of the request for withdrawal or termination, but only with respect to the shares of Series A Preferred Stock that had not been redeemed in full in cash as of such Redemption Date. After any such withdrawn or terminated redemption request, the shares of Series A Preferred Stock shall again be subject to redemption pursuant to this Section 3 upon the request of the holders of Series A Preferred Stock as provided above.

3.2 Redemption Price . The redemption price for each share of Series A Preferred Stock shall be an amount in cash equal to one hundred percent (100%) of the Original Issue Price plus any declared but unpaid dividends on the Series A Preferred Stock pursuant to Section 1 (the “ Redemption Price ”).

3.3 Insufficient Legally Available Funds . If upon any date after the Redemption Date, the funds and assets of the Corporation legally available to redeem such stock shall be insufficient to redeem all shares of Series A Preferred Stock (such an event, a “ Triggering Event ”), then any such unredeemed shares shall be carried forward and shall be redeemed as soon as legally available funds become available to the Corporation and such redemptions would be lawful. Once a Triggering Event commences, and for so long as a Triggering Event continues, the Corporation shall use reasonable efforts to obtain debt and/or equity financing to raise a sufficient amount of legally available funds to enable the Corporation to effect redemption pursuant to this Section 3, and if any such financing is obtainable by the Corporation during a Triggering Event, the Corporation shall reasonably promptly consummate such financing to raise a sufficient amount of legally available funds to enable the Corporation to effect redemption in full and cease the continuation of the Triggering Event. Shares of Series A Preferred Stock that are subject to redemption hereunder but have not been redeemed due to insufficient legally available funds and assets of the Corporation shall continue to be outstanding and entitled to all dividend, liquidation, conversion and other rights, preferences, privileges and restrictions of the Series A Preferred Stock respectively until such shares have been converted or redeemed.

3.4 Partial Redemption . No redemption shall be made under this Section 3 of only a part of the then outstanding Series A Preferred Stock, unless the Corporation shall effect such redemption pro rata among all holders of then outstanding Series A Preferred Stock according to the number of shares held by each holder thereof.

3.5 Redemption Notice . At least twenty (20) but no more than sixty (60) days prior to the initial Redemption Date, written notice shall be mailed by the Corporation, postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of Series A Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder or given by the holder to the Corporation for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located, notifying such holder of the redemption to be effected, specifying the Redemption Date, the applicable Redemption Price, the number of such holder’s shares of Series A Preferred Stock to be redeemed, the place at which

 

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payment may be obtained and the date on which such holder’s conversion rights (as set forth in Section 4) as to such shares terminate (which date shall in no event be earlier than three (3) days prior to the Redemption Date) and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, the certificate or certificates representing the shares to be redeemed (the “ Redemption Notice ”). Notwithstanding the foregoing, only one Redemption Notice need be given for a redemption effected pursuant to subsection 3.1, provided such redemption notice identifies the Redemption Date and provided that each new transferee who acquires shares of Series A Preferred Stock after such shares are first to be redeemed under subsection 3.1 shall be given a similar Redemption Notice before redemption of any such holder’s shares of Series A Preferred Stock under subsection 3.1.

3.6 Surrender of Certificates . On or before each designated Redemption Date, each holder of Series A Preferred Stock to be redeemed shall (unless such holder has previously exercised his right to convert such shares of Series A Preferred Stock into Common Stock as provided in subsection 3.5 above and in Section 4 below), surrender the certificate(s) representing such shares of Series A Preferred Stock to be redeemed 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(s) as the owner thereof, and each surrendered certificate shall be cancelled and retired. If less than all of the shares represented by such certificate are redeemed, then the Corporation shall promptly issue a new certificate representing the unredeemed shares.

3.7 Effect of Redemption . If the Redemption Notice shall have been duly given, and if on the Redemption Date the Redemption Price is either paid or made available for payment through the deposit arrangements specified in subsection 3.8 below, then notwithstanding that the certificates evidencing any of the shares of Series A Preferred Stock so called for redemption shall not have been surrendered, all declared but unpaid dividends with respect to such shares shall cease to accrue after such Redemption Date, such shares shall not thereafter be transferred on the Corporation’s books and the rights of all of the holders of such shares with respect to such shares shall terminate after such Redemption Date, except only the right of the holders to receive the redemption price without interest upon surrender of their certificate(s) therefor.

3.8 Deposit of Redemption Price . On or prior to the Redemption Date, the Corporation may, at its option, deposit with a bank or trust company in the State of California having a capital and surplus of at least Two Hundred Million Dollars ($200,000,000), as a trust fund, a sum equal to the aggregate Redemption Price for all shares of Series A Preferred Stock called for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust company to pay, on or after the Redemption Date, the Redemption Price to the respective holders upon the surrender of their share certificates. From and after the Redemption Date, the shares so called for redemption shall be redeemed. The deposit shall constitute full payment of the shares to their holders, and from and after the Redemption Date, the shares shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the redemption price of the shares, without interest, upon surrender of their certificates therefor. Any funds so deposited and unclaimed at the end of one (1) year from the Redemption Date shall be released or repaid to the Corporation, after which time the holders of shares called for redemption who have not claimed such funds shall be entitled to receive payment of the Redemption Price only from the Corporation.

 

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4. Conversion Rights . The outstanding shares of Series A Preferred Stock shall be convertible into Common Stock as follows:

4.1 Optional Conversion .

(a) At the option of the holder thereof, each share of Series A Preferred Stock shall be convertible, at any time or from time to time prior to the close of business on the business day before any date fixed for redemption of such share, into fully paid and nonassessable shares of Common Stock as provided herein.

(b) Each holder of Series A Preferred Stock who elects to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Series A Preferred Stock or Common Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the number of shares of Series A Preferred Stock being converted. Thereupon the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Series A Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. If a conversion election under this subsection 4.1 is made in connection with an underwritten offering of the Corporation’s securities pursuant to the Securities Act of 1933, as amended, (which underwritten offering does not cause an automatic conversion pursuant to subsection 4.2 to take place) the conversion may, at the option of the holder tendering shares of Series A Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of the Corporation’s securities pursuant to such offering, in which event the holders making such elections who are entitled to receive Common Stock upon conversion of their Series A Preferred Stock shall not be deemed to have converted such shares of Series A Preferred Stock until immediately prior to the closing of such sale of the Corporation’s securities in the offering.

4.2 Automatic Conversion .

(a) Each share of Series A Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Common Stock, as provided herein: (i) immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (for the avoidance of doubt, other than a registration statement relating either to the sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or an SEC Rule 145 transaction), covering the offer and sale of Common Stock for the account of the Corporation in which the aggregate public offering price (before deduction of underwriters’ discounts and commissions) equals or exceeds Fifty Million Dollars ($50,000,000); provided that, for the avoidance of doubt, such public offering was approved in accordance with Section 6(a) hereof; or (ii) upon the vote or action by written consent of the holders of not less than a majority of the then outstanding shares of Series A Preferred Stock to the conversion of all then outstanding Series A Preferred Stock under this Section 4.

 

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(b) Upon the occurrence of any event specified in subsection 4.2(a)(i) or (ii) above, the outstanding shares of Series A Preferred Stock shall be converted into Common Stock automatically without the need for any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided , however , that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series A Preferred Stock are either delivered to the Corporation or its transfer agent as provided below, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series A Preferred Stock, the holders of Series A Preferred Stock shall surrender the certificates representing such shares at the office of the Corporation or any transfer agent for the Series A Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of the Series A Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred.

4.3 Conversion Price . Each share of Series A Preferred Stock shall be convertible in accordance with subsection 4.1 or subsection 4.2 above into the number of shares of Common Stock that results from dividing the Original Issue Price by the conversion price for the Series A Preferred Stock that is in effect at the time of conversion (the “ Conversion Price ”). The initial Conversion Price for of the Series A Preferred Stock shall be the Original Issue Price. The Conversion Price shall be subject to adjustment from time to time as provided below. Following adjustment of the Conversion Price, the adjusted Conversion Price shall remain in effect until a further adjustment of the Conversion Price hereunder.

4.4 Adjustment Upon Common Stock Event . Upon the happening of a Common Stock Event (as hereinafter defined), the Conversion Price shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying the Conversion Price by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Common Stock Event, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Conversion Price. The Conversion Price shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term the “ Common Stock Event ” for the Series A Preferred Stock shall mean at any time or from time to time after the Original Issue Date, (i) the issuance by the Corporation of additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock.

4.5 Adjustments for Other Dividends and Distributions . If at any time or from time to time after the Original Issue Date the Corporation pays a dividend or makes another distribution to the holders of the Common Stock payable in securities of the Corporation, other than an event constituting a Common Stock Event, then in each such event provision shall be made so that the holders of the Series A Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, the amount of securities of the Corporation which they would have received had their Series A

 

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Preferred Stock been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 4 with respect to the rights of the holders of the Series A Preferred Stock or with respect to such other securities by their terms.

4.6 Adjustment for Reclassification, Exchange and Substitution . If at any time or from time to time after the Original Issue Date the Common Stock issuable upon the conversion of the Series A Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise ( other than by a Common Stock Event or a stock dividend, reorganization, merger or consolidation provided for elsewhere in this Section 4), then in any such event each holder of Series A Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Series A Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof.

4.7 Reorganizations, Mergers and Consolidations . If at any time or from time to time after the Original Issue Date there is a reorganization of the Corporation (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 4) or a merger or consolidation of the Corporation with or into another corporation (except an event which is governed under subsection 2.3), then, as a part of such reorganization, merger or consolidation, provision shall be made so that the holders of the Series A Preferred Stock thereafter shall be entitled to receive, upon conversion of the Series A Preferred Stock, the number of shares of stock or other securities or property of the Corporation, or of such successor corporation resulting from such reorganization, merger or consolidation, to which a holder of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A Preferred Stock after the reorganization, merger or consolidation to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and number of shares issuable upon conversion of the Series A Preferred Stock) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. This subsection 4.7 shall similarly apply to successive reorganizations, mergers and consolidations. Notwithstanding anything to the contrary contained in this Section 4, if any reorganization, merger or consolidation is approved by the vote of stockholders required by Section 6 hereof, then such transaction and the rights of the holders of Series A Preferred Stock and Common Stock pursuant to such reorganization, merger or consolidation will be governed by the documents entered into in connection with such transaction and not by the provisions of this Section 4.7.

4.8 Sale of Shares Below Conversion Price .

(a) Adjustment Formula . If at any time or from time to time after the Original Issue Date the Corporation issues or sells, or is deemed by the provisions of this subsection 4.8 to have issued or sold, Additional Shares of Common Stock (as hereinafter

 

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defined), otherwise than in connection with a Common Stock Event as provided in subsection 4.4, a dividend or distribution as provided in subsection 4.5 or a recapitalization, reclassification or other change as provided in subsection 4.6, or a reorganization, merger or consolidation as provided in subsections 4.7 or 2.3, for an Effective Price (as hereinafter defined) that is less than the Conversion Price for of the Series A Preferred Stock in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for of the Series A Preferred Stock shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction:

(i) The numerator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior to such issue or sale of Additional Shares of Common Stock plus (B) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Corporation for the total number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for of the Series A Preferred Stock in effect immediately prior to such issue or sale; and

(ii) The denominator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding immediately prior to such issue or sale plus (B) the number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold).

(b) Certain Definitions . For the purpose of making any adjustment required under this subsection 4.8:

(i) The Additional Shares of Common Stock shall mean all shares of Common Stock issued by the Corporation, or deemed issued as provided in Section 4.8(c), whether or not subsequently reacquired or retired by the Corporation, other than the following securities which are individually and collectively defined as “ Exempted Securities ”:

(A) shares of Common Stock issued or issuable upon conversion of the outstanding shares of the Series A Preferred Stock;

(B) (i) shares of Common Stock or Preferred Stock (or options, warrants or rights therefor) granted or issued hereafter to employees, officers, directors, contractors, consultants or advisers to the Corporation or any Subsidiary pursuant to incentive agreements, stock purchase or stock option plans, and (ii) any stock purchase or stock option plans assumed by the Corporation in connection with the acquisition of another entity whereby such assumption occurs within one hundred eighty (180) days from the filing of this Restated Certificate, including stock bonuses or awards, warrants, contracts or other arrangements that are approved by the Board; provided that Additional Shares of Common Stock that are deemed to be Exempted Securities pursuant to clause (B)(ii) hereof shall qualify as Exempted Securities only to the extent that the number of such Additional Shares of Common Stock issued pursuant to clause (B)(ii) is less than or equal to 1,050,000 shares of Common Stock, and once the number of such shares exceeds 1,050,000, any additional shares shall not be deemed to be Exempted Securities;

 

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(C) shares of the Corporation’s Common Stock or Preferred Stock (and/or options or warrants therefore) issued to parties that are (i) strategic partners investing in connection with a commercial relationship with the Corporation or (ii) providing the Corporation with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar transactions, under arrangements, in each case, approved by the Board; provided that Additional Shares of Common Stock that are deemed to be Exempted Securities pursuant to this clause (C) shall qualify as Exempted Securities only to the extent that the number of such Additional Shares of Common Stock issued pursuant to this clause (C) is less than or equal to 2,250,000 shares of Common Stock (as such number of shares is adjusted for stock dividends, stock splits, combinations, recapitalizations or other similar events) (such number of shares, the “ Cap ”), and once the number of such shares exceeds the Cap any additional shares shall not be deemed to be Exempted Securities;

(D) shares of Common Stock or Preferred Stock issued pursuant to the acquisition of another corporation or entity by the Corporation by consolidation, merger, purchase of all or substantially all of the assets, or other reorganization in which the Corporation acquires, in a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity or fifty percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of such other entity; provided that such transaction or series of transactions has been approved by the Corporation’s Board or pursuant to the purchase of less than a fifty percent (50%) equity ownership in connection with a joint venture or other strategic arrangement or other commercial relationship, provided such an arrangement is approved by the Board; provided that Additional Shares of Common Stock that are deemed to be Exempted Securities pursuant to this clause (D) shall qualify as Exempted Securities only to the extent that the number of such Additional Shares of Common Stock issued pursuant to this clause (D) is less than or equal to the Cap, and once the number of such shares exceeds the Cap any additional shares shall not be deemed to be Exempted Securities;

(E) shares of Common Stock or Preferred Stock issuable upon exercise of any options, warrants or rights to purchase any securities of the Company outstanding as of the date of this Restated Certificate and any securities issuable upon the conversion thereof;

(F) shares of Common Stock issued pursuant to a transaction described in Section 4.4 hereof;

(G) shares of Common Stock issued or issuable in a public offering prior to or in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock; and

(H) shares of Common Stock or Preferred Stock (or options, or warrants or rights to acquire same), issued or issuable hereafter that are (i) approved by the Board, and (ii) approved by the vote of the holders of a majority of the Series A Preferred Stock, voting together as a single class, as being excluded from the definition of “Additional Shares of Common Stock” under this subsection 4.8(b).

(ii) The Aggregate Consideration Received by the Corporation for any issue or sale (or deemed issue or sale) of securities shall (A) to the extent it

 

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consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation; (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options.

(iii) The Common Stock Equivalents Outstanding shall mean the number of shares of Common Stock that is equal to the sum of (A) all shares of Common Stock of the Corporation that are outstanding at the time in question, plus (B) all shares of Common Stock of the Corporation issuable upon conversion of all shares of Preferred Stock or other Convertible Securities that are outstanding at the time in question, plus (C) all shares of Common Stock of the Corporation that are issuable upon the exercise of Rights or Options that are outstanding at the time in question assuming the full conversion or exchange into Common Stock of all such Rights or Options that are Rights or Options to purchase or acquire Convertible Securities into or for Common Stock.

(iv) The Convertible Securities shall mean stock or other securities convertible into or exchangeable for shares of Common Stock.

(v) The Effective Price of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this subsection 4.8, into the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this subsection 4.8, for the issue of such Additional Shares of Common Stock; and

(vi) The Rights or Options shall mean warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities.

(c) Deemed Issuances . For the purpose of making any adjustment to the Conversion Price for the Series A Preferred Stock required under this subsection 4.8, if the Corporation issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Conversion Price then in effect for the Series A Preferred Stock, then the Corporation shall be deemed to have issued (each a “ Deemed Issuance ”), at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Shares of Common Stock that is equal to the maximum number of shares of Common Stock issuable upon exercise or conversion of such Rights, Options or Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, received by the Corporation for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of

 

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consideration, if any, payable to the Corporation upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that :

(i) if the minimum amounts of such consideration cannot be ascertained, then the Deemed Issuance will occur when it can be ascertained;

(ii) if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Corporation shall be deemed to have received the minimum amounts of consideration without reference to such clauses;

(iii) if the minimum amount of consideration payable to the Corporation upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and

(iv) if the minimum amount of consideration payable to the Corporation upon the exercise of such Rights or Options or the conversion or exchange of Convertible Securities is subsequently increased, then the Effective Price shall again be recalculated using the increased minimum amount of consideration payable to the Corporation upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities.

No further adjustment of the Conversion Price, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the Conversion Price as adjusted upon the issuance of such Rights or Options or Convertible Securities shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only shares of Common Stock so issued were the shares of Common Stock, if any, that were actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities, and such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration, if any, actually received by the Corporation for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Preferred Stock.

4.9 Certificate of Adjustment . In each case of an adjustment or readjustment of the Conversion Price for the Series A Preferred Stock, the Corporation, at its expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with

 

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the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series A Preferred Stock at the holder’s address as shown in the Corporation’s books.

4.10 Fractional Shares . No fractional shares of Common Stock shall be issued upon any conversion of Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay the holder cash equal to the product of such fraction multiplied by the Common Stock’s fair market value as determined in good faith by the Board as of the date of conversion.

4.11 Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

4.12 Notices . Any notice required by the provisions of this Restated Certificate to be given to the holders of shares of the Series A Preferred Stock shall be deemed given upon the earlier of actual receipt or deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, or delivery by a recognized express courier, fees prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Corporation.

4.13 No Impairment . The Corporation shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the rights, preferences and privileges of the holders of the Series A Preferred Stock against impairment.

5. Voting Rights .

5.1 Series A Preferred Stock . Each holder of shares of Series A Preferred Stock shall be entitled to the number of votes equal to the number of whole shares of Common Stock into which such shares of Series A Preferred Stock could be converted pursuant to the provisions of Section 4 above at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of stockholders is solicited.

5.2 General . Subject to the other provisions of this Restated Certificate, each holder of Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation (as in effect at the time in question) and applicable law, and shall be entitled to vote, together with the holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote, except

 

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as may be otherwise provided by applicable law. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes.

5.3 Board Size . The Corporation shall not alter the authorized number of directors in this Restated Certificate, the Bylaws of the Corporation or otherwise, without first obtaining the written consent, or affirmative vote at a meeting, of the holders of at least a majority of the then outstanding shares of the Common Stock and Series A Preferred Stock (voting together on an as converted basis).

5.4 Board of Directors Election and Removal .

(a) Election of Directors . So long as at least ten million five hundred thousand (10,500,000) shares of Series A Preferred Stock are outstanding (such number of shares being subject to proportional adjustments to reflect combinations or subdivisions of the Series A Preferred Stock or dividends declared in shares of such stock), (i) the holders of the Series A Preferred Stock, voting as a separate series, shall be entitled to elect two (2) directors of the Corporation (the “ Series A Directors ”); (ii) the holders of the Common Stock, voting as a separate class, shall be entitled to elect four (4) directors of the Corporation; and (iii) the holders of the Series A Preferred Stock and the Common Stock, voting together as a single class on an as-converted to Common Stock basis shall be entitled to elect one (1) director of the Corporation.

(b) Quorum; Required Vote .

(i) Quorum . At any meeting held for the purpose of electing directors, the presence in person or by proxy (A) of the holders of a majority of the shares of the Series A Preferred Stock or Common Stock then outstanding, respectively, shall constitute a quorum for the election of directors to be elected solely by the holders of the Series A Preferred Stock or Common Stock, respectively, and (B) of holders of a majority of the voting power of all the then-outstanding shares of Series A Preferred Stock and Common Stock shall constitute a quorum for the election of the directors to be elected jointly by the holders of the Series A Preferred Stock and the Common Stock.

(ii) Required Vote . With respect to the election of any director or directors by the holders of the outstanding shares of a specified class of stock given the right to elect such director or directors pursuant to subsection 5.4(a) above (the “ Specified Stock ”), that candidate or those candidates (as applicable) shall be elected who either: (A) in the case of any such vote conducted at a meeting of the holders of such Specified Stock, receive the highest number of affirmative votes (on an as-converted to Common Stock basis) of the outstanding shares of such Specified Stock, up to the number of directors to be elected by such Specified Stock; or (B) in the case of any such vote taken by written consent without a meeting, are elected by the unanimous written consent of the holders of shares of such Specified Stock, except that, if such vote is to fill a vacancy on the Board other than a vacancy created by removal of a director, such vacancy may be filled by election by the written consent of the holders of a majority (on an as-converted to Common Stock basis) of the outstanding shares of such Specified Stock entitled to vote.

(c) Vacancy . If there shall be any vacancy in the office of a director elected or to be elected by the holders of any Specified Stock, then a director to hold office for

 

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the unexpired term of such directorship may be elected by either: (i) the remaining director or directors (if any) in office that were so elected by the holders of such Specified Stock, by the affirmative vote of a majority of such directors (or by the sole remaining director elected by the holders of such Specified Stock if there be but one), unless the vacancy is due to the removal of a director, in which case the vacancy can only be filled by the stockholders or (ii) the required vote of holders of the shares of such Specified Stock specified in subsection 5.4(b)(ii) above that are entitled to elect such director.

(d) Removal . Any director who shall have been elected to the Board by the holders of any Specified Stock, or by any director or directors elected by holders of any Specified Stock as provided in subsection 5.4(c), may be removed during his or her term of office, without cause, by, and only by, the affirmative vote, on an as-converted basis, of Specified Stock representing the percentage vote required by Section 5.4(b)(ii) to elect such director, given either at a meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders without a meeting, and any vacancy created by such removal may be filled only in the manner provided in subsection 5.4(c).

(e) Procedures . Any meeting of the holders of any Specified Stock, and any action taken by the holders of any Specified Stock by written consent without a meeting, in order to elect or remove a director under this subsection 5.4, shall be held in accordance with the procedures and provisions of the Corporation’s Bylaws, the General Corporation Law and applicable law regarding stockholder meetings and stockholder actions by written consent, as such are then in effect (including but not limited to procedures and provisions for determining the record date for shares entitled to vote).

(f) Termination . Notwithstanding anything in this subsection 5.4 to the contrary, the provisions of this subsection 5.4 shall cease to be of any further force or effect upon the earliest to occur of: (i) the first date on which the total number of outstanding shares of Series A Preferred Stock is less than 10,500,000 shares (such number of shares being subject to proportional adjustment to reflect combination or subdivisions of the Series A Preferred Stock or dividends declared in shares of such stock); (ii) upon a Deemed Liquidation Event; or (iii) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (for the avoidance of doubt, other than a registration statement relating either to the sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or an SEC Rule 145 transaction), covering the offer and sale of Common Stock for the account of the Corporation in which the aggregate public offering price (before deduction of underwriters’ discounts and commissions) equals or exceeds Fifty Million Dollars ($50,000,000); provided that, for the avoidance of doubt, such public offering was approved in accordance with Section 6(a) hereof.

 

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6. Protective Provisions .

(a) So long as 10,500,000 shares of Series A Preferred Stock remain outstanding (such number of shares being subject to proportional adjustments to reflect combinations or subdivisions of the Series A Preferred Stock or dividends declared in shares of such stock), the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, without the approval, by vote or written consent, of the holders of a majority of the Series A Preferred Stock then outstanding, voting as a single class on an as-converted to Common Stock basis:

(i) authorize any capital stock having rights or preferences senior to or being on a parity with the Series A Preferred Stock, or issue any additional shares of Series A Preferred Stock;

(ii)  (A) commence a public offering of the Corporation’s capital stock pursuant to the filing of a registration statement filed under the Securities Act of 1933, as amended or (B) price and subsequently consummate any such public offering;

(iii) increase the number of shares of Common Stock or Preferred Stock (or options, warrants or rights therefor) granted or issued hereafter to employees, officers, directors, contractors, consultants or advisers to the Corporation or any Subsidiary pursuant to incentive agreements, stock purchase or stock option plans to any number of shares that exceeds 18,420,000 shares of Common Stock (as adjusted for stock dividends, stock splits, combinations, recapitalizations or other similar events affecting the Common Stock) unless approved by a majority of the Board of Directors, including the RWCH Designee (as such term is defined in that certain Voting Agreement by and among the Corporation and certain investors and stockholders of the Corporation dated February 25, 2011, as amended); or

(iv) incur indebtedness in excess of $15,000,000, unless approved by a majority of the Board of Directors, including the RWCH Designee (as such term is defined in that certain Voting Agreement by and among the Corporation and certain investors and stockholders of the Corporation dated February 25, 2011, as amended).

(b) So long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, without the approval, by vote or written consent, of the holders of at least two-thirds (2/3rds) of the Series A Preferred Stock then outstanding, voting as a single class on an as-converted to Common Stock basis:

(i) alter or change the rights, preferences, privileges or restrictions of the Series A Preferred Stock so as to adversely affects the Series A Preferred Stock;

(ii) amend the Restated Certificate or the Bylaws of the Corporation in a way that adversely affects the rights, preferences, and privileges of the Series A Preferred Stock in a manner different than other classes or series of the Corporation’s capital stock;

(iii) declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution, purchase, redemption or acquisition (other than Permitted Repurchases), directly or indirectly, on account of any shares of Preferred Stock or Common Stock now or hereafter outstanding; or

(iv) consummate a Deemed Liquidation Event unless the proceeds payable to the holders of the Series A Preferred Stock are equal to an amount per share equal to or greater than the Original Issue Price plus any declared but unpaid dividends on the Series A Preferred Stock.

 

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7. Miscellaneous

7.1 No Reissuance of Preferred Stock . No share or shares of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall thereupon be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue.

7.2 Consent to Certain Transactions . Each holder of shares of Preferred Stock shall, by virtue of its acceptance of a stock certificate evidencing Preferred Stock, be deemed to have consented, for purposes of Sections 502 and 503 of the California Corporations Code, to all Permitted Repurchases.

ARTICLE V: PREEMPTIVE RIGHTS.

No stockholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and any stockholder.

ARTICLE VI: STOCK REPURCHASES.

In connection with repurchases by the Corporation of its Common Stock from Service Providers pursuant to agreements under which the Corporation has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment, Sections 502 and 503 of the Corporations Code of the State of California shall not apply in all or in part with respect to such repurchases.

ARTICLE VII: BYLAW PROVISIONS.

A. AMENDMENT OF BYLAWS. Subject to any additional vote required by the Restated Certificate or Bylaws of the Corporation, in furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

B. NUMBER OF DIRECTORS. Subject to any additional vote required by the Restated Certificate, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.

C. BALLOT. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

D. MEETINGS AND BOOKS. 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 or in the Bylaws of the Corporation.

ARTICLE VIII: DIRECTOR LIABILITY.

A. LIMITATION. 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 VIII to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability

 

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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 VIII 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.

B. INDEMNIFICATION . 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.

C. MODIFICATION . Any amendment, repeal or modification of the foregoing provisions of this Article VIII 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.

ARTICLE IX: CREDITOR AND STOCKHOLDER COMPROMISES

Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of §291 of Title 8 of the General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under §279 of Title 8 of the General Corporation Law order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

ARTICLE X:CHOICE OF FORUM

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation; (b) 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; (c) any action against the Corporation arising pursuant to any provision of the General Corporation Law, this Restated Certificate of Incorporation or the Bylaws; (d) any action to interpret, apply, enforce or determine the validity of this Restated Certificate of Incorporation or the Bylaws; or (e) any action asserting a claim governed by the internal affairs doctrine. Any

 

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person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article X.

*     *     *     *     *

 

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IN WITNESS WHEREOF, the undersigned has caused this Restated Certificate of Incorporation to be executed by its duly authorized officer on this      day of May, 2014.

 

Woodman Labs, Inc.
By:  

 

  Name: Nicholas D. Woodman
  Title: President & Chief Executive Officer

EXHIBIT 5.01

June 11, 2014

GoPro, Inc.

3000 Clearview Way

San Mateo, CA 94402

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form S-1 (File Number 333-196083) (the “ Registration Statement ”) initially filed by GoPro, Inc., a Delaware corporation (the “ Company ”), with the Securities and Exchange Commission (the “ Commission ”) on May 19, 2014, as subsequently amended on June 11, 2014, in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 20,470,000 shares (the “ Shares ”) of the Company’s Class A Common Stock (the “ Class A Common Stock ”), which number of shares includes up to 11,570,000 shares of Class A Common Stock to be sold by certain selling stockholders (the “ Selling Stockholders ”) of which (i) 9,093,452 of such Shares are presently issued and outstanding (the “ Selling Stockholder Shares ”) and (ii) up to 2,476,548 of such Shares are issuable upon exercise of options to be exercised by certain of the Selling Stockholders (the “ Selling Stockholder Option Shares ”). At your request, we are providing this letter to express our opinion on certain matters regarding the Company and the Shares as stated in the numbered paragraphs below .

In rendering this opinion, we have examined such matters of fact as we have deemed necessary in order to render the opinion set forth herein, which included examination of the following:

 

  (1) The Company’s initial Certificate of Incorporation filed with the Delaware Secretary of State on August 24, 2011 and certified by the Delaware Secretary of State on August 25, 2011, the initial Articles of Incorporation of the Company’s predecessor entity, Woodman Labs, Inc., filed with the California Secretary of State on February 17, 2004 and certified by the California Secretary of State on February 17, 2004, and the Certificate of Merger by which the Company reincorporated into Delaware, filed with the Delaware Secretary of State on December 8, 2011 and certified by the Delaware Secretary of State on December 9, 2011.

 

  (2)

The Company’s Restated Certificate of Incorporation, filed with the Delaware Secretary of State on December 20, 2012 and certified by the Delaware Secretary of State on June December 20, 2012, as amended by that certain Certificate of


June 11, 2014

Page 2

 

  Amendment filed with the Delaware Secretary of State on February 5, 2014 (the “ Restated Certificate ”), the Restated Certificate of Incorporation the Company intends to file prior to the consummation of the sale of the Shares (the “ Pre-Effective Restated Certificate ”) the Restated Certificate of Incorporation that the Company intends to file with the Delaware Secretary of State and that will be effective upon the consummation of the sale of the Shares pursuant to the Registration Statement (the “ Post-Effective Restated Certificate ”), a copy of which is attached as an exhibit to the Registration Statement.

 

  (3) The Company’s Amended and Restated Bylaws, certified by the Company’s Secretary on August 24, 2011 (the “ Bylaws ”) and the Restated Bylaws that the Company has adopted in connection with, and that will become effective upon, the consummation of the sale of the Shares pursuant to the Registration Statement (the “ Post-Effective Bylaws ”), copies of which are attached as exhibits to the Registration Statement.

 

  (4) The Registration Statement, together with the Exhibits filed as a part thereof or incorporated therein by reference.

 

  (5) The Prospectus prepared in connection with the Registration Statement (the “ Prospectus ”).

 

  (6) Minutes of meetings and actions by written consent of the Company’s Board of Directors (the “ Board ”) and the Company’s stockholders (the “ Stockholders ”) at which, or pursuant to which (i) the Restated Certificate, the Post-Effective Restated Certificate, the Bylaws and the Post-Effective Bylaws were approved, (ii) the issuance of the Selling Stockholder Shares (and the grant of the stock options under which the Selling Stockholder Option Shares are issuable) were approved, and (iii) the sale and issuance of the Shares and related matters were adopted and approved.

 

  (7) The stock records for the Company that the Company has provided to us (consisting of a list of stockholders and a list of option holders respecting the Company’s capital and of any rights to purchase capital stock that was prepared by the Company and dated June 6, 2014 verifying and confirming the number of such issued and outstanding securities as of such date).

 

  (8) A Certificate of Good Standing issued by the Delaware Secretary of State dated May 9, 2014, stating that the Company is duly incorporated and was in good standing under the laws of the State of Delaware as of such date (the “ Certificate of Good Standing ”).

 

  (9) An Opinion Certificate addressed to us and dated of even date herewith executed by the Company containing certain factual representations (the “ Opinion Certificate ”).


June 11, 2014

Page 3

 

  (10) The agreements under which the Selling Stockholders acquired or will acquire the Shares of Class A Common Stock to be sold by them as described in the Registration Statement.

 

  (11) The custody agreements, payment instructions, powers of attorney and contingent exercise notices signed by the Selling Stockholders in connection with the sale of Stock described in the Registration Statement.

In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal capacity of all persons or entities executing the same, the lack of any undisclosed termination, modification, waiver or amendment to, and the absence of any extrinsic documents that would affect our interpretation of, any document reviewed by us and the due authorization, execution and delivery of all such documents by the selling stockholders where due authorization, execution and delivery are prerequisites to the effectiveness thereof. We have also assumed that the certificates representing the Stock have been, or will be when issued, properly signed by authorized officers of the Company or their agents. In rendering this opinion we have also assumed the current accuracy and completeness of the information obtained from the Reviewed Documents and representations and warranties made by representatives of the Company to us, including but not limited to those set forth in the Opinion Certificate. We have made no independent investigation or other attempt to verify the accuracy of any of such information or to determine the existence or non-existence of any other factual matters.

We render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing laws of the State of California and of the Delaware General Corporation Law and reported judicial decisions relating thereto. Without limitation, we render no opinion with respect to the federal laws of the United States of America or the “blue sky” securities laws of any state.

With respect to our opinion expressed in paragraph (1) below as to the valid existence and good standing of the Company under the laws of the State of Delaware, we have relied solely upon the Certificate of Good Standing and representations made to us by the Company.

This opinion is based upon the customary practice of lawyers who regularly give, and lawyers who regularly advise opinion recipients regarding, opinions of the kind set forth in this opinion letter, including customary practice as described in bar association reports.

Based upon the foregoing, we are of the following opinion:

(1) The Company is a corporation validly existing, in good standing, under the laws of the State of Delaware;

(2) the up to 8,900,000 Shares of Class A Common Stock to be issued and sold by the Company, when issued, sold and delivered in the manner and for the consideration stated in the Registration Statement and the Prospectus and in accordance with the resolutions adopted by the Board and to be adopted by the Pricing Committee of the Board, will be validly issued, fully paid and nonassessable;


June 11, 2014

Page 4

 

(3) the up to 9,093,452 Selling Stockholder Shares to be sold by the Selling Stockholders pursuant to the Registration Statement are validly issued, fully paid and nonassessable; and

(4) the up to 2,476,548 Selling Stockholder Option Shares to be sold by the Selling Stockholders, when issued in accordance with the terms of the stock option agreements under which such Selling Stockholder Option Shares are issuable and the resolutions of the Board granting such stock options, and sold and delivered in the manner and for the consideration stated in the Registration Statement and the Prospectus, will be, validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement, the Prospectus constituting a part thereof and any amendments thereto.

This opinion is intended solely for use in connection with issuance and sale of the Shares subject to the Registration Statement and is not to be relied upon for any other purpose. This opinion is rendered as of the date first written above and is based solely on our understanding of facts in existence as of such date after the aforementioned examination. In rendering the opinions above, we are opining only as to the specific legal issues expressly set forth therein, and no opinion shall be inferred as to any other matter or matters. We assume no obligation to advise you of any fact, circumstance, event or change in the law or the facts that may hereafter be brought to our attention whether or not such occurrence would affect or modify any of the opinions expressed herein.

 

Very truly yours,
FENWICK & WEST LLP
/s/ Fenwick & West LLP

Exhibit 10.03

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

1. PURPOSE . The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, and any Parents and Subsidiaries that exist now or in the future, by offering them an opportunity to participate in the Company’s future performance through the grant of Awards. Capitalized terms not defined elsewhere in the text are defined in Section 28.

2. SHARES SUBJECT TO THE PLAN .

2.1. Number of Shares Available . Subject to Sections 2.6 and 21 and any other applicable provisions hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan as of the date of adoption of the Plan by the Board, is 13,470,229 plus (i) any reserved shares not issued or subject to outstanding grants under the Company’s 2010 Equity Incentive Plan (the “Prior Plan”) on the Effective Date (as defined below), (ii) shares that are subject to stock options or other awards granted under the Prior Plan that cease to be subject to such stock options or other awards by forfeiture or otherwise after the Effective Date, (iii) shares issued under the Prior Plan before or after the Effective Date pursuant to the exercise of stock options that are, after the Effective Date, forfeited, (iv) shares issued under the Prior Plan that are repurchased by the Company at the original issue price and (v) shares that are subject to stock options or other awards under the Prior Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. Provided, however, that shares reserved and available for grant and issuance pursuant to subpart (i) – (v) of this Section 2.1 shall be issuable as Common Stock of the Company regardless of their series or class under the prior plan.

2.2. Lapsed, Returned Awards . Shares subject to Awards, and Shares issued under the Plan under any Award, will again be available for grant and issuance in connection with subsequent Awards under this Plan to the extent such Shares: (a) are subject to issuance upon exercise of an Option or SAR granted under this Plan but which cease to be subject to the Option or SAR for any reason other than exercise of the Option or SAR; (b) are subject to Awards granted under this Plan that are forfeited or are repurchased by the Company at the original issue price; (c) are subject to Awards granted under this Plan that otherwise terminate without such Shares being issued; or (d) are surrendered pursuant to an Exchange Program. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Shares used to pay the exercise price of an Award or withheld to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. For the avoidance of doubt, Shares that otherwise become available for grant and issuance because of the provisions of this Section 2.2 shall not include Shares subject to Awards that initially became available because of the substitution clause in Section 21.2 hereof.

2.3. Minimum Share Reserve . At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Awards granted under this Plan.

2.4. Automatic Share Reserve Increase . The number of Shares available for grant and issuance under the Plan shall be automatically increased January 1 of each of the calendar years 2015 through 2024, by the lesser of (i) three percent (3%) of the number of Shares, Share equivalents, Class B common stock shares, and Class B common stock share equivalents outstanding on each December 31 immediately prior to the date of increase or (ii) such number of Shares determined by the Board.


2.5. Limitations . No more than 134,702,290 Shares shall be issued pursuant to the exercise of ISOs.

2.6. Adjustment of Shares . If the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then (a) the number of Shares reserved for issuance and future grant under the Plan set forth in Section 2.1, including shares reserved under sub-clauses (i)-(v) of Section 2.1, (b) the Exercise Prices of and number of Shares subject to outstanding Options and SARs, (c) the number of Shares subject to other outstanding Awards, (d) the maximum number of shares that may be issued as ISOs set forth in Section 2.5, and (e) the maximum number of Shares that may be issued to an individual or to a new Employee in any one calendar year set forth in Section 3 or to a Non-Employee Director in Section 12 shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with applicable securities laws; provided that fractions of a Share will not be issued.

3. ELIGIBILITY . ISOs may be granted only to eligible Employees. All other Awards may be granted to Employees, Consultants, Directors and Non-Employee Directors; provided such Consultants, Directors and Non-Employee Directors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No Participant will be eligible to be granted more than Five Hundred Thousand (500,000) Shares in any calendar year under this Plan pursuant to the grant of Awards except that new Employees (including new Employees who are also officers and directors of the Company or any Parent, Subsidiary or Affiliate) are eligible to be granted up to a maximum of One Million (1,000,000) Shares in the calendar year in which they commence their employment.

4. ADMINISTRATION .

4.1. Committee Composition; Authority . This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan, except, however, the Board shall establish the terms for the grant of an Award to Non-Employee Directors. The Committee will have the authority to:

(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

(b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award;

(c) select persons to receive Awards;

(d) determine the form and terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may vest and be exercised (which may be based on performance criteria) or settled, any vesting acceleration or waiver of forfeiture restrictions, the method to satisfy tax withholding obligations or any other tax liability legally due, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Committee will determine;

(e) determine the number of Shares or other consideration subject to Awards;

 

2


(f) determine the Fair Market Value and interpret the applicable provisions of this Plan and the definition of Fair Market Value in connection with circumstances that impact the Fair Market Value, if necessary;

(g) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;

(h) grant waivers of Plan or Award conditions;

(i) determine the vesting, exercisability and payment of Awards;

(j) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;

(k) determine whether an Award has been earned;

(l) determine the terms and conditions of any, and to institute any Exchange Program;

(m) reduce or waive any criteria with respect to Performance Factors;

(n) adjust Performance Factors to take into account changes in law and accounting or tax rules as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships provided that such adjustments are consistent with the regulations promulgated under Section 162(m) of the Code with respect to persons whose compensation is subject to Section 162(m) of the Code;

(o) adopt terms and conditions, rules and/or procedures (including the adoption of any subplan under this Plan) relating to the operation and administration of the Plan to accommodate requirements of local law and procedures outside of the United States;

(p) make all other determinations necessary or advisable for the administration of this Plan; and

(q) delegate any of the foregoing to a subcommittee consisting of one or more executive officers pursuant to a specific delegation as permitted by applicable law, including Section 157(c) of the Delaware General Corporation Law.

4.2. Committee Interpretation and Discretion . Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. Any dispute regarding the interpretation of the Plan or any Award Agreement shall be submitted by the Participant or Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and the Participant. The Committee may delegate to one or more executive officers the authority to review and resolve disputes with respect to Awards held by Participants who are not Insiders, and such resolution shall be final and binding on the Company and the Participant.

4.3. Section 162(m) of the Code and Section 16 of the Exchange Act . When necessary or desirable for an Award to qualify as “performance-based compensation” under Section 162(m) of the

 

3


Code the Committee shall include at least two persons who are “outside directors” (as defined under Section 162(m) of the Code) and at least two (or a majority if more than two then serve on the Committee) such “outside directors” shall approve the grant of such Award and timely determine (as applicable) the Performance Period and any Performance Factors upon which vesting or settlement of any portion of such Award is to be subject. When required by Section 162(m) of the Code, prior to settlement of any such Award at least two (or a majority if more than two then serve on the Committee) such “outside directors” then serving on the Committee shall determine and certify in writing the extent to which such Performance Factors have been timely achieved and the extent to which the Shares subject to such Award have thereby been earned. Awards granted to Participants who are subject to Section 16 of the Exchange Act must be approved by two or more “non-employee directors” (as defined in the regulations promulgated under Section 16 of the Exchange Act). With respect to Participants whose compensation is subject to Section 162(m) of the Code, and provided that such adjustments are consistent with the regulations promulgated under Section 162(m) of the Code, the Committee may adjust the performance goals to account for changes in law and accounting and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships, including without limitation (i) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (ii) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management, or (iii) a change in accounting standards required by generally accepted accounting principles.

4.4. Documentation . The Award Agreement for a given Award, the Plan and any other documents may be delivered to, and accepted by, a Participant or any other person in any manner (including electronic distribution or posting) that meets applicable legal requirements.

4.5. Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws and practices in other countries in which the Company and its Subsidiaries and Affiliates 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 and Affiliates shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan which may include individuals who provide services to the Company, Subsidiary or Affiliate under an agreement with a foreign nation or agency; (iii) modify the terms and conditions of any Award granted to individuals outside the United States or foreign nationals to comply with applicable foreign laws, policies, customs and practices; (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 this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 2.1 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, or any other applicable law.

 

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5. OPTIONS . An Option is the right but not the obligation to purchase a Share, subject to certain conditions, if applicable. The Committee may grant Options to eligible Employees, Consultants and Directors and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (“ ISOs ”) or Nonqualified Stock Options (“ NSOs ”), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may vest and be exercised, and all other terms and conditions of the Option, subject to the following:

5.1. Option Grant . Each Option granted under this Plan will identify the Option as an ISO or an NSO. An Option may be, but need not be, awarded upon satisfaction of such Performance Factors during any Performance Period as are set out in advance in the Participant’s individual Award Agreement. If the Option is being earned upon the satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for each Option; and (y) select from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to Options that are subject to different performance goals and other criteria.

5.2. Date of Grant . The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, or a specified future date. The Award Agreement will be delivered to the Participant within a reasonable time after the granting of the Option.

5.3. Exercise Period . Options may be vested and exercisable within the times or upon the conditions as set forth in the Award Agreement governing such Option; provided , however , that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who, at the time the ISO is granted, directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company (“Ten Percent Stockholder”) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.

5.4. Exercise Price . The Exercise Price of an Option will be determined by the Committee when the Option is granted; provided that: (i) the Exercise Price of an Option will be not less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 11 and the Award Agreement and in accordance with any procedures established by the Company.

5.5. Method of Exercise . Any Option granted hereunder will be vested and exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Committee may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Committee and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.6 of the Plan. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

5.6. Termination of Service .

 

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(a) Not for Death, Disability or Cause . If the Participant’s Service terminates for any reason except for Cause or the Participant’s death or Disability, then the Participant may exercise such Participant’s Options only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates no later than three (3) months after the date Participant’s Service terminates (or such shorter or longer time period as may be determined by the Committee, with any exercise beyond three (3) months after the date Participant’s Service terminates deemed to be the exercise of an NSO), but in any event no later than the expiration date of the Options.

(b) Death . If the Participant’s Service terminates because of the Participant’s death (or the Participant dies within three (3) months after Participant’s Service terminates other than for Cause or because of the Participant’s Disability), then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates and must be exercised by the Participant’s legal representative, or authorized assignee, no later than twelve (12) months after the date Participant’s Service terminates (or such shorter or longer time period as may be determined by the Committee), but in any event no later than the expiration date of the Options.

(c) Disability . If the Participant’s Service terminates because of the Participant’s Disability, then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates and must be exercised by the Participant (or the Participant’s legal representative or authorized assignee) no later than six (6) months after the date Participant’s Service terminates (with any exercise beyond (a) three (3) months after the date Participant’s employment terminates when the termination of Service is for a Disability that is not a “permanent and total disability” as defined in Section 22(e)(3) of the Code, or (b) six (6) months after the date Participant’s employment terminates when the termination of Service is for a Disability that is a “permanent and total disability” as defined in Section 22(e)(3) of the Code, deemed to be exercise of an NSO), but in any event no later than the expiration date of the Options.

(d) Cause . If the Participant is terminated for Cause, then Participant’s Options shall expire on such Participant’s date of termination of Service, or at such later time and on such conditions as are determined by the Committee, but in any no event later than the expiration date of the Options. Unless otherwise provided in the Award Agreement, Cause shall have the meaning set forth in the Plan.

5.7. Limitations on Exercise . The Committee may specify a minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent any Participant from exercising the Option for the full number of Shares for which it is then exercisable.

5.8. Limitations on ISOs . With respect to Awards granted as ISOs, to the extent that the aggregate Fair Market Value of the Shares with respect to which such ISOs are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as NSOs. For purposes of this Section 5.8, ISOs will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

5.9. Modification, Extension or Renewal . The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any

 

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such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 18 of this Plan, by written notice to affected Participants, the Committee may reduce the Exercise Price of outstanding Options without the consent of such Participants; provided , however , that the Exercise Price may not be reduced below the Fair Market Value on the date the action is taken to reduce the Exercise Price.

5.10. No Disqualification . Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code.

6. RESTRICTED STOCK AWARDS . A Restricted Stock Award is an offer by the Company to sell to an eligible Employee, Consultant, or Director Shares that are subject to restrictions (“ Restricted Stock ”). The Committee will determine to whom an offer will be made, the number of Shares the Participant may purchase, the Purchase Price, the restrictions under which the Shares will be subject and all other terms and conditions of the Restricted Stock Award, subject to the Plan.

6.1. Restricted Stock Purchase Agreement . All purchases under a Restricted Stock Award will be evidenced by an Award Agreement. Except as may otherwise be provided in an Award Agreement, a Participant accepts a Restricted Stock Award by signing and delivering to the Company an Award Agreement with full payment of the Purchase Price, within thirty (30) days from the date the Award Agreement was delivered to the Participant. If the Participant does not accept such Award within thirty (30) days, then the offer of such Restricted Stock Award will terminate, unless the Committee determines otherwise.

6.2. Purchase Price . The Purchase Price for a Restricted Stock Award will be determined by the Committee and may be less than Fair Market Value on the date the Restricted Stock Award is granted. Payment of the Purchase Price must be made in accordance with Section 11 of the Plan, and the Award Agreement and in accordance with any procedures established by the Company.

6.3. Terms of Restricted Stock Awards . Restricted Stock Awards will be subject to such restrictions as the Committee may impose or are required by law. These restrictions may be based on completion of a specified number of years of service with the Company or upon completion of Performance Factors, if any, during any Performance Period as set out in advance in the Participant’s Award Agreement. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria.

6.4. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

7. STOCK BONUS AWARDS . A Stock Bonus Award is an award to an eligible Employee, Consultant, or Director of Shares for Services to be rendered or for past Services already rendered to the Company or any Parent or Subsidiary. All Stock Bonus Awards shall be made pursuant to an Award Agreement. No payment from the Participant will be required for Shares awarded pursuant to a Stock Bonus Award.

 

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7.1. Terms of Stock Bonus Awards . The Committee will determine the number of Shares to be awarded to the Participant under a Stock Bonus Award and any restrictions thereon. These restrictions may be based upon completion of a specified number of years of service with the Company or upon satisfaction of performance goals based on Performance Factors during any Performance Period as set out in advance in the Participant’s Stock Bonus Agreement. Prior to the grant of any Stock Bonus Award the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Stock Bonus Award; (b) select from among the Performance Factors to be used to measure performance goals; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Stock Bonus Awards that are subject to different Performance Periods and different performance goals and other criteria.

7.2. Form of Payment to Participant . Payment may be made in the form of cash, whole Shares, or a combination thereof, based on the Fair Market Value of the Shares earned under a Stock Bonus Award on the date of payment, as determined in the sole discretion of the Committee.

7.3. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

8. STOCK APPRECIATION RIGHTS . A Stock Appreciation Right (“ SAR ”) is an award to an eligible Employee, Consultant, or Director that may be settled in cash, or Shares (which may consist of Restricted Stock), having a value equal to (a) the difference between the Fair Market Value on the date of exercise over the Exercise Price multiplied by (b) the number of Shares with respect to which the SAR is being settled (subject to any maximum number of Shares that may be issuable as specified in an Award Agreement). All SARs shall be made pursuant to an Award Agreement.

8.1. Terms of SARs . The Committee will determine the terms of each SAR including, without limitation: (a) the number of Shares subject to the SAR; (b) the Exercise Price and the time or times during which the SAR may be settled; (c) the consideration to be distributed on settlement of the SAR; and (d) the effect of the Participant’s termination of Service on each SAR. The Exercise Price of the SAR will be determined by the Committee when the SAR is granted, and may not be less than Fair Market Value. A SAR may be awarded upon satisfaction of Performance Factors, if any, during any Performance Period as are set out in advance in the Participant’s individual Award Agreement. If the SAR is being earned upon the satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for each SAR; and (y) select from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to SARs that are subject to different Performance Factors and other criteria.

8.2. Exercise Period and Expiration Date . A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such SAR. The SAR Agreement shall set forth the expiration date; provided that no SAR will be exercisable after the expiration of ten (10) years from the date the SAR is granted. The Committee may also provide for SARs to become exercisable at one time or from time to time, periodically or otherwise (including, without limitation, upon the attainment during a Performance Period of performance goals based on Performance Factors), in such number of Shares or percentage of the Shares subject to the

 

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SAR as the Committee determines. Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee). Notwithstanding the foregoing, the rules of Section 5.6 also will apply to SARs.

8.3. Form of Settlement . Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying (i) the difference between the Fair Market Value of a Share on the date of exercise over the Exercise Price; times (ii) the number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment from the Company for the SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. The portion of a SAR being settled may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee determines, provided that the terms of the SAR and any deferral satisfy the requirements of Section 409A of the Code.

8.4. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

9. RESTRICTED STOCK UNITS . A Restricted Stock Unit (“ RSU ”) is an award to an eligible Employee, Consultant, or Director covering a number of Shares that may be settled in cash, or by issuance of those Shares (which may consist of Restricted Stock). All RSUs shall be made pursuant to an Award Agreement.

9.1. Terms of RSUs . The Committee will determine the terms of an RSU including, without limitation: (a) the number of Shares subject to the RSU; (b) the time or times during which the RSU may be settled; (c) the consideration to be distributed on settlement; and (d) the effect of the Participant’s termination of Service on each RSU. An RSU may be awarded upon satisfaction of such performance goals based on Performance Factors during any Performance Period as are set out in advance in the Participant’s Award Agreement. If the RSU is being earned upon satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for the RSU; (y) select from among the Performance Factors to be used to measure the performance, if any; and (z) determine the number of Shares deemed subject to the RSU. Performance Periods may overlap and participants may participate simultaneously with respect to RSUs that are subject to different Performance Periods and different performance goals and other criteria.

9.2. Form and Timing of Settlement . Payment of earned RSUs shall be made as soon as practicable after the date(s) determined by the Committee and set forth in the Award Agreement. The Committee, in its sole discretion, may settle earned RSUs in cash, Shares, or a combination of both. The Committee may also permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code.

9.3. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

10. PERFORMANCE AWARDS . A Performance Award is an award to an eligible Employee, Consultant, or Director of a cash bonus or an award of Performance Shares denominated in Shares that may be settled in cash, or by issuance of those Shares (which may consist of Restricted Stock). Grants of Performance Awards shall be made pursuant to an Award Agreement.

 

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10.1. Terms of Performance Shares . The Committee will determine, and each Award Agreement shall set forth, the terms of each Performance Award including, without limitation: (a) the amount of any cash bonus, (b) the number of Shares deemed subject to an award of Performance Shares; (c) the Performance Factors and Performance Period that shall determine the time and extent to which each award of Performance Shares shall be settled; (d) the consideration to be distributed on settlement, and (e) the effect of the Participant’s termination of Service on each Performance Award. In establishing Performance Factors and the Performance Period the Committee will: (x) determine the nature, length and starting date of any Performance Period; (y) select from among the Performance Factors to be used; and (z) determine the number of Shares deemed subject to the award of Performance Shares. Prior to settlement the Committee shall determine the extent to which Performance Awards have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Performance Awards that are subject to different Performance Periods and different performance goals and other criteria. No Participant will be eligible to receive more than $1,000,000 in Performance Awards in any calendar year under this Plan.

10.2. Value, Earning and Timing of Performance Shares . Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant. After the applicable Performance Period has ended, the holder of Performance Shares will be entitled to receive a payout of the number of Performance Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Factors or other vesting provisions have been achieved. The Committee, in its sole discretion, may pay earned Performance Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Shares at the close of the applicable Performance Period) or in a combination thereof.

10.3. Termination of Service . Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee).

11. PAYMENT FOR SHARE PURCHASES . Payment from a Participant for Shares purchased pursuant to this Plan may be made in cash or by check or, where approved for the Participant by the Committee and where permitted by law (and to the extent not otherwise set forth in the applicable Award Agreement):

(a) by cancellation of indebtedness of the Company to the Participant;

(b) by surrender of shares of the Company held by the Participant that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Award will be exercised or settled;

(c) by waiver of compensation due or accrued to the Participant for services rendered or to be rendered to the Company or a Parent or Subsidiary of the Company;

(d) by consideration received by the Company pursuant to a broker-assisted or other form of cashless exercise program implemented by the Company in connection with the Plan;

(e) by any combination of the foregoing; or

(f) by any other method of payment as is permitted by applicable law.

 

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12. GRANTS TO NON-EMPLOYEE DIRECTORS . Non-Employee Directors are eligible to receive any type of Award offered under this Plan except ISOs. Awards pursuant to this Section 12 may be automatically made pursuant to policy adopted by the Board, or made from time to time as determined in the discretion of the Board. The aggregate number of Shares subject to Awards granted to a Non-Employee Director pursuant to this Section 12 in any calendar year shall not exceed 1,000,000.

12.1. Eligibility . Awards pursuant to this Section 12 shall be granted only to Non-Employee Directors. A Non-Employee Director who is elected or re-elected as a member of the Board will be eligible to receive an Award under this Section 12.

12.2. Vesting, Exercisability and Settlement . Except as set forth in Section 21, Awards shall vest, become exercisable and be settled as determined by the Board. With respect to Options and SARs, the exercise price granted to Non-Employee Directors shall not be less than the Fair Market Value of the Shares at the time that such Option or SAR is granted.

12.3. Election to receive Awards in Lieu of Cash . A Non-Employee Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash or Awards or a combination thereof, as determined by the Committee. Such Awards shall be issued under the Plan. An election under this Section 12.3 shall be filed with the Company on the form prescribed by the Company.

13. WITHHOLDING TAXES .

13.1. Withholding Generally . Whenever Shares are to be issued in satisfaction of Awards granted under this Plan or the applicable tax event occurs, the Company may require the Participant to remit to the Company, or to the Parent, Subsidiary or Affiliate employing the Participant, an amount sufficient to satisfy applicable U.S. federal, state, local and international withholding tax requirements or any other tax or social insurance liability legally due from the Participant prior to the delivery of Shares pursuant to exercise or settlement of any Award. Whenever payments in satisfaction of Awards granted under this Plan are to be made in cash, such payment will be net of an amount sufficient to satisfy applicable U.S. federal, state, local and international withholding tax and social insurance requirements or any other tax liability legally due from the Participant.

13.2. Stock Withholding . The Committee, or its delegate(s), as permitted by applicable law, in its sole discretion and pursuant to such procedures as it may specify from time to time and to limitations of local law, may require or permit a Participant to satisfy such tax withholding obligation or any other tax liability legally due from the Participant, in whole or in part by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld, (iii) delivering to the Company already-owned Shares having a Fair Market Value equal to the minimum amount required to be withheld or (iv) withholding from the proceeds of the sale of otherwise deliverable Shares acquired pursuant to an Award either through a voluntary sale or through a mandatory sale arranged by the Company. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.

14. TRANSFERABILITY .

14.1. Transfer Generally . Unless determined otherwise by the Committee or pursuant to Section 14.2, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution. If the Committee makes an

 

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Award transferable, including, without limitation, by instrument to an inter vivos or testamentary trust in which the Awards are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift or by domestic relations order to a Permitted Transferee, such Award will contain such additional terms and conditions as the Committee deems appropriate. All Awards shall be exercisable: (i) during the Participant’s lifetime only by (A) the Participant, or (B) the Participant’s guardian or legal representative; (ii) after the Participant’s death, by the legal representative of the Participant’s heirs or legatees; and (iii) in the case of all awards except ISOs, by a Permitted Transferee.

14.2. Award Transfer Program . Notwithstanding any contrary provision of the Plan, the Committee shall have all discretion and authority to determine and implement the terms and conditions of any Award Transfer Program instituted pursuant to this Section 14.2 and shall have the authority to amend the terms of any Award participating, or otherwise eligible to participate in, the Award Transfer Program, including (but not limited to) the authority to (i) amend (including to extend) the expiration date, post-termination exercise period and/or forfeiture conditions of any such Award, (ii) amend or remove any provisions of the Award relating to the Award holder’s continued service to the Company or its Parent or any Subsidiary, (iii) amend the permissible payment methods with respect to the exercise or purchase of any such Award, (iv) amend the adjustments to be implemented in the event of changes in the capitalization and other similar events with respect to such Award, and (v) make such other changes to the terms of such Award as the Committee deems necessary or appropriate in its sole discretion.

15. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES .

15.1. Voting and Dividends . No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant, except for any dividend equivalent rights permitted by an applicable Award Agreement. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided , that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided , further , that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant’s Purchase Price or Exercise Price, as the case may be, pursuant to Section 15.2.

15.2. Restrictions on Shares . At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) a right to repurchase (a “Right of Repurchase”) a portion of any or all Unvested Shares held by a Participant following such Participant’s termination of Service at any time within ninety (90) days (or such longer or shorter time determined by the Committee) after the later of the date Participant’s Service terminates and the date the Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant’s Purchase Price or Exercise Price, as the case may be.

16. CERTIFICATES . All Shares or other securities whether or not certificated, delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable U.S. federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted and any non-U.S. exchange controls or securities law restrictions to which the Shares are subject.

 

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17. ESCROW; PLEDGE OF SHARES . To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of the Participant’s obligation to the Company under the promissory note; provided , however , that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s Shares or other collateral. In connection with any pledge of the Shares, the Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.

18. REPRICING; EXCHANGE AND BUYOUT OF AWARDS . Without prior stockholder approval, the Committee may (i) reprice Options or SARs (and where such repricing is a reduction in the Exercise Price of outstanding Options or SARs, the consent of the affected Participants is not required provided written notice is provided to them, notwithstanding any adverse tax consequences to them arising from the repricing), and (ii) with the consent of the respective Participants (unless not required pursuant to Section 5.8 of the Plan), pay cash or issue new Awards in exchange for the surrender and cancellation of any, or all, outstanding Awards.

19. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE . An Award will not be effective unless such Award is in compliance with all applicable U.S. and foreign federal and state securities and exchange control laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any foreign or state securities laws, exchange control laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.

20. NO OBLIGATION TO EMPLOY . Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary or Affiliate or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate to terminate Participant’s employment or other relationship at any time.

21. CORPORATE TRANSACTIONS .

21.1. Assumption or Replacement of Awards by Successor . In the event that the Company is subject to a Corporate Transaction, outstanding Awards acquired under the Plan shall be subject to the agreement evidencing the Corporate Transaction, which need not treat all outstanding Awards in an identical manner. Such agreement, without the Participant’s consent, shall provide for one or more of the following with respect to all outstanding Awards as of the effective date of such Corporate Transaction.

 

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(a) The continuation of an outstanding Award by the Company (if the Company is the successor entity).

(b) The assumption of an outstanding Award by the successor or acquiring entity (if any) of such Corporate Transaction (or by its parents, if any), which assumption, will be binding on all selected Participants; provided that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code.

(c) The substitution by the successor or acquiring entity in such Corporate Transaction (or by its parents, if any) of equivalent awards with substantially the same terms for such outstanding Awards (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code).

(d) The full acceleration of exercisability or vesting and accelerated expiration of an outstanding Award and lapse of the Company’s right to repurchase or re-acquire shares acquired under an Award or lapse of forfeiture rights with respect to shares acquired under an Award.

(e) The settlement of the full value of such outstanding Award (whether or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity (or its parent, if any) with a Fair Market Value equal to the required amount, followed by the cancellation of such Awards; provided however, that such Award may be cancelled if such Award has no value, as determined by the Committee, in its discretion. Subject to Section 409A of the Code, such payment may be made in installments and may be deferred until the date or dates the Award would have become exercisable or vested. Such payment may be subject to vesting based on the Participant’s continued service, provided that the vesting schedule shall not be less favorable to the Participant than the schedule under which the Award would have become vested or exercisable. For purposes of this Section 21.1(e), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.

The Board shall have full power and authority to assign the Company’s right to repurchase or re-acquire or forfeiture rights to such successor or acquiring corporation. In addition, in the event such successor or acquiring corporation refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, the Committee will notify the Participant in writing or electronically that such Award will be exercisable for a period of time determined by the Committee in its sole discretion, and such Award will terminate upon the expiration of such period. Awards need not be treated similarly in a Corporate Transaction.

21.2. Assumption of Awards by the Company . The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged ( except that the Purchase Price or the Exercise

 

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Price, as the case may be, and the number and nature of Shares issuable upon exercise or settlement of any such Award will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option in substitution rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. Substitute Awards shall not reduce the number of Shares authorized for grant under the Plan or authorized for grant to a Participant in a calendar year.

21.3. Non-Employee Directors’ Awards . Notwithstanding any provision to the contrary herein, in the event of a Corporate Transaction, the vesting of all Awards granted to Non-Employee Directors shall accelerate and such Awards shall become exercisable (as applicable) in full prior to the consummation of such event at such times and on such conditions as the Committee determines.

22. ADOPTION AND STOCKHOLDER APPROVAL . This Plan shall be submitted for the approval of the Company’s stockholders, consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board.

23. TERM OF PLAN/GOVERNING LAW . Unless earlier terminated as provided herein, this Plan will become effective on the Effective Date and will terminate ten (10) years from the date this Plan is adopted by the Board. This Plan and all Awards granted hereunder shall be governed by and construed in accordance with the laws of the State of Delaware (excluding its conflict of laws rules).

24. AMENDMENT OR TERMINATION OF PLAN . The Board may at any time terminate or amend this Plan in any respect, including, without limitation, amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided , however , that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval; provided further , that a Participant’s Award shall be governed by the version of this Plan then in effect at the time such Award was granted.

25. NONEXCLUSIVITY OF THE PLAN . Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock awards and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

26. INSIDER TRADING POLICY . Each Participant who receives an Award shall comply with any policy adopted by the Company from time to time covering transactions in the Company’s securities by Employees, officers and/or directors of the Company.

27. ALL AWARDS SUBJECT TO COMPANY CLAWBACK OR RECOUPMENT POLICY . All Awards, subject to applicable law, shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of Participant’s employment or other service with the Company that is applicable to executive officers, employees, directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law, may require the cancellation of outstanding Awards and the recoupment of any gains realized with respect to Awards.

 

15


28. DEFINITIONS . As used in this Plan, and except as elsewhere defined herein, the following terms will have the following meanings:

28.1. Affiliate ” means (i) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Committee, whether now or hereafter existing.

28.2. Award ” means any award under the Plan, including any Option, Restricted Stock, Stock Bonus, Stock Appreciation Right, Restricted Stock Unit or award of Performance Shares.

28.3. Award Agreement ” means, with respect to each Award, the written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award and country-specific appendix thereto for grants to non-U.S. Participants, which shall be in substantially a form (which need not be the same for each Participant) that the Committee (or in the case of Award agreements that are not used for Insiders, the Committee’s delegate(s)) has from time to time approved, and will comply with and be subject to the terms and conditions of this Plan.

28.4. Award Transfer Program ” means any program instituted by the Committee which would permit Participants the opportunity to transfer any outstanding Awards to a financial institution or other person or entity approved by the Committee.

28.5. Board ” means the Board of Directors of the Company.

28.6. Cause ” means (i) Participant’s willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Participant’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Participant of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Participant’s willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether a Participant is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The foregoing definition does not in any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time as provided in Section 20 above, and the term “Company” will be interpreted to include any Subsidiary or Parent, as appropriate. Notwithstanding the foregoing, the foregoing definition of “Cause” may, in part or in whole, be modified or replaced in each individual agreement or Award Agreement with any Participant, provided that such document supersedes the definition provided in this Section 28.6.

28.7. Code ” means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

28.8. Committee ” means the Compensation Committee of the Board or those persons to whom administration of the Plan, or part of the Plan, has been delegated as permitted by law.

28.9. Common Stock ” means the Class A common stock of the Company.

28.10. Company ” means GoPro, Inc., or any successor corporation.

28.11. Consultant ” means any person, including an advisor or independent contractor, engaged by the Company or a Parent, Subsidiary or Affiliate to render services to such entity.

28.12. Corporate Transaction ” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial

 

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owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then-outstanding voting securities; provided, however, that for purposes of this subclause (i) the acquisition of additional securities by any one Person who is considered to own more than fifty percent (50%) of the total voting power of the securities of the Company will not be considered a Corporate Transaction; (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation; (iv) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company) or (v) a change in the effective control of the Company that occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by members of the Board whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purpose of this subclause (v), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Corporate Transaction. For purposes of this definition, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. Notwithstanding the foregoing, to the extent that any amount constituting deferred compensation (as defined in Section 409A of the Code) would become payable under this Plan by reason of a Corporate Transaction, such amount shall become payable only if the event constituting a Corporate Transaction would also qualify as a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company, each as defined within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and IRS guidance that has been promulgated or may be promulgated thereunder from time to time.

28.13. Director ” means a member of the Board.

28.14. Disability ” means in the case of incentive stock options, total and permanent disability as defined in Section 22(e)(3) of the Code and in the case of other Awards, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

28.15. Effective Date ” means the day immediately prior to the date of the underwritten initial public offering of the Company’s Common Stock pursuant to a registration statement that is declared effective by the SEC.

28.16. Employee ” means any person, including officers and Directors, providing services as an employee to the Company or any Parent, Subsidiary or Affiliate. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

28.17. Exchange Act ” means the United States Securities Exchange Act of 1934, as amended.

 

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28.18. Exchange Program ” means a program pursuant to which (i) outstanding Awards are surrendered, cancelled or exchanged for cash, the same type of Award or a different Award (or combination thereof) or (ii) the exercise price of an outstanding Award is increased or reduced.

28.19. Exercise Price ” means, with respect to an Option, the price at which a holder may purchase the Shares issuable upon exercise of an Option and with respect to a SAR, the price at which the SAR is granted to the holder thereof.

28.20. Fair Market Value ” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:

(a) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Committee deems reliable;

(b) if such Common Stock is publicly traded but is neither listed nor admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Committee deems reliable;

(c) in the case of an Option or SAR grant made on the Effective Date, the price per share at which shares of the Company’s Common Stock are initially offered for sale to the public by the Company’s underwriters in the initial public offering of the Company’s Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or

(d) if none of the foregoing is applicable, by the Board or the Committee in good faith.

28.21. Insider ” means an officer or director of the Company or any other person whose transactions in the Company’s Common Stock are subject to Section 16 of the Exchange Act.

28.22. IRS ” means the United States Internal Revenue Service.

28.23. Non-Employee Director ” means a Director who is not an Employee of the Company or any Parent or Subsidiary.

28.24. Option ” means an award of an option to purchase Shares pursuant to Section 5.

28.25. Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

28.26. Participant ” means a person who holds an Award under this Plan.

28.27. Performance Award means cash or stock granted pursuant to Section 10 or Section 12 of the Plan.

28.28. “Performance Factors” means any of the factors selected by the Committee and specified in an Award Agreement, from among the following objective measures, either individually,

 

18


alternatively or in any combination, applied to the Company as a whole or any business unit or Subsidiary, either individually, alternatively, or in any combination, on a GAAP or non-GAAP basis, and measured, to the extent applicable on an absolute basis or relative to a pre-established target, to determine whether the performance goals established by the Committee with respect to applicable Awards have been satisfied:

(a) Profit Before Tax;

(b) Billings;

(c) Revenue;

(d) Net revenue;

(e) Earnings (which may include earnings before interest and taxes, earnings before taxes, and net earnings);

(f) Operating income;

(g) Operating margin;

(h) Operating profit;

(i) Controllable operating profit, or net operating profit;

(j) Net Profit;

(k) Gross margin;

(l) Operating expenses or operating expenses as a percentage of revenue;

(m) Net income;

(n) Earnings per share;

(o) Total stockholder return;

(p) Market share;

(q) Return on assets or net assets;

(r) The Company’s stock price;

(s) Growth in stockholder value relative to a pre-determined index;

(t) Return on equity;

(u) Return on invested capital;

(v) Cash Flow (including free cash flow or operating cash flows)

 

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(w) Cash conversion cycle;

(x) Economic value added;

(y) Individual confidential business objectives;

(z) Contract awards or backlog;

(aa) Overhead or other expense reduction;

(bb) Credit rating;

(cc) Strategic plan development and implementation;

(dd) Succession plan development and implementation;

(ee) Improvement in workforce diversity;

(ff) Customer indicators;

(gg) New product invention or innovation;

(hh) Attainment of research and development milestones;

(ii) Improvements in productivity;

(jj) Bookings;

(kk) Attainment of objective operating goals and employee metrics; and

(ll) Any other metric that is capable of measurement as determined by the Committee.

The Committee may, in recognition of unusual or non-recurring items such as acquisition-related activities or changes in applicable accounting rules, provide for one or more equitable adjustments (based on objective standards) to the Performance Factors to preserve the Committee’s original intent regarding the Performance Factors at the time of the initial award grant. It is within the sole discretion of the Committee to make or not make any such equitable adjustments.

28.29. Performance Period ” means the period of service determined by the Committee, not to exceed five (5) years, during which years of service or performance is to be measured for the Award.

28.30. Performance Share ” means an Award granted pursuant to Section 10 or Section 12 of the Plan.

28.31. Permitted Transferee ” means any 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) of the Employee, any person sharing the Employee’s household (other than a tenant or employee), a trust in which these persons (or the Employee) have more than 50% of the beneficial interest, a foundation in which these persons (or the Employee) control the management of assets, and any other entity in which these persons (or the Employee) own more than 50% of the voting interests.

 

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28.32. Person ” shall have the meaning as such term is used in Sections 13(d) and 14(d) of the Exchange Act.

28.33. Plan ” means this GoPro, Inc. 2014 Equity Incentive Plan.

28.34. Purchase Price ” means the price to be paid for Shares acquired under the Plan, other than Shares acquired upon exercise of an Option or SAR.

28.35. Restricted Stock Award ” means an award of Shares pursuant to Section 6 or Section 12 of the Plan, or issued pursuant to the early exercise of an Option.

28.36. Restricted Stock Unit ” means an Award granted pursuant to Section 9 or Section 12 of the Plan.

28.37. SEC ” means the United States Securities and Exchange Commission.

28.38. Securities Act ” means the United States Securities Act of 1933, as amended.

28.39. Service ” shall mean service as an Employee, Consultant, Director or Non-Employee Director, to the Company or a Parent, Subsidiary or Affiliate of the Company, subject to such further limitations as may be set forth in the Plan or the applicable Award Agreement. An Employee will not be deemed to have ceased to provide Service in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Company; provided , that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company. In the case of any Employee on an approved leave of absence or a reduction in hours worked (for illustrative purposes only, a change in schedule from that of full-time to part-time), the Company may make such provisions respecting suspension of or modification of vesting of the Award while on leave from the employ of the Company or a Parent, Subsidiary or Affiliate or during such change in working hours as it may deem appropriate, except that in no event may an Award be exercised after the expiration of the term set forth in the applicable Award Agreement. In the event of military leave, if required by applicable laws, vesting shall continue for the longest period that vesting continues under any other statutory or Company approved leave of absence and, upon a Participant’s returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to Awards to the same extent as would have applied had the Participant continued to provide services to the Company throughout the leave on the same terms as he or she was providing services immediately prior to such leave. Except as set forth in this Section 28.39, an employee shall have terminated employment as of the date he or she ceases to provide services (regardless of whether the termination is in breach of local employment laws or is later found to be invalid) and employment shall not be extended by any notice period or garden leave mandated by local law, provided however , that a change in status from an employee to a consultant or advisor shall not terminate the service provider’s Service, unless determined by the Committee, in its discretion. The Committee will have sole discretion to determine whether a Participant has ceased to provide Services and the effective date on which the Participant ceased to provide Services.

 

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28.40. Shares ” means shares of the Common Stock and the common stock of any successor security.

28.41. Stock Appreciation Right ” means an Award granted pursuant to Section 8 or Section 12 of the Plan.

28.42. Stock Bonus ” means an Award granted pursuant to Section 7 or Section 12 of the Plan.

28.43. Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

28.44. Treasury Regulations ” means regulations promulgated by the United States Treasury Department.

28.45. Unvested Shares ” means Shares that have not yet vested or are subject to a right of repurchase in favor of the Company (or any successor thereto).

 

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NOTICE OF PERFORMANCE SHARES AWARD

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

Unless otherwise defined herein, the terms defined in the GoPro, Inc. (the “ Company ”) 2014 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Performance Shares Award (the “ Notice ”) and the attached Performance Shares Award Agreement (the “Performance Shares Agreement ). You (the “ you ”) have been granted an award of Performance Shares (the “ Performance Shares Award ”) under the Plan subject to the terms and conditions of the Plan, this Notice and the attached Performance Shares Agreement.

 

  Name:  

 

 

  Address:  

 

 

  Number of Shares:  

 

 

  Grant Number:  

 

 

  Date of Grant:  

 

 

  Vesting Commencement Date:  

 

  Vesting Schedule:                                    Subject to the limitations set forth in this Notice, the Plan and the Performance Shares Agreement, the Shares will vest in accordance with the following schedule: [INSERT VESTING SCHEDULE]

You acknowledge that the vesting of the Performance Shares Award pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company. By accepting the Performance Shares Award, you consent to electronic delivery as set forth in the Performance Shares Agreement.

 

PARTICIPANT     GOPRO, INC.
Print Name:  

 

    Its:  

 

Signature:  

 

    By:  

 


PERFORMANCE SHARES AGREEMENT

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

You have been granted a Performance Shares Award (“ Performance Shares Award ”) by GoPro, Inc. (the “ Company ”), subject to the terms, restrictions and conditions of the Plan, the Notice of Performance Shares Award (“ Notice ”) and this Agreement.

1. Settlement . Your Performance Shares Award shall be settled in Shares and the Company’s transfer agent shall record ownership of such Shares in your name as soon as reasonably practicable after achievement of the Performance Factors enumerated in the Notice.

2. Stockholder Rights . You shall have no right to dividends or to vote Shares until you are recorded as the holder of such Shares on the stock records of the Company and its transfer agent.

3. No-Transfer . Your interest in this Performance Shares Award shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of.

4. Termination . Upon your termination of Service for any reason, all of your rights under the Plan, this Agreement and the Notice in respect of this Award shall immediately terminate. In case of any dispute as to whether a termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination.

5. Tax Consequences . YOU SHOULD CONSULT A TAX ADVISER BEFORE ACQUIRING THE SHARES IN THE JURISDICTION IN WHICH HE OR SHE IS SUBJECT TO TAX. Shares shall not be issued under this Agreement unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the acquisition or vesting of Shares.

6. Withholding Taxes . Regardless of any action the Company or your employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Shares received under this award, including the award or vesting of such Shares, the subsequent sale of Shares under this award and the receipt of any dividends; and (2) do not commit to structure the terms of the award to reduce or eliminate your liability for Tax-Related Items.

No stock certificates will be released to you unless you have paid or made adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or your Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when they vest, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf and you hereby authorize such sales by this authorization), (c) your payment of a cash amount, or (d) any other arrangement approved by the Company; all under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if you are a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (a)-(d) above, and the Committee shall establish the method prior to the Tax-Related Items


withholding event. The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. You shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. Finally, you acknowledge that the Company has no obligation to deliver Shares to you until you have satisfied the obligations in connection with the Tax-Related Items as described in this Section.

7. Acknowledgement . The Company and you agree that the Performance Shares Award is granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference). You: (i) acknowledge receipt of a copy of the Plan and the Plan prospectus, (ii) represent that you have carefully read and are familiar with their provisions, and (iii) hereby accept the Performance Shares Award subject to all of the terms and conditions set forth herein and those set forth in the Plan, this Agreement and the Notice.

8. Entire Agreement; Enforcement of Rights . This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

9. Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

10. Governing Law; Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

10. No Rights as Employee, Director or Consultant . Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser s Service, for any reason, with or without cause.

11 . Consent to Electronic Delivery of All Plan Documents and Disclosures . By acceptance of this Performance Shares Award, you consent to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Performance Shares Award. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive


from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at [insert email]. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at [insert email]. Finally, you understand that you are not required to consent to electronic delivery.

12. Award Subject to Company Clawback or Recoupment . The Performance Shares Award shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of your employment or other Service with the Company that is applicable to executive officers, Employees, Directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law may require the cancellation of your Performance Shares Award (whether vested or unvested) and the recoupment of any gains realized with respect to your Performance Shares Award.

BY ACCEPTING THE PERFORMANCE SHARES AWARD, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.


NOTICE OF RESTRICTED STOCK AWARD

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

GRANT NUMBER:             

Unless otherwise defined herein, the terms defined in the GoPro, Inc. 2014 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Restricted Stock Award (the “ Notice ”) and the attached Restricted Stock Agreement (the “ Restricted Stock Agreement ”). You (“ you ”) have been granted the opportunity to purchase Shares of GoPro, Inc. (the “ Company ”) that are subject to restrictions (the “ Restricted Shares ”) and the terms and conditions of the Plan, this Notice and the attached Restricted Stock Agreement.

 

Name:  

 

 

Address:  

 

 

Total Number of Restricted Shares Awarded:  

 

 

Fair Market Value per Restricted Share:               $  

 

Total Fair Market Value of Award:   $  

 

Purchase Price per Restricted Share:   $  

 

Total Purchase Price for all Restricted Shares:   $  

 

 

Date of Grant:  

 

 

 

Vesting Commencement Date:          
Vesting Schedule:   Subject to the limitations set forth in this Notice, the Plan and the Restricted Stock Agreement, 25% of the total number of Restricted Shares will vest on the 12 month anniversary of the Vesting Commencement Date and 12.5% of the total number of Restricted Shares will vest on each six month anniversary thereafter so long as your Service continues.
Additional Terms:   ¨     If this box is checked, the additional terms and conditions set forth on Attachment 1 hereto (as executed by the Company) are applicable and are incorporated herein by reference. No document need be attached as Attachment 1 if the box is not checked.

You acknowledge that the vesting of the Restricted Shares pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company. By accepting the Restricted Shares, you consent to electronic delivery as set forth in the Restricted Stock Agreement. If the Restricted Stock Agreement is not executed by you within thirty (30) days of the Date of Grant above, then this grant shall be void.

 

PARTICIPANT:     GOPRO, INC.
Signature  

 

    By:  

 

Please Print Name  

 

    Its:  

 


RESTRICTED STOCK AGREEMENT

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

THIS RESTRICTED STOCK AGREEMENT (this “ Agreement ”) is made as of                     , 2014 by and between GoPro, Inc., a Delaware corporation (the “ Company ”), and                     (“ Participant ”) pursuant to the Company’s 2014 Equity Incentive Plan (the “ Plan ”). Unless otherwise defined herein, the terms defined in the Plan shall have the same meanings in this Agreement.

1. Sale of Stock . Subject to the terms and conditions of this Agreement, on the Purchase Date (as defined below) the Company will issue and sell to Participant, and Participant agrees to purchase from the Company, the number of Shares shown on the Notice of Restricted Stock Award (the “ Notice ”) at a purchase price of $                    per Share. The term “Shares” refers to the purchased Shares and all securities received in replacement of or in connection with the Shares pursuant to stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Participant is entitled by reason of Participant’s ownership of the Shares.

2. Time and Place of Purchase . The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution of this Agreement by the parties, or on such other date as the Company and Participant shall agree (the “ Purchase Date ”). On the Purchase Date, the Company will issue a stock certificate registered in Participant’s name, or uncertificated shares designated for the Participant in book entry form on the records of the Company’s transfer agent, representing the Shares to be purchased by Participant against payment of the purchase price therefor by Participant by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Participant, (c) Participant’s personal Services that the Committee has determined have already been rendered to the Company and have a value not less than aggregate par value of the Shares to be issued Participant, or (d) a combination of the foregoing.

3. Restrictions on Resale . By signing this Agreement, Participant agrees not to sell any Shares acquired pursuant to the Plan and this Agreement at a time when applicable laws, regulations or Company or underwriter trading policies prohibit exercise or sale. This restriction will apply as long as Participant is providing Service to the Company or a Subsidiary of the Company.

3.1 Repurchase Right on Termination Other Than for Cause . For the purposes of this Agreement, a “ Repurchase Event ” shall mean an occurrence of one of the following:

(i) termination of Participant’s Service, whether voluntary or involuntary and with or without cause;

(ii) resignation, retirement or death of Participant; or

(iii) any attempted transfer by Participant of the Shares, or any interest therein, in violation of this Agreement.

Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to purchase the Shares of Participant at a price equal to the Purchase Price per Share (the “ Repurchase Right ”). The Repurchase Right shall lapse in accordance with the vesting schedule set forth in the Notice of Restricted Stock Award. For purposes of this Agreement, “ Unvested Shares ” means Stock pursuant to which the Company’s Repurchase Right has not lapsed.

 

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3.2 Exercise of Repurchase Right . Unless the Company provides written notice to Participant within 90 days from the date of termination of Participant’s Service to the Company that the Company does not intend to exercise its Repurchase Right with respect to some or all of the Unvested Shares, the Repurchase Right shall be deemed automatically exercised by the Company as of the 90th day following such termination, provided that the Company may notify Participant that it is exercising its Repurchase Right as of a date prior to such 90th day. Unless Participant is otherwise notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Right as to some or all of the Unvested Shares, execution of this Agreement by Participant constitutes written notice to Participant of the Company’s intention to exercise its Repurchase Right with respect to all Unvested Shares to which such Repurchase Right applies at the time of Participant’s termination of Service. The Company, at its choice, may satisfy its payment obligation to Participant with respect to exercise of the Repurchase Right by either (A) delivering a check to Participant in the amount of the purchase price for the Unvested Shares being repurchased, or (B) in the event Participant is indebted to the Company, canceling an amount of such indebtedness equal to the purchase price for the Unvested Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price. In the event of any deemed automatic exercise of the Repurchase Right by canceling an amount of such indebtedness equal to the purchase price for the Unvested Shares being repurchased, such cancellation of indebtedness shall be deemed automatically to occur as of the 90th day following termination of Participant’s Service unless the Company otherwise satisfies its payment obligations. As a result of any repurchase of Unvested Shares pursuant to the Repurchase Right, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and shall have all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Unvested Shares being repurchased by the Company, without further action by Participant.

3.3 Acceptance of Restrictions . Acceptance of the Shares shall constitute Participant’s agreement to such restrictions and the legending of his or her certificates or the notation in the Company’s direct registration system for stock issuance and transfer of such restrictions and accompanying legends set forth in Section 4.1 with respect thereto. Notwithstanding such restrictions, however, so long as Participant is the holder of the Shares, or any portion thereof, he or she shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a stockholder with respect thereto.

3.4 Non-Transferability of Unvested Shares . In addition to any other limitation on transfer created by applicable securities laws or any other agreement between the Company and Participant, Participant may not transfer any Unvested Shares, or any interest therein, unless consented to in writing by a duly authorized representative of the Company. Any purported transfer is void and of no effect, and no purported transferee thereof will be recognized as a holder of the Unvested Shares for any purpose whatsoever. Should such a transfer purport to occur, the Company may refuse to carry out the transfer on its books, set aside the transfer, or exercise any other legal or equitable remedy. In the event the Company consents to a transfer of Unvested Shares, all transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Right. In the event of any purchase by the Company hereunder where the Shares or interest are held by a transferee, the transferee shall be obligated, if requested by the Company, to transfer the Shares or interest to the Participant for consideration equal to the amount to be paid by the Company hereunder. In the event the Repurchase Right is deemed exercised by the Company, the Company may deem any transferee to have transferred the Shares or interest to Participant prior to their purchase by the Company, and payment of the purchase price by the Company to such transferee shall be deemed to satisfy Participant’s obligation to pay such transferee for such Shares or interest, and also to satisfy the Company’s obligation to pay Participant for such Shares or interest.

 

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3.5 Assignment . The Repurchase Right may be assigned by the Company in whole or in part to any persons or organization.

4. Stop Transfer Orders .

4.1 Stop-Transfer Notices . Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

4.2 Refusal to Transfer . The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as the owner or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

5. No Rights as Employee, Director or Consultant . Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participant s Service, for any reason, with or without cause.

6. Miscellaneous .

6.1 Acknowledgement . The Company and Participant agree that the Restricted Shares are granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference). Participant: (i) acknowledges receipt of a copy of the Plan and the Plan prospectus, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the Restricted Shares subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.

6.2 Entire Agreement; Enforcement of Rights . This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

6.3 Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer. The Shares issued pursuant to this Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

6.4 Governing Law; Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this

 

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Agreement shall be enforceable in accordance with its terms. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

6.5 Construction . This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto.

6.6 Notices . Any notice to be given under the terms of the Plan shall be addressed to the Company in care of its principal office, and any notice to be given to the Participant shall be addressed to such Participant at the address maintained by the Company for such person or at such other address as the Participant may specify in writing to the Company.

6.7 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall he deemed an original and all of which together shall constitute one instrument.

6.8 U.S. Tax Consequences . Unless an Election (defined below) is made, upon vesting of Shares, Participant will include in taxable income the difference between the fair market value of the vesting Shares, as determined on the date of their vesting, and the price paid for the Shares. This will be treated as ordinary income by Participant and will be subject to withholding by the Company when required by applicable law. In the absence of an Election, the Company shall satisfy the withholding requirements as set forth in Section 7 below. If Participant makes an Election, then Participant must, prior to making the Election, pay in cash (or check) to the Company an amount equal to the amount the Company is required to withhold for income and employment taxes.

7. Withholding Taxes . Regardless of any action the Company or your employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Shares received under this award, including the award or vesting of such Shares, the subsequent sale of Shares under this award and the receipt of any dividends; and (2) do not commit to structure the terms of the award to reduce or eliminate your liability for Tax-Related Items.

No stock certificates will be released to you unless you have paid or made adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or your Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be released from the Repurchase Right when they vest, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf and you hereby

 

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authorize such sales by this authorization), (c) your payment of a cash amount, or (d) any other arrangement approved by the Company; all under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if you are a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (a)-(d) above, and the Committee shall establish the method prior to the Tax-Related Items withholding event. The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. You shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. Finally, you acknowledge that the Company has no obligation to deliver Shares to you until you have satisfied the obligations in connection with the Tax-Related Items as described in this Section.

8. Section 83(b) Election . Participant hereby acknowledges that he or she has been informed that, with respect to the purchase of the Shares, an election may be filed by the Participant with the Internal Revenue Service, within 30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase (the “ Election ”). Making the Election will result in recognition of taxable income to the Participant on the date of purchase, measured by the excess, if any, of the Fair Market Value of the Shares over the purchase price for the Shares. Absent such an Election, taxable income will be measured and recognized by Participant at the time or times on which the Company’s Repurchase Right lapses. Participant is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election. PARTICIPANT ACKNOWLEDGES THAT IT IS SOLELY PARTICIPANT’S RESPONSIBILITY, AND NOT THE COMPANY’S RESPONSIBILITY, TO TIMELY FILE THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF PARTICIPANT REQUESTS THE COMPANY, OR ITS REPRESENTATIVE, TO MAKE THIS FILING ON PARTICIPANT’S BEHALF.

9. Consent to Electronic Delivery of All Plan Documents and Disclosures . By acceptance of this Restricted Stock Award, Participant consents to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Restricted Stock Award. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail at [insert email]. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participant’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at [insert email]. Finally, Participant understands that Participant is not required to consent to electronic delivery.

10. Award Subject to Company Clawback or Recoupment . The Shares shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the

 

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Board or required by law during the term of Participant’s employment or other Service with the Company that is applicable to executive officers, Employees, Directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law may require the cancellation of Participant’s Shares (whether vested or unvested) and the recoupment of any gains realized with respect to Participant’s Shares.

The parties have executed this Agreement as of the date first set forth above.

 

GOPRO, INC.
By:  

 

Its:  

 

 

RECIPIENT:

 

Signature  

 

 

Please Print Name  

 

 

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RECEIPT

GoPro, Inc. hereby acknowledges receipt of (check as applicable):

¨  A check in the amount of $            

¨  The cancellation of indebtedness in the amount of $            

given by                 as consideration for the book entry in the Participant’s name or Certificate No. -                for                 shares of Common Stock of GoPro, Inc.

Dated:                                 

 

GOPRO, INC.
By:  

 

Its:  

 

 

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RECEIPT AND CONSENT

The undersigned Participant hereby acknowledges the book entry in the Participant’s name or receipt of a photocopy of Certificate No. -                for                 shares of Common Stock of GoPro, Inc. (the “ Company ”).

The undersigned further acknowledges that the Secretary of the Company, or his or her designee, is acting as escrow holder pursuant to the Restricted Stock Agreement that Participant has previously entered into with the Company. As escrow holder, the Secretary of the Company, or his or her designee, holds the original of the aforementioned certificate issued in the undersigned’s name. To facilitate any transfer of Shares to the Company pursuant to the Restricted Stock Agreement, Participant has executed the attached Assignment Separate from Certificate.

Dated:                  , 20             

 

Signature  

 

 

Please Print Name  

 

 

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STOCK POWER AND ASSIGNMENT

SEPARATE FROM STOCK CERTIFICATE

FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Agreement dated as of             ,             , [ COMPLETE AT THE TIME OF PURCHASE ] (the “ Agreement ”), the undersigned Participant hereby sells, assigns and transfers unto             ,             shares of the Common Stock of GoPro, Inc., a Delaware corporation (the “ Company ”), standing in the undersigned’s name on the books of the Company represented hereby by book entry or by Certificate No(s).              [ COMPLETE AT THE TIME OF PURCHASE ] delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned’s attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.

Dated:              ,             

 

PARTICIPANT

 

(Signature)

 

(Please Print Name)

Instructions to Participant : Please do not fill in any blanks other than the signature line. The purpose of this document is to enable the Company and/or its assignee(s) to acquire the shares upon exercise of its “Repurchase Right” set forth in the Agreement without requiring additional action by the Participant.

 

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NOTICE OF RESTRICTED STOCK UNIT AWARD

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

GRANT NUMBER:             

Unless otherwise defined herein, the terms defined in the GoPro, Inc. (the “ Company ”) 2014 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Restricted Stock Unit Award (the “ Notice ”) and the attached Award Agreement (Restricted Stock Unit Agreement) (hereinafter “ RSU Agreement ”). You (“ you ”) have been granted an award of Restricted Stock Units (“ RSUs ”) under the Plan subject to the terms and conditions of the Plan, this Notice and the attached RSU Agreement.

 

  Name:  

 

  Address:  

 

  Number of RSUs:  

 

  Date of Grant:  

 

  Vesting Commencement Date:      
  Expiration Date:               The date on which settlement of all RSUs granted hereunder occurs. This RSU expires earlier if your Service terminates earlier, as described in the RSU Agreement.
  Vesting Schedule:   Subject to the limitations set forth in this Notice, the Plan and the RSU Agreement,         % of the total number of RSUs will vest on the              month anniversary of the Vesting Commencement Date and         % of the total number of RSUs will vest on each              month anniversary thereafter so long as your Service continues.
  Additional Terms:   ¨     If this box is checked, the additional terms and conditions set forth on Attachment 1 hereto (as executed by the Company) are applicable and are incorporated herein by reference. No document need be attached as Attachment 1 if the box is not checked.

You acknowledge that the vesting of the RSUs pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company. By accepting this RSU, you consent to electronic delivery as set forth in the RSU Agreement.

 

PARTICIPANT     GOPRO, INC.

Signature:

 

 

    By:  

 

Print Name:

 

 

    Its:  

 

 

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RESTRICTED STOCK UNIT AGREEMENT

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

You have been granted Restricted Stock Units (“ RSUs ”) subject to the terms, restrictions and conditions of the Plan, the Notice of Restricted Stock Unit Award (the “ Notice ”) and this RSU Agreement.

1. Settlement . Settlement of RSUs shall be made in the same calendar year as the applicable date of vesting under the vesting schedule set forth in the Notice; provided, however, that if the vesting date under the vesting schedule set forth in the Notice is in December, then settlement of any RSUs that vest in December shall be within 30 days of vesting. Settlement of RSUs shall be in Shares. Settlement means the delivery of the Shares vested under an RSU. No fractional RSUs or rights for fractional Shares shall be created pursuant to this RSU Agreement.

2. No Stockholder Rights . Unless and until such time as Shares are issued in settlement of vested RSUs, you shall have no ownership of the Shares allocated to the RSUs and shall have no right dividends or to vote such Shares.

3. Dividend Equivalents . Dividends, if any (whether in cash or Shares), shall not be credited to you.

4. No Transfer . RSUs may not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of in any manner other than by will or by the laws of descent or distribution or court order or unless otherwise permitted by the Committee on a case-by-case basis.

5. Termination . If your Service terminates for any reason, all unvested RSUs shall be forfeited to the Company forthwith, and all rights you have to such RSUs shall immediately terminate. In case of any dispute as to whether your termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination.

6. Tax Consequences . You acknowledge that there will be tax consequences upon settlement of the RSUs or disposition of the Shares, if any, received in connection therewith, and you should consult a tax adviser regarding your tax obligations prior to such settlement or disposition in the jurisdiction where you are subject to tax.

7. Withholding Taxes and Stock Withholding . Regardless of any action the Company or your actual employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the settlement of the RSUs, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends; and (2) do not commit to structure the terms of the award or any aspect of the RSUs to reduce or eliminate your liability for Tax-Related Items. You acknowledge that if you are subject to Tax-Related Items in more than one jurisdiction, the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to the settlement of your RSUs, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when your RSUs are settled, provided

 

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that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf and you hereby authorize such sales by this authorization), (c) your payment of a cash amount, or (d) any other arrangement approved by the Company; all under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if you are a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (a)-(d) above, and the Committee shall establish the method prior to the Tax-Related Items withholding event. The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. You shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. Finally, you acknowledge that the Company has no obligation to deliver Shares to you until you have satisfied the obligations in connection with the Tax-Related Items as described in this Section.

8. Acknowledgement . The Company and you agree that the RSUs are granted under and governed by the Notice, this RSU Agreement and the provisions of the Plan. You: (i) acknowledge receipt of a copy of the Plan prospectus, (ii) represent that you have carefully read and are familiar with their provisions, and (iii) hereby accept the RSUs subject to all of the terms and conditions set forth herein and those set forth in the Notice.

9. Entire Agreement; Enforcement of Rights . This RSU Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this RSU Agreement, nor any waiver of any rights under this RSU Agreement, shall be effective unless in writing and signed by the parties to this RSU Agreement. The failure by either party to enforce any rights under this RSU Agreement shall not be construed as a waiver of any rights of such party.

10. Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and you with all applicable state, federal and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer. The Shares issued pursuant to this RSU Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

11. Governing Law; Severability . If one or more provisions of this RSU Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this RSU Agreement, (ii) the balance of this RSU Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this RSU Agreement shall be enforceable in accordance with its terms. This RSU Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this RSU Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

11. No Rights as Employee, Director or Consultant . Nothing in this RSU Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate your Service, for any reason, with or without Cause.

 

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12. Consent to Electronic Delivery of All Plan Documents and Disclosures . By acceptance of this RSU, you consent to the electronic delivery of the Notice, this RSU Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the RSU. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at [insert email]. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at [insert email]. Finally, you understand that you are not required to consent to electronic delivery.

13. Code Section 409A . For purposes of this RSU Agreement, a termination of employment will be determined consistent with the rules relating to a “separation from service” as defined in Section 409A of the Internal Revenue Code and the regulations thereunder (“ Section 409A ”). Notwithstanding anything else provided herein, to the extent any payments provided under this RSU Agreement in connection with your termination of employment constitute deferred compensation subject to Section 409A, and you are deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payment shall not be made or commence until the earlier of (i) the expiration of the six-month period measured from your separation from service from the Company or (ii) the date of your death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you including, without limitation, the additional tax for which you would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. To the extent any payment under this RSU Agreement may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

14. Award Subject to Company Clawback or Recoupment . The RSU shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of your employment or other Service with the Company that is applicable to executive officers, Employees, Directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law may require the cancellation of your RSU (whether vested or unvested) and the recoupment of any gains realized with respect to your RSU.

BY ACCEPTING THIS RSU, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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NOTICE OF RESTRICTED STOCK UNIT AWARD (INTERNATIONAL)

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

GRANT NUMBER:             

Unless otherwise defined herein, the terms defined in the GoPro, Inc. (the “ Company ”) 2014 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Restricted Stock Unit Award (the “ Notice ”) and the attached Award Agreement (Restricted Stock Unit Agreement) (hereinafter “ RSU Agreement ”). You (“ you ”) have been granted an award of Restricted Stock Units (“ RSUs ”) under the Plan subject to the terms and conditions of the Plan, this Notice and the attached RSU Agreement.

 

  Name:  

 

 

  Address:  

 

 

  Number of RSUs:  

 

 

  Date of Grant:  

 

 

  Vesting Commencement Date:      
  Expiration Date:   The date on which settlement of all RSUs granted hereunder occurs. This RSU expires earlier if your Service terminates earlier, as described in the RSU Agreement.
  Vesting Schedule:   Subject to the limitations set forth in this Notice, the Plan and the RSU Agreement,             % of the total number of RSUs will vest on the              month anniversary of the Vesting Commencement Date and             % of the total number of RSUs will vest on each              month anniversary thereafter so long as your Service continues.
  Additional Terms:   ¨     If this box is checked, the additional terms and conditions set forth on Attachment 1 hereto (as executed by the Company) are applicable and are incorporated herein by reference. No document need be attached as Attachment 1 if the box is not checked.

You acknowledge that the vesting of the RSUs pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company. By accepting this RSU, you consent to electronic delivery as set forth in the RSU Agreement.

 

PARTICIPANT     GOPRO, INC.

Signature:

 

 

    By:  

 

Print Name:

 

 

    Its:  

 


RESTRICTED STOCK UNIT AGREEMENT

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

You have been granted Restricted Stock Units (“ RSUs ”) subject to the terms, restrictions and conditions of the Plan, the Notice of Restricted Stock Unit Award (the “ Notice ”) and this RSU Agreement.

1. Settlement . Settlement of RSUs shall be made in the same calendar year as the applicable date of vesting under the vesting schedule set forth in the Notice. Settlement of RSUs shall be in Shares. Settlement means the delivery of the Shares vested under an RSU. No fractional RSUs or rights for fractional Shares shall be created pursuant to this RSU Agreement.

2. No Stockholder Rights . Unless and until such time as Shares are issued in settlement of vested RSUs, you shall have no ownership of the Shares allocated to the RSUs and shall have no right dividends or to vote such Shares.

3. Dividend Equivalents . Dividends, if any (whether in cash or Shares), shall not be credited to you.

4. No Transfer . RSUs may not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of in any manner other than by will or by the laws of descent or distribution or court order or unless otherwise permitted by the Committee on a case-by-case basis.

5. Termination . If your Service terminates for any reason, all unvested RSUs shall be forfeited to the Company forthwith, and all rights you have to such RSUs shall immediately terminate. In case of any dispute as to whether your termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination.

6. Tax Consequences . You acknowledge that there will be tax consequences upon settlement of the RSUs or disposition of the Shares, if any, received in connection therewith, and you should consult a tax adviser regarding your tax obligations prior to such settlement or disposition in the jurisdiction where you are subject to tax.

7. Withholding Taxes and Stock Withholding . Regardless of any action the Company or your actual employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the settlement of the RSUs, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends; and (b) do not commit to structure the terms of the award or any aspect of the RSUs to reduce or eliminate your liability for Tax-Related Items. You acknowledge that if you are subject to Tax-Related Items in more than one jurisdiction, the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to the settlement of your RSUs, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when your RSUs are settled, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding

 

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amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf and you hereby authorize such sales by this authorization), (c) your payment of a cash amount, or (d) any other arrangement approved by the Company; all under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if you are a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (a)-(d) above, and the Committee shall establish the method prior to the Tax-Related Items withholding event. The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. You shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. Finally, you acknowledge that the Company has no obligation to deliver Shares to you until you have satisfied the obligations in connection with the Tax-Related Items as described in this Section.

8. Acknowledgement . The Company and you agree that the RSUs are granted under and governed by the Notice, this RSU Agreement and the provisions of the Plan. You: (a) acknowledge receipt of a copy of the Plan prospectus, (b) represent that you have carefully read and are familiar with their provisions, and (c) hereby accept the RSUs subject to all of the terms and conditions set forth herein and those set forth in the Notice.

9. Entire Agreement; Enforcement of Rights . This RSU Agreement (including the Non-U.S. Addendum), the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this RSU Agreement, nor any waiver of any rights under this RSU Agreement, shall be effective unless in writing and signed by the parties to this RSU Agreement. The failure by either party to enforce any rights under this RSU Agreement shall not be construed as a waiver of any rights of such party.

10. Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and you with all applicable state, federal and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer. The Shares issued pursuant to this RSU Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

11. Governing Law; Severability . If one or more provisions of this RSU Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this RSU Agreement, (b) the balance of this RSU Agreement shall be interpreted as if such provision were so excluded and (c) the balance of this RSU Agreement shall be enforceable in accordance with its terms. This RSU Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this RSU Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

12. No Rights as Employee, Director or Consultant . Nothing in this RSU Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate your Service, for any reason, with or without Cause, subject to applicable law.

 

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13. Consent to Electronic Delivery of All Plan Documents and Disclosures . By acceptance of the RSUs, you consent to the electronic delivery of the Notice, this RSU Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the RSU. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at [insert email]. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at [insert email]. Finally, you understand that you are not required to consent to electronic delivery.

14. Code Section 409A . To the extent applicable, for purposes of this RSU Agreement, a termination of employment will be determined consistent with the rules relating to a “separation from service” as defined in Section 409A of the Internal Revenue Code and the regulations thereunder (“ Section 409A ”). Notwithstanding anything else provided herein, to the extent any payments provided under this Agreement in connection with your termination of employment constitute deferred compensation subject to Section 409A, and you are deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payment shall not be made or commence until the earlier of (a) the expiration of the six-month period measured from your separation from service from the Company or (b) the date of your death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you including, without limitation, the additional tax for which you would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. To the extent any payment under this RSU Agreement may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

15. Award Subject to Company Clawback or Recoupment . To the extent permitted by applicable law, the RSUs shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of your employment or other Service with the Company that is applicable to executive officers, Employees, Directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law may require the cancellation of your RSUs (whether vested or unvested) and the recoupment of any gains realized with respect to your RSUs.

16. Nature of Grant . In accepting the grant, you acknowledge 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;

(b) the grant of the RSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted repeatedly in the past;

 

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(c) all decisions with respect to future RSUs grants, if any, will be at the sole discretion of the Company;

(d) you are voluntarily participating in the Plan;

(e) the RSUs and the shares of Common Stock subject to the RSUs are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which is outside the scope of your employment contract, if any;

(f) the RSUs and the shares of Common Stock subject to the RSUs are not intended to replace any pension rights or compensation;

(g) the RSUs and the shares of Common Stock subject to the RSUs are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company, the Employer, or any Subsidiary or Affiliate;

(h) the RSUs and your participation in the Plan will not be interpreted to form an employment contract or relationship with the Company or any Subsidiary or Affiliate;

(i) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;

(j) in consideration of the grant of the RSUs, no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from termination of your Service with the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably release the Company and the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, you shall be deemed irrevocably to have waive any entitlement to pursue such claim;

(k) in the event of termination of your Service (whether or not in breach of local labor laws), your right to vest in the RSUs under the Plan, if any, will terminate effective as of the date that you are no longer actively providing Services and will not be extended by any notice period mandated under local law ( e.g. , active service would not include a period of “garden leave” or similar period pursuant to local law); the Board/Committee shall have the exclusive discretion to determine when you are no longer actively providing Services for purposes of the RSUs; notwithstanding the foregoing, if your Service terminates due to your death, the RSUs will be fully vested as of the date of death; and

(l) the RSUs and the benefits under the Plan, if any, will not automatically transfer to another company in the case of a merger, take-over or transfer of liability.

17. Data Privacy .

A. You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this RSU Agreement and any other grant materials by and among, as applicable, the Employer, the Company and its Parent, and Subsidiaries for the exclusive purpose of implementing, administering and managing your participation in the Plan (“Data”).

B. You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of

 

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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 RSU or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the exclusive purpose of implementing, administering and managing the Plan.

C. You understand that Data may be transferred to a Company-designated Plan broker or such other 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. You understand 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 your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorizes the Company, its designated Plan broker 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 your participation in the Plan. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you 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 your local human resources representative. Further, you understand that you are providing the consents herein on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing your consent is that the Company would not be able to grant you RSUs or other equity awards or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

18. Non-U.S. Addendum . Notwithstanding any provisions in this RSU Agreement, the RSUs shall be subject to the special terms and conditions set forth in any addendum to this RSU Agreement (the “ Non-U.S. Addendum ”) for your country. Moreover, if you relocate to one of the countries included in the Non-U.S. Addendum, the special terms and conditions for such country will apply to you, to the extent the Company determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan. The Non-U.S. Addendum constitutes part of this RSU Agreement.

BY ACCEPTING THIS RSU, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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Non-U.S. Addendum

 

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N OTICE OF S TOCK A PPRECIATION R IGHT A WARD

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

Unless otherwise defined herein, the terms defined in the GoPro, Inc. (the “ Company ”) 2014 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Stock Appreciation Right Award (the “ Notice ”) and the Stock Appreciation Right Agreement (the “ SAR Agreement ”). You have been granted an award of Stock Appreciation Rights (the “ SAR ”) of the Company under the Plan subject to the terms and conditions of the Plan, this Notice and the SAR Agreement.

 

     Name:  

 

    Address:  

 

     Grant Number:  

 

    Date of Grant:  

 

    Vesting Commencement Date:  

 

     Fair Market Value on Date of Grant:  

 

     Total Number of Shares:  

 

     Expiration Date:  

 

    Vesting Schedule:       The SAR becomes exercisable with respect to the first 25% of the Shares subject to the SAR when you complete 12 months of continuous Service from the Vesting Commencement Date. Thereafter, the SAR becomes exercisable with respect to an additional 1/48 th of the Shares subject to the SAR when you complete each month of Service.

You acknowledge that the vesting of the SAR pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company. By accepting the SAR, you consent to electronic delivery as set forth in the SAR Agreement.

 

PARTICIPANT:     GOPRO, INC.

Signature:

 

 

    By:  

 

Print Name:

 

 

    Its:  

 

Date:  

 

    Date:  

 


S TOCK A PPRECIATION R IGHT A WARD A GREEMENT

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

You have been granted an award of Stock Appreciation Rights (the “ SAR ”) by GoPro, Inc. (the “ Company ”), subject to the terms and conditions of the Plan, the Notice of Stock Appreciation Right Award (the “ Notice ”) and this Stock Appreciation Right Agreement (the “ Agreement ”).

1. Grant of SAR . You have been granted a SAR for the number of Shares set forth in the Notice at the fair market value set forth in the Notice. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail.

2. Termination Period .

(a) General Rule . Except as provided below, and subject to the Plan, this SAR may be exercised for three months after your termination of Service. In no event shall this SAR be exercised later than the Expiration Date set forth in the Notice.

(b) Death; Disability . If you die before your Service terminates, then this SAR will expire at the close of business at Company headquarters on the date 6 months after the date of death (subject to the expiration detailed in Section 6). If your Service terminates because of your Disability, then this SAR will expire at the close of business at Company headquarters on the date 6 months after your termination date (subject to the expiration detailed in Section 6).

(c) No Notice . You are responsible for keeping track of these exercise periods following your termination of Service for any reason. The Company will not provide further notice of such periods. In no event shall this Option be exercised later than the Expiration Date set forth in the Notice of Grant.

3. Vesting Rights . Subject to the applicable provisions of the Plan and this Agreement, this SAR may be exercised, in whole or in part, in accordance with the schedule set forth in the Notice.

4. Exercise of SAR .

(a) Right to Exercise . This SAR is exercisable during its term in accordance with the Vesting Schedule set forth in the Notice and the applicable provisions of the Plan and this Agreement. In the event of your death, Disability, termination for Cause or other termination, the exercisability of the SAR is governed by the applicable provisions of the Plan, the Notice and this Agreement. This SAR may not be exercised for a fraction of a Share.

(b) Method of Exercise . This SAR is exercisable by delivery of an exercise notice in a form specified by the Company (the “ Exercise Notice ”), which shall state the election to exercise the SAR, the number of Shares subject to the SAR to be exercised, and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company. This SAR shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice and any applicable tax withholding due upon exercise of the SAR.

(c) No Shares shall be issued pursuant to the exercise of this SAR unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to you on the date the SAR is exercised with respect to such Exercised Shares.


5. Non-Transferability of SAR . This SAR may not be transferred in any manner other than by will or by the laws of descent or distribution or court order and may be exercised during your lifetime only by you unless otherwise permitted by the Committee on a case-by-case basis. The terms of the Plan and this Agreement shall be binding upon your executors, administrators, heirs, successors and assign.

6. Term of SAR . This SAR shall in any event expire on the expiration date set forth in the Notice, which date is 10 years after the Date of Grant.

7. Tax Consequences . You should consult a tax adviser for tax consequences relating to this SAR in their respective jurisdiction. YOU SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS SAR. If you are an Employee or a former Employee, the Company may be required to withhold from his or her compensation an amount equal to the minimum amount the Company is required to withhold for income and employment taxes or collect from you and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise.

8. Withholding Taxes and Stock Withholding . Regardless of any action the Company or your actual employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the SAR, including the grant, vesting or exercise of the SAR, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the SAR to reduce or eliminate your liability for Tax-Related Items.

Prior to exercise of the SAR, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when you exercise this SAR, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company. The Fair Market Value of these Shares, determined as of the effective date of the SAR exercise, will be applied as a credit against the withholding taxes. Finally, you shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the Shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.

9. Acknowledgement . The Company and you agree that the SAR is granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference). You: (i) acknowledge receipt of a copy of the Plan and the Plan prospectus, (ii) represent that you have carefully read and is familiar with their provisions, and (iii) hereby accept the SAR subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.

10. Entire Agreement; Enforcement of Rights . This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.


11. Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and you with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

12. Governing Law; Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

13. No Rights as Employee, Director or Consultant . Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participant’s Service, for any reason, with or without cause.

14. Consent to Electronic Delivery of All Plan Documents and Disclosures . By your acceptance of this SAR, you consent to the electronic delivery of the Notice of Grant, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the SAR. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at [insert email]. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at [insert email]. Finally, you understand that you are not required to consent to electronic delivery.

15. Award Subject to Company Clawback or Recoupment . The SAR shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of your employment or other service with the Company that is applicable to executive officers, employees, directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law may require the cancelation of your SAR (whether vested or unvested) and the recoupment of any gains realized with respect to your SAR.

BY ACCEPTING THIS SAR, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.


NOTICE OF STOCK BONUS AWARD

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

GRANT NUMBER:

Unless otherwise defined herein, the terms defined in the GoPro, Inc. (the “ Company ”) 2014 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Stock Bonus Award (the “ Notice ”) and the attached Stock Bonus Award Agreement (the “ Stock Bonus Agreement ”). You (“ you ”) have been granted an award of Shares under the Plan (the “ Stock Bonus Award ”) subject to the terms and conditions of the Plan, this Notice and the attached Stock Bonus Agreement.

 

  Name:  

 

  Address:  

 

  Number of Shares:  

 

  Date of Grant:  

 

  Vesting Commencement Date:       [March 10, June 10, September 10 or December 10]
  Vesting Schedule:   [Subject to the limitations set forth in this Notice, the Plan and the Stock Bonus Agreement, 25% of the total number of Shares subject to the Stock Bonus Award will vest on the 12 month anniversary of the Vesting Commencement Date and 12.5% of the total number of Shares will vest on each six month anniversary thereafter so long as your Service continues.]

You acknowledge that the vesting of the Shares pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company. By accepting this Stock Bonus Award, you consent to electronic delivery as set forth in the Stock Bonus Agreement.

 

PARTICIPANT     GOPRO, INC.
Signature:  

 

    By:  

 

Print Name:  

 

    Its:  

 


STOCK BONUS AWARD AGREEMENT

GOPRO, INC.

2014 EQUITY INCENTIVE PLAN

You have been granted a Stock Bonus Award (“ Stock Bonus Award ”) by GoPro, Inc. (the “ Company ”), subject to the terms, restrictions and conditions of the Plan, the Notice of Stock Bonus Award (the “ Notice ”) and this Agreement.

1. Issuance . Your Stock Bonus Award shall be issued in Shares, and the Company’s transfer agent shall record ownership of such Shares in your name as soon as reasonably practicable.

2. Stockholder Rights . You shall have no right to dividends or to vote Shares until you are recorded as the holder of such Shares on the stock records of the Company and its transfer agent.

3. No-Transfer . Unvested Shares subject to your Stock Bonus Award shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of by you or any person whose interest derives from your interest. “ Unvested Shares ” are Shares that have not yet vested pursuant to the terms of the vesting schedule set forth in the Notice.

4. Termination . Upon your termination of Service for any reason, all Unvested Shares shall immediately be forfeited to the Company, and all of your rights to such Unvested Shares shall immediately terminate as of your termination date. In case of any dispute as to whether a termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination.

5. Tax Consequences . YOU SHOULD CONSULT A TAX ADVISER BEFORE ACQUIRING THE SHARES IN THE JURISDICTION IN WHICH HE OR SHE IS SUBJECT TO TAX. Shares shall not be issued under this Agreement unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the acquisition or vesting of Shares.

6. Withholding Taxes . Regardless of any action the Company or your employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Shares received under this award, including the award or vesting of such Shares, the subsequent sale of Shares under this award and the receipt of any dividends; and (2) do not commit to structure the terms of the award to reduce or eliminate your liability for Tax-Related Items.

No stock certificates will be released to you unless you have paid or made adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or your Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be released when they vest, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf and you hereby authorize such sales by this authorization), (c) your payment of a cash amount, or (d) any other arrangement approved by the Company; all under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if you are a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in

 

1


accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (a)-(d) above, and the Committee shall establish the method prior to the Tax-Related Items withholding event. The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. You shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. Finally, you acknowledge that the Company has no obligation to deliver Shares to you until you have satisfied the obligations in connection with the Tax-Related Items as described in this Section.

7. Acknowledgement . The Company and you agree that the Stock Bonus Award is granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference). You: (i) acknowledge receipt of a copy of the Plan and the Plan prospectus, (ii) represent that you have carefully read and are familiar with their provisions, and (iii) hereby accepts the Stock Bonus Award subject to all of the terms and conditions set forth herein and those set forth in the Plan, this Agreement and the Notice.

8. Entire Agreement; Enforcement of Rights . This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

9. Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and you with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

10. Governing Law; Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

10. No Rights as Employee, Director or Consultant . Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate your Service, for any reason, with or without cause.

11. Consent to Electronic Delivery of All Plan Documents and Disclosures . By acceptance of this Stock Bonus Award, you consent to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Stock Bonus Award. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other

 

2


delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at [insert email]. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at [insert email]. Finally, you understand that you are not required to consent to electronic delivery.

12. Award Subject to Company Clawback or Recoupment . The Stock Bonus Award shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of your employment or other Service with the Company that is applicable to executive officers, Employees, Directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law may require the cancellation of your Stock Bonus Award (whether vested or unvested) and the recoupment of any gains realized with respect to your Stock Bonus Award.

BY ACCEPTING THE STOCK BONUS AWARD, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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N OTICE OF S TOCK O PTION G RANT

GOPRO, INC. 2014 EQUITY INCENTIVE PLAN

Unless otherwise defined herein, the terms defined in the GoPro, Inc. (the “ Company ”) 2014 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Stock Option Grant (the “ Notice of Grant ”) and the Stock Option Agreement (the “ Option Agreement ”). You have been granted an Option to purchase shares of Common Stock of the Company under the Plan subject to the terms and conditions of the Plan, this Notice of Grant and the Option Agreement.

 

Name:  

 

Address:  

 

Grant Number:  

 

Date of Grant:  

 

Vesting Commencement Date:  

 

Exercise price per Share:  

 

Total Number of Shares:  

 

Type of Option:                    Non-Qualified Stock Option
                   Incentive Stock Option
Expiration Date:                    , 20          ; This Option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.
Vesting Schedule:       This Option becomes exercisable with respect to the first 25% of the Shares subject to this Option when you complete 12 months of continuous Service from the Vesting Commencement Date. Thereafter, this Option becomes exercisable with respect to an additional 1/48th of the Shares subject to this Option when you complete each month of Service.
Additional Terms:   ¨     If this box is checked, the additional terms and conditions set forth on Attachment 1 hereto (as executed by the Company) are applicable and are incorporated herein by reference. No document need be attached as Attachment 1 if the box is not checked.

By accepting this Option, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan, the Notice of Grant and the Option Agreement. By accepting this Option, you consent to electronic delivery as set forth in the Option Agreement.

 

GOPRO, INC.
By:  

 

Its:  

 

Date:  

 

 

1


S TOCK O PTION A GREEMENT

GOPRO, INC. 2014 EQUITY INCENTIVE PLAN

You have been granted an Option by GoPro, Inc. (the “ Company ”) under the 2014 Equity Incentive Plan (the “ Plan ”) to purchase Shares (the “ Option ”), subject to the terms and conditions of the Plan, the Notice of Stock Option Grant (the “ Notice of Grant ”) and this Stock Option Agreement (the “ Agreement ”).

1. Grant of Option . You have been granted an Option for the number of Shares set forth in the Notice of Grant at the exercise price per Share set forth in the Notice of Grant (the “ exercise price ”). In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option (“ ISO ”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonqualified Stock Option (“ NSO ”).

2. Termination Period .

(a) General Rule . If your Service terminates for any reason except death or Disability, and other than for Cause, then this Option will expire at the close of business at Company headquarters on the date three months after your termination date (subject to the expiration detailed in Section 6). If your Service is terminated for Cause, this Option will expire upon the date of such termination. The Company determines when your Service terminates for all purposes under this Agreement.

(b) Death; Disability . If you die before your Service terminates (or you die within three months of your termination of Service to the Company other than for cause), then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of death (subject to the expiration detailed in Section 6). If your Service terminates because of your Disability, then this Option will expire at the close of business at Company headquarters on the date 6 months after your termination date (subject to the expiration detailed in Section 6).

(c) No Notice . You are responsible for keeping track of these exercise periods following your termination of Service for any reason. The Company will not provide further notice of such periods. In no event shall this Option be exercised later than the Expiration Date set forth in the Notice of Grant.

3. Exercise of Option .

(a) Right to Exercise . This Option is exercisable during its term in accordance with the Vesting Schedule set forth in the Notice of Grant and the applicable provisions of the Plan and this Agreement. In the event of your death, Disability, or other cessation of Service, the exercisability of the Option is governed by the applicable provisions of the Plan, the Notice of Grant and this Agreement. This Option may not be exercised for a fraction of a Share.

(b) Method of Exercise . This Option is exercisable by delivery of an exercise notice in a form specified by the Company (the “ Exercise Notice ”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “ Exercised Shares ”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company. The Exercise Notice shall be accompanied by payment of the aggregate exercise price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of a fully executed Exercise Notice accompanied by the aggregate exercise price and any applicable tax withholding due upon exercise of the Option.

 

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(c) Exercise by Another . If another person wants to exercise this Option after it has been transferred to him or her in compliance with this Agreement, that person must prove to the Company’s satisfaction that he or she is entitled to exercise this Option. That person must also complete the proper Exercise Notice form (as described above) and pay the exercise price (as described below) and any applicable tax withholding due upon exercise of the Option (as described below).

4. Method of Payment . Payment of the aggregate exercise price shall be by any of the following, or a combination thereof, at your election:

(a) your personal check, wire transfer, or a cashier’s check;

(b) certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company; the value of the shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to you. However, you may not surrender, or attest to the ownership of, shares of Company stock in payment of the exercise price of your Option if your action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes;

(c) cashless exercise through irrevocable directions to a securities broker approved by the Company to sell all or part of the Shares covered by this Option and to deliver to the Company from the sale proceeds an amount sufficient to pay the Option exercise price and any withholding taxes. The balance of the sale proceeds, if any, will be delivered to you. The directions must be given by signing a special notice of exercise form provided by the Company; or

(d) other method authorized by the Company.

5. Non-Transferability of Option . In general, except as provided below, only you may exercise this Option prior to your death. You may not transfer or assign this Option, except as provided below. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may, however, dispose of this Option in your will or in a beneficiary designation. However, if this Option is designated as a NSO in the Notice of Grant, then the Committee (as defined in the Plan) may, in its sole discretion, allow you to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “family member” means a 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 individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest. In addition, if this Option is designated as a NSO in the Notice of Grant, then the Committee may, in its sole discretion, allow you to transfer this Option to your spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights. The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement. This Option may not be transferred in any manner other than by will or by the laws of descent or distribution or court order and may be exercised during the lifetime of you only by you, your guardian, or legal representative, as permitted in the Plan. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of you.

 

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6. Term of Option . This Option shall in any event expire on the expiration date set forth in the Notice of Grant, which date is 10 years after the grant date (five years after the grant date if this Option is designated as an ISO in the Notice of Grant and Section 5.3 of the Plan applies).

7. Tax Consequences . You should consult a tax advisor for tax consequences relating to this Option in the jurisdiction in which you are subject to tax. YOU SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

(a) Exercising the Option . You will not be allowed to exercise this Option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the Option exercise.

(b) Notice of Disqualifying Disposition of ISO Shares . If you sell or otherwise dispose of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, you shall immediately notify the Company in writing of such disposition. You agree that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current compensation paid to you.

8. Withholding Taxes and Stock Withholding . Regardless of any action the Company or your actual employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option grant, including the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate your liability for Tax-Related Items.

Prior to exercise of the Option, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when you exercise this Option, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company. The Fair Market Value of these Shares, determined as of the effective date of the Option exercise, will be applied as a credit against the withholding taxes. Finally, you shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the Shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this Section.

9. Acknowledgement . The Company and you agree that the Option is granted under and governed by the Notice of Grant, this Agreement and by the provisions of the Plan (incorporated herein by reference). You: (i) acknowledge receipt of a copy of the Plan and the Plan prospectus, (ii) represent that you have carefully read and are familiar with their provisions, and (iii) hereby accept the Option subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice of Grant. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice of Grant and the Agreement.

 

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10. Consent to Electronic Delivery of All Plan Documents and Disclosures . By your acceptance of this Option, you consent to the electronic delivery of the Notice of Grant, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Option. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at [insert email]. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at [insert email]. Finally, you understand that you are not required to consent to electronic delivery.

11. Compliance with Laws and Regulations . The Company will not permit anyone to exercise this Option if the issuance of shares at that time would violate any law or regulation, including without limitation all applicable state, federal and foreign laws and regulations and all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer. The Shares issued pursuant to this Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

12. Governing Law; Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

13. No Rights as Employee, Director or Consultant . Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate your Service, for any reason, with or without Cause.

14. Adjustment . In the event of a stock split, a stock dividend or a similar change in Company stock, the number of Shares covered by this Option and the exercise price per Share may be adjusted pursuant to the Plan.

15. Lock-Up Agreement . In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, you hereby agree not to sell, make any short sale of, loan, grant any Option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing

 

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underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering; provided however that, if during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any FINRA rules, the restrictions imposed by this Section shall continue to apply until the end of the third trading day following the expiration of the fifteen (15)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond two hundred sixteen (216) days after the effective date of the registration statement.

16. Award Subject to Company Clawback or Recoupment . The Option shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of your employment or other Service with the Company that is applicable to executive officers, employees, directors or other remedies available under such policy and applicable law may require the cancelation of your Option (whether vested or unvested) and the recoupment of any gains realized with respect to your Option.

This Agreement and the Plan constitute the entire understanding between you and the Company regarding this Option. Any prior agreements, commitments or negotiations concerning this Option are superseded. This Agreement may be amended only by another written agreement between the parties.

BY ACCEPTING THIS OPTION, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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N OTICE OF S TOCK O PTION G RANT

(International)

GOPRO, INC. 2014 EQUITY INCENTIVE PLAN

Unless otherwise defined herein, the terms defined in the GoPro, Inc. (the “ Company ”) 2014 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Stock Option Grant (the “ Notice of Grant ”) and the Stock Option Agreement (the “ Option Agreement ”), including any applicable country-specific provisions in the appendix attached hereto (if any) (the “ Appendix ”). You have been granted an Option to purchase shares of Common Stock of the Company under the Plan subject to the terms and conditions of the Plan, this Notice of Grant and the Option Agreement.

 

  Name:  

 

  Address:  

 

  Grant Number:  

 

  Date of Grant:  

 

  Vesting Commencement Date:      

 

  Exercise price per Share:  

 

  Total Number of Shares:  

 

  Type of Option:                    Non-Qualified Stock Option
                     Incentive Stock Option
  Expiration Date:                    , 20          ; This Option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.
  Vesting Schedule:   This Option becomes exercisable with respect to the first 25% of the Shares subject to this Option when you complete 12 months of continuous Service from the Vesting Commencement Date. Thereafter, this Option becomes exercisable with respect to an additional 1/48th of the Shares subject to this Option when you complete each month of Service.
  Additional Terms:        ¨     If this box is checked, the additional terms and conditions set forth on Attachment 1 hereto (as executed by the Company) are applicable and are incorporated herein by reference. No document need be attached as Attachment 1 if the box is not checked.

By accepting this Option, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan, the Notice of Grant and the Option Agreement. By accepting this Option, you consent to electronic delivery as set forth in the Option Agreement.

 

GOPRO, INC.
By:  

 

Its:  

 

Date:  

 

 

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S TOCK O PTION A GREEMENT

GOPRO, INC. 2014 EQUITY INCENTIVE PLAN

You have been granted an Option by GoPro, Inc. (the “ Company ”) under the 2014 Equity Incentive Plan (the “ Plan ”) to purchase Shares (the “ Option ”), subject to the terms and conditions of the Plan, the Notice of Stock Option Grant (the “ Notice of Grant ”) and this Stock Option Agreement (the “ Agreement ”), including any applicable country-specific provisions in the appendix attached hereto (if any) (the “ Appendix ”), which constitutes part of this Agreement.

1. Grant of Option . You have been granted an Option for the number of Shares set forth in the Notice of Grant at the exercise price per Share set forth in the Notice of Grant (the “ exercise price ”). In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option (“ ISO ”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonqualified Stock Option (“ NSO ”).

2. Termination Period .

(a) General Rule . If your Service terminates for any reason except death or Disability, and other than for Cause, then this Option will expire at the close of business at Company headquarters on the date three months after your termination date (subject to the expiration detailed in Section 6). If your Service is terminated for Cause, this Option will expire upon the date of such termination. Your Service will be considered terminated as of the date you are no longer providing services (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 you are employed or the terms of your employment agreement, if any). In case of any dispute as to whether your termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination. The Committee shall have the exclusive discretion to determine whether you may still be considered to be providing services while on an approved leave of absence.

(b) Death; Disability . If you die before your Service terminates (or you die within three months of your termination of Service to the Company other than for cause), then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of death (subject to the expiration detailed in Section 6). If your Service terminates because of your Disability, then this Option will expire at the close of business at Company headquarters on the date 6 months after your termination date (subject to the expiration detailed in Section 6).

(c) No Notice . You are responsible for keeping track of these exercise periods following your termination of Service for any reason. The Company will not provide further notice of such periods. In no event shall this Option be exercised later than the Expiration Date set forth in the Notice of Grant.

3. Exercise of Option .

(a) Right to Exercise . This Option is exercisable during its term in accordance with the Vesting Schedule set forth in the Notice of Grant and the applicable provisions of the Plan and this Agreement. In the event of your death, Disability, or other cessation of Service, the exercisability of the Option is governed by the applicable provisions of the Plan, the Notice of Grant and this Agreement. This Option may not be exercised for a fraction of a Share.

(b) Method of Exercise . This Option is exercisable by delivery of an exercise notice in a form specified by the Company (the “ Exercise Notice ”), which shall state the election to exercise the

 

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Option, the number of Shares in respect of which the Option is being exercised (the “ Exercised Shares ”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company. The Exercise Notice shall be accompanied by payment of the aggregate exercise price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of a fully executed Exercise Notice accompanied by the aggregate exercise price and any applicable tax withholding due upon exercise of the Option.

(c) Exercise by Another . If another person wants to exercise this Option after it has been transferred to him or her in compliance with this Agreement, that person must prove to the Company’s satisfaction that he or she is entitled to exercise this Option. That person must also complete the proper Exercise Notice form (as described above) and pay the exercise price (as described below) and any applicable tax withholding due upon exercise of the Option (as described below).

4. Method of Payment . Payment of the aggregate exercise price shall be by any of the following, or a combination thereof, at your election:

(a) your personal check, wire transfer, or a cashier’s check;

(b) certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company; the value of the shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to you. However, you may not surrender, or attest to the ownership of, shares of Company stock in payment of the exercise price of your Option if your action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes;

(c) cashless exercise through irrevocable directions to a securities broker approved by the Company to sell all or part of the Shares covered by this Option and to deliver to the Company from the sale proceeds an amount sufficient to pay the Option exercise price and any withholding taxes. The balance of the sale proceeds, if any, will be delivered to you. The directions must be given by signing a special notice of exercise form provided by the Company; or

(d) other method authorized by the Company.

5. Non-Transferability of Option . In general, except as provided below, only you may exercise this Option prior to your death. You may not transfer or assign this Option, except as provided below. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may, however, dispose of this Option in your will or in a beneficiary designation. However, if this Option is designated as a NSO in the Notice of Grant, then the Committee (as defined in the Plan) may, in its sole discretion, allow you to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “family member” means a 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 individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest. In addition, if this Option is designated as a NSO in the Notice of Grant, then the Committee may, in its sole discretion, allow you to transfer this Option to your spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights. The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement. This Option may not be

 

3


transferred in any manner other than by will or by the laws of descent or distribution or court order and may be exercised during the lifetime of you only by you, your guardian, or legal representative, as permitted in the Plan. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of you.

6. Term of Option . This Option shall in any event expire on the expiration date set forth in the Notice of Grant, which date is 10 years after the grant date (five years after the grant date if this Option is designated as an ISO in the Notice of Grant and Section 5.3 of the Plan applies).

7. Tax Consequences . You should consult a tax advisor for tax consequences relating to this Option in the jurisdiction in which you are subject to tax. YOU SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

(a) Exercising the Option . You will not be allowed to exercise this Option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the Option exercise.

(b) Notice of Disqualifying Disposition of ISO Shares . If you sell or otherwise dispose of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, you shall immediately notify the Company in writing of such disposition. You agree that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current compensation paid to you.

8. Withholding Taxes and Stock Withholding . Regardless of any action the Company or your actual employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option grant, including the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate your liability for Tax-Related Items.

Prior to exercise of the Option, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when you exercise this Option, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company. The Fair Market Value of these Shares, determined as of the effective date of the Option exercise, will be applied as a credit against the withholding taxes. Finally, you shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the Shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this Section.

9. Acknowledgement . The Company and you agree that the Option is granted under and governed by the Notice of Grant, this Agreement and by the provisions of the Plan (incorporated herein by reference). You: (i) acknowledge receipt of a copy of the Plan and the Plan prospectus, (ii) represent

 

4


that you have carefully read and are familiar with their provisions, and (iii) hereby accept the Option subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice of Grant. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice of Grant and the Agreement.

10. Consent to Electronic Delivery of All Plan Documents and Disclosures . By your acceptance of this Option, you consent to the electronic delivery of the Notice of Grant, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Option. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at [insert email]. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at [insert email]. Finally, you understand that you are not required to consent to electronic delivery. To the extent you have been provided with a copy of this Agreement, the Plan, or any other documents relating to the Option in a language other than English, the English language documents will prevail in case of any ambiguities or divergences as a result of translation.

11. Appendix . Notwithstanding any provisions in this Agreement, the Option grant shall be subject to any special terms and conditions set forth in the Appendix to this Agreement for your country set forth as an attachment to this Agreement (if any). Moreover, if you relocate to one of the countries included in the Appendix, the special terms and conditions for such country will apply to you, 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 Agreement.

12. Compliance with Laws and Regulations . The Company will not permit anyone to exercise this Option if the issuance of shares at that time would violate any law or regulation, including without limitation all applicable state, federal and foreign laws and regulations and all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer. The Shares issued pursuant to this Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

13. Governing Law; Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

 

5


14. No Rights as Employee, Director or Consultant . Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate your Service, for any reason, with or without Cause.

15. Adjustment . In the event of a stock split, a stock dividend or a similar change in Company stock, the number of Shares covered by this Option and the exercise price per Share may be adjusted pursuant to the Plan.

16. Lock-Up Agreement . In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, you hereby agree not to sell, make any short sale of, loan, grant any Option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering; provided however that, if during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any FINRA rules, the restrictions imposed by this Section shall continue to apply until the end of the third trading day following the expiration of the fifteen (15)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond two hundred sixteen (216) days after the effective date of the registration statement.

17. Plan Discretionary; Extraordinary Compensation . You acknowledge and understand that the Plan is wholly discretionary in nature. You understand that the Company has reserved the right to amend, suspend or terminate the Plan at any time, and that the grant of an Option in one year or at any time does not in any way create any contractual or other right to receive future grants of Options or benefits in lieu of Options in any future year or in any given amount. You understand that all determinations with respect to any such future grants, including, but not limited to, the times when Options shall be offered and the vesting schedule will be at the sole discretion of the Company. The value of the Option is an extraordinary item of compensation outside the scope of your employment contract, if any, and is not to be considered part of your normal or expected compensation for purposes of calculating severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. You acknowledge that the right to be granted Options and to continue vesting or to receive further grants of Options will terminate effective as of the date upon which you receive notice of termination, regardless of when the termination is effective.

18. Data Privacy .

(a) You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Agreement and any other grant materials by and among, as applicable, the Employer, the Company and its Parent, and Subsidiaries for the exclusive purpose of implementing, administering and managing your participation in the Plan (“Data”).

(b) You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your 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 Options or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the exclusive purpose of implementing, administering and managing the Plan.

 

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(c) You understand that Data may be transferred to a Company-designated Plan broker or such other 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 . You understand 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 your country . You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative . You authorizes the Company, its designated Plan broker 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 your participation in the Plan . You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan . You understand that you 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 your local human resources representative . Further, you understand that you are providing the consents herein on a purely voluntary basis . If you do not consent, or if you later seek to revoke your consent, your employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing your consent is that the Company would not be able to grant you Options or other equity awards or administer or maintain such awards . Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan . For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

19. Award Subject to Company Clawback or Recoupment . The Option shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of your employment or other Service with the Company that is applicable to executive officers, employees, directors or other remedies available under such policy and applicable law may require the cancelation of your Option (whether vested or unvested) and the recoupment of any gains realized with respect to your Option.

This Agreement and the Plan constitute the entire understanding between you and the Company regarding this Option. Any prior agreements, commitments or negotiations concerning this Option are superseded. This Agreement may be amended only by another written agreement between the parties.

BY ACCEPTING THIS OPTION, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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Appendix

[To be provided, if required.]

 

8

Exhibit 10.04

G O P RO , I NC .

2014 E MPLOYEE S TOCK P URCHASE P LAN

1. PURPOSE . GoPro, Inc. adopted the Plan effective as of the date of the IPO. The purpose of this Plan is to provide eligible employees of the Company and the Participating Corporations with a means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees’ sense of participation in the affairs of the Company. Capitalized terms not defined elsewhere in the text are defined in Section 28.

2. ESTABLISHMENT OF PLAN . The Company proposes to grant rights to purchase shares of Common Stock to eligible employees of the Company and its Participating Corporations pursuant to this Plan. The Company intends this Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. In addition, with regard to offers of options to purchase shares of the Common Stock under the Plan to employees working for a Subsidiary or an Affiliate outside the United States, this Plan authorizes the grant of options that are not intended to meet Section 423 requirements, provided, if necessary under Section 423 of the Code, the other terms and conditions of the Plan are met.

Subject to Section 14, a total of 3,367,557 shares of Common Stock is reserved for issuance under this Plan. In addition, on each January 1 of each calendar year, the aggregate number of shares of Common Stock reserved for issuance under the Plan shall be increased automatically by the number of shares equal to one percent (1%) of the total number of outstanding shares of Common Stock, Common Stock equivalents, Class B common stock, and Class B common stock equivalents outstanding on the immediately preceding December 31 (rounded down to the nearest whole share); provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year. Subject to Section 14, no more than 50,000,000 shares of Common Stock may be issued over the term of this Plan. The number of shares initially reserved for issuance under this Plan and the maximum number of shares that may be issued under this Plan shall be subject to adjustments effected in accordance with Section 14.

3. ADMINISTRATION . The Plan will be administered by the Committee. Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all Participants. The Committee will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility, to designate the Participating Corporations, to determine when to grant options that are not intended to meet the Code Section 423 requirements and to decide upon any and all claims filed under the Plan. Every finding, decision and determination made by the Committee will, to the full extent permitted by law, be final and binding upon all parties. Notwithstanding any provision to the contrary in this Plan, the Committee may adopt rules, sub-plans, and/or procedures relating to the operation and administration of the Plan designed to comply with local laws, regulations or customs or to achieve tax, securities law or other objectives for eligible employees outside of the United States. The Committee will have the authority to determine the Fair Market Value of the Common Stock (which determination shall be final, binding and conclusive for all purposes) in accordance with Section 8 below and to interpret Section 8 of the Plan in connection with circumstances that impact the Fair Market Value. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. For purposes of this Plan, the Committee may designate separate offerings


under the Plan (the terms of which need not be identical) in which eligible employees of one or more Participating Corporations will participate, even if the dates of the applicable Offering Periods of each such offering are identical.

4. ELIGIBILITY .

(a) Any employee of the Company or the Participating Corporations is eligible to participate in an Offering Period under this Plan, except that one or more of the following categories of employees may be excluded from coverage under the Plan by the Committee (other than where prohibited by applicable law):

(i) employees who are customarily employed for twenty (20) hours or less per week;

(ii) employees who are customarily employed for five (5) months or less in a calendar year; and

(iii) employees who do not meet any other eligibility requirements that the Committee may choose to impose (within the limits permitted by the Code).

The foregoing notwithstanding, an individual shall not be eligible if his or her participation in the Plan is prohibited by the law of any country that has jurisdiction over him or her, if complying with the laws of the applicable country would cause the Plan to violate Section 423 of the Code, or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan.

(b) No employee who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, owns stock or holds options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its Parent or Subsidiary or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its Parent or Subsidiary shall be granted an option to purchase Common Stock under the Plan.

5. OFFERING DATES .

(a) Each Offering Period of this Plan may be of up to twenty-seven (27) months duration and shall commence and end at the times designated by the Committee. Each Offering Period may consist of one or more Purchase Periods during which payroll deductions of Participants are accumulated under this Plan.

(b) The initial Offering Period shall run coterminous with the initial Purchase Period and shall commence on the Effective Date and shall end with the Purchase Date that occurs on or prior to the February 15 or August 15 that first occurs six (6) months or more after the Effective Date. The initial Offering Period shall consist of a single Purchase Period. Thereafter, a six-month Offering Period shall commence on each February 15 and August 15, with each such Offering Period also consisting of a single six-month Purchase Period, except as otherwise provided by an applicable subplan, or on such other date determined by the Committee. The Committee may at any time establish a different duration for an Offering Period or Purchase Period to be effective after the next scheduled Purchase Date.

 

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6. PARTICIPATION IN THIS PLAN .

(a) Any employee who is an eligible employee determined in accordance with Section 4 immediately prior to the initial Offering Period will be automatically enrolled in the initial Offering Period under this Plan for the maximum number of shares of Common Stock purchasable. With respect to subsequent Offering Periods, any eligible employee determined in accordance with Section 4 will be eligible to participate in this Plan, subject to the requirement of Section 6(b) hereof and the other terms and provisions of this Plan.

(b) With respect to Offering Periods after the initial Offering Period, a Participant may elect to participate in this Plan by submitting an enrollment agreement prior to the commencement of the Offering Period (or such earlier date as the Committee may determine) to which such agreement relates.

(c) Once an employee becomes a Participant in an Offering Period, then such Participant will automatically participate in each subsequent Offering Period commencing immediately following the last day of the prior Offering Period unless the Participant withdraws or is deemed to withdraw from this Plan or terminates further participation in an Offering Period as set forth in Section 11 below. A Participant who is continuing participation pursuant to the preceding sentence is not required to file any additional enrollment agreement in order to continue participation in this Plan; a Participant who is not continuing participation pursuant to the preceding sentence is required to file an enrollment agreement prior to the commencement of the Offering Period (or such earlier date as the Committee may determine) to which such agreement relates.

7. GRANT OF OPTION ON ENROLLMENT . Becoming a Participant with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such Participant of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by a fraction, the numerator of which is the amount accumulated in such Participant’s payroll deduction account during such Purchase Period and the denominator of which is the lower of (i) eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Offering Date (but in no event less than the par value of a share of the Common Stock), or (ii) eighty-five percent (85%) of the Fair Market Value of a share of the Common Stock on the Purchase Date provided, however , that for the Purchase Period within the initial Offering Period the numerator shall be fifteen percent (15%) of the Participant’s compensation for such Purchase Period, or such lower percentage as determined by the Committee prior to the start of the Offering Period, and provided , further , that the number of shares of Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(b) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(a) below with respect to the applicable Purchase Date.

8. PURCHASE PRICE . The Purchase Price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of:

(a) The Fair Market Value on the Offering Date; or

(b) The Fair Market Value on the Purchase Date.

 

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9. PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTION CHANGES; SHARE ISSUANCES.

(a) The Purchase Price shall be accumulated by regular payroll deductions made during each Offering Period, unless the Committee determines with respect to categories of Participants outside the United States that contributions may be made in another form due to local legal requirements. The deductions are made as a percentage of the Participant’s compensation in one percent (1%) increments not less than one percent (1%), nor greater than fifteen percent (15%) or such lower limit set by the Committee. Compensation shall mean base salary (or in foreign jurisdictions, equivalent cash compensation); however, the Committee may at any time prior to the beginning of an Offering Period determine that for that and future Offering Periods, Compensation shall mean all W-2 cash compensation, including without limitation base salary or regular hourly wages, bonuses, incentive compensation, commissions, overtime, shift premiums, plus draws against commissions (or in foreign jurisdictions, equivalent cash compensation). For purposes of determining a Participant’s Compensation, any election by such Participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code (or in foreign jurisdictions, equivalent salary deductions) shall be treated as if the Participant did not make such election. Payroll deductions shall commence on the first payday following the last Purchase Date (with respect to the initial Offering Period, as soon as practicable following the effective date of filing with the U.S. Securities and Exchange Commission a securities registration statement for the Plan) and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. Notwithstanding the foregoing, the terms of any sub-plan may permit matching shares without the payment of any purchase price.

(b) A Participant may decrease the rate of payroll deductions during an Offering Period by filing with the Company a new authorization for payroll deductions, with the new rate to become effective no later than the second payroll period commencing after the Company’s receipt of the authorization and continuing for the remainder of the Offering Period unless changed as described below. A decrease in the rate of payroll deductions may be made once during an Offering Period or more frequently under rules determined by the Committee. A Participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Company a new authorization for payroll deductions prior to the beginning of such Offering Period, or such other time period as specified by the Committee.

(c) A Participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Company a request for cessation of payroll deductions. Such reduction shall be effective beginning no later than the second payroll period after the Company’s receipt of the request and no further payroll deductions will be made for the duration of the Offering Period. Payroll deductions credited to the Participant’s account prior to the effective date of the request shall be used to purchase shares of Common Stock in accordance with Subsection (e) below. A reduction of the payroll deduction percentage to zero shall be treated as such Participant’s withdrawal from such Offering Period and the Plan, effective as of the day after the next Purchase Date following the filing date of such request with the Company.

(d) All payroll deductions made for a Participant are credited to his or her account under this Plan and are deposited with the general funds of the Company, except to the extent local legal restrictions outside the United States require segregation of such payroll deductions. No interest accrues on the payroll deductions, except to the extent required due to local legal requirements. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions, except to the extent necessary to comply with local legal requirements outside the United States.

 

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(e) On each Purchase Date, so long as this Plan remains in effect and provided that the Participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the Participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the Participant as of that date returned to the Participant, the Company shall apply the funds then in the Participant’s account to the purchase of whole shares of Common Stock reserved under the option granted to such Participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The Purchase Price per share shall be as specified in Section 8 of this Plan. Any fractional share, as calculated under this Subsection (e), shall be rounded down to the next lower whole share, unless the Committee determines with respect to all Participants that any fractional share shall be credited as a fractional share. Any amount remaining in a Participant’s account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock shall be returned to the Participant, without interest (except to the extent required due to local legal requirements outside the United States). In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the Participant, without interest (except to the extent required due to local legal requirements outside the United States). No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date, except to the extent required due to local legal requirements outside the United States.

(f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the Participant’s benefit representing the shares purchased upon exercise of his or her option.

(g) During a Participant’s lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The Participant will have no interest or voting right in shares covered by his or her option until such option has been exercised.

(h) To the extent required by applicable federal, state, local or foreign law, a Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company or any Subsidiary or Affiliate, as applicable, may withhold, by any method permissible under the applicable law, the amount necessary for the Company or Subsidiary or Affiliate, as applicable, to meet applicable withholding obligations, including any withholding required to make available to the Company or Subsidiary or Affiliate, as applicable, any tax deductions or benefits attributable to the sale or early disposition of shares of Common Stock by a Participant. The Company shall not be required to issue any shares of Common Stock under the Plan until such obligations are satisfied.

10. LIMITATIONS ON SHARES TO BE PURCHASED .

(a) Any other provision of the Plan notwithstanding, no Participant shall purchase Common Stock with a Fair Market Value in excess of the following limit:

(i) In the case of Common Stock purchased during an Offering Period that commenced in the current calendar year, the limit shall be equal to (A) $25,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased in the current calendar year (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company).

(ii) In the case of Common Stock purchased during an Offering Period that commenced in the immediately preceding calendar year, the limit shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the immediately preceding calendar year.

 

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(iii) In the case of Common Stock purchased during an Offering Period that commenced two calendar years prior, the limit shall be equal to (A) $75,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the two immediately preceding calendar years.

For purposes of this Subsection (a), the Fair Market Value of Common Stock shall be determined in each case as of the beginning of the Offering Period in which such Common Stock is purchased. Employee stock purchase plans not described in Section 423 of the Code shall be disregarded. If a Participant is precluded by this Subsection (a) from purchasing additional Common Stock under the Plan, then his or her employee contributions shall automatically be discontinued and shall automatically resume at the beginning of the earliest Purchase Period that will end in the next calendar year (if he or she then is an eligible employee), provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension.

(b) In no event shall a Participant be permitted to purchase more than 2,500 shares on any one Purchase Date or such lesser number as the Committee shall determine. If a lower limit is set under this Subsection (b), then all Participants will be notified of such limit prior to the commencement of the next Offering Period for which it is to be effective.

(c) If the number of shares to be purchased on a Purchase Date by all Participants exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company will give notice of such reduction of the number of shares to be purchased under a Participant’s option to each Participant affected.

(d) Any payroll deductions accumulated in a Participant’s account which are not used to purchase stock due to the limitations in this Section 10, and not covered by Section 9(e), shall be returned to the Participant as soon as practicable after the end of the applicable Purchase Period, without interest (except to the extent required due to local legal requirements outside the United States).

11. WITHDRAWAL .

(a) Each Participant may withdraw from an Offering Period under this Plan pursuant to a method specified for such purpose by the Company. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee.

(b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn Participant, without interest (except to the extent required due to local legal requirements outside the United States), and his or her interest in this Plan shall terminate. In the event a Participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan.

12. TERMINATION OF EMPLOYMENT . Termination of a Participant’s employment for any reason, including retirement, death, disability, or the failure of a Participant to remain an eligible employee of the Company or of a Participating Corporation, immediately terminates his or her

 

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participation in this Plan. In such event, accumulated payroll deductions credited to the Participant’s account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest (except to the extent required due to local legal requirements outside the United States). For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Corporation in the case of sick leave, military leave, or any other leave of absence approved by the Company; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. The Company will have sole discretion to determine whether a Participant has terminated employment and the effective date on which the Participant terminated employment, regardless of any notice period or garden leave required under local law.

13. RETURN OF PAYROLL DEDUCTIONS . In the event a Participant’s interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the Participant all accumulated payroll deductions credited to such Participant’s account. No interest shall accrue on the payroll deductions of a Participant in this Plan (except to the extent required due to local legal requirements outside the United States).

14. CAPITAL CHANGES . If the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then the Committee shall adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised, and the numerical limits of Sections 2 and 10 shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with the applicable securities laws; provided that fractions of a share will not be issued.

15. NONASSIGNABILITY . Neither payroll deductions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect.

16. USE OF PARTICIPANT FUNDS AND REPORTS . The Company may use all payroll deductions received or held by it under the Plan for any corporate purpose, and the Company will not be required to segregate Participant payroll deductions (except to the extent required due to local legal requirements outside the United States). Until shares are issued, Participants will only have the rights of an unsecured creditor unless otherwise required under local law. Each Participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be.

17. NOTICE OF DISPOSITION . Each U.S. taxpayer Participant shall notify the Company in writing if the Participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan. The Company may place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company’s transfer agent to notify the Company of any transfer of the shares. The obligation of the Participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates.

18. NO RIGHTS TO CONTINUED EMPLOYMENT . Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Corporation, or restrict the right of the Company or any Participating Corporation to terminate such employee’s employment.

 

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19. EQUAL RIGHTS AND PRIVILEGES . All eligible employees granted an option under this Plan that is intended to meet the Code Section 423 requirements shall have equal rights and privileges with respect to this Plan or within any separate offering under the Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code, without further act or amendment by the Company, the Committee or the Board, shall be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan.

20. NOTICES. All notices or other communications by a Participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

21. TERM; STOCKHOLDER APPROVAL . This Plan will become effective on the Effective Date. This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares that are subject to such stockholder approval before becoming available under this Plan shall occur prior to stockholder approval of such shares and the Board or Committee may delay any Purchase Date and postpone the commencement of any Offering Period subsequent to such Purchase Date as deemed necessary or desirable to obtain such approval (provided that if a Purchase Date would occur more than twenty-four (24) months after commencement of the Offering Period to which it relates, then such Purchase Date shall not occur and instead such Offering Period shall terminate without the purchase of such shares and Participants in such Offering Period shall be refunded their contributions without interest). This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time pursuant to Section 25 below), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) the tenth anniversary of the Effective Date under the Plan.

22. DESIGNATION OF BENEFICIARY .

(a) Unless otherwise determined by the Committee, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant’s account under this Plan in the event of such Participant’s death prior to a Purchase Date. Such form shall be valid only if it was filed with the Company at the prescribed location before the Participant’s death.

(b) Such designation of beneficiary may be changed by the Participant at any time by written notice filed with the Company at the prescribed location before the Participant’s death. In the event of the death of a Participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such Participant’s death, the Company shall deliver such cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such cash to the spouse or, if no spouse is known to the Company, then to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES . Shares shall not be issued with respect to an option unless the exercise of such option and the

 

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issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, exchange control restrictions and/or securities law restrictions outside the United States, and shall be further subject to the approval of counsel for the Company with respect to such compliance. Shares may be held in trust or subject to further restrictions as permitted by any subplan.

24. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of Delaware.

25. AMENDMENT OR TERMINATION . The Committee, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Committee, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Purchase Date (which may be sooner than originally scheduled, if determined by the Committee in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 14). If an Offering Period is terminated prior to its previously-scheduled expiration, all amounts then credited to Participants’ accounts for such Offering Period, which have not been used to purchase shares of Common Stock, shall be returned to those Participants (without interest thereon, except as otherwise required under local laws) as soon as administratively practicable. Further, the Committee will be entitled to change the Purchase Periods and Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld or contributed in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the administration of the Plan, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s base salary and other eligible compensation, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable which are consistent with the Plan. Such actions will not require stockholder approval or the consent of any Participants. However, no amendment shall be made without approval of the stockholders of the Company (obtained in accordance with Section 21 above) within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. In addition, in the event the Board or Committee determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board or Committee may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequences including, but not limited to: (i) amending the definition of compensation, including with respect to an Offering Period underway at the time; (ii) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (iii) shortening any Offering Period by setting a Purchase Date, including an Offering Period underway at the time of the Committee’s action; (iv) reducing the maximum percentage of compensation a participant may elect to set aside as payroll deductions; and (v) reducing the maximum number of shares a Participant may purchase during any Offering Period. Such modifications or amendments will not require approval of the stockholders of the Company or the consent of any Participants.

26. CORPORATE TRANSACTIONS . In the event of a Corporate Transaction, the Offering Period for each outstanding right to purchase Common Stock will be shortened by setting a new Purchase Date and will end on the new Purchase Date. The new Purchase Date shall occur on or prior to the consummation of the Corporate Transaction, as determined by the Board or Committee, and the Plan shall terminate on the consummation of the Corporate Transaction.

 

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27. CODE SECTION 409A; TAX QUALIFICATION.

(a) Options granted under the Plan generally are exempt from the application of Section 409A of the Code. However, options granted to U.S. taxpayers which are not intended to meet the Code Section 423 requirements are intended to be exempt from the application of Section 409A of the Code under the short-term deferral exception and any ambiguities shall be construed and interpreted in accordance with such intent. Subject to Subsection (b), options granted to U.S. taxpayers outside of the Code Section 423 requirements shall be subject to such terms and conditions that will permit such options to satisfy the requirements of the short-term deferral exception available under Section 409A of the Code, including the requirement that the shares of Common Stock subject to an option be delivered within the short-term deferral period. Subject to Subsection (b), in the case of a Participant who would otherwise be subject to Section 409A of the Code, to the extent the Committee determines that an option or the exercise, payment, settlement or deferral thereof is subject to Section 409A of the Code, the option shall be granted, exercised, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the option that is intended to be exempt from or compliant with Section 409A of the Code is not so exempt or compliant or for any action taken by the Committee with respect thereto.

(b) Although the Company may endeavor to (i) qualify an option for favorable tax treatment under the laws of the United States or jurisdictions outside of the United States or (ii) avoid adverse tax treatment ( e.g. , under Section 409A of the Code), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in this Plan, including Subsection (a). The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on Participants under the Plan.

28. DEFINITIONS .

(a) Affiliate ” means (i) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Committee, whether now or hereafter existing.

(b) “ Board ” shall mean the Board of Directors of the Company.

(c) “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

( d ) Committee ” shall mean the Compensation Committee of the Board that consists exclusively of one or more members of the Board appointed by the Board.

(e) Common Stock ” shall mean the Class A common stock of the Company.

(f) Company ” shall mean GoPro, Inc.

(g) Corporate Transaction ” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the

 

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“beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(h) “ Effective Date ” shall mean the date on which the Registration Statement covering the initial public offering of the shares of Common Stock is declared effective by the U.S. Securities and Exchange Commission.

(i) Fair Market Value ” shall mean, as of any date, the value of a share of Common Stock determined as follows:

(1) if such Common Stock is then quoted on the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (collectively, the “ Nasdaq Market ”), its closing price on the Nasdaq Market on the date of determination, or if there are no sales for such date, then the last preceding business day on which there were sales, as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable; or

( 2 ) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable; or

(3) if such Common Stock is publicly traded but is neither quoted on the Nasdaq Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable; or

(4) with respect to the initial Offering Period, Fair Market Value on the Offering Date shall be the price at which shares of Common Stock are offered to the public pursuant to the Registration Statement covering the initial public offering of shares of Common Stock; and

( 5 ) if none of the foregoing is applicable, by the Board or the Committee in good faith.

( j ) IPO ” shall mean the initial public offering of Common Stock.

(k) Offering Date ” shall mean the first business day of each Offering Period. However, for the initial Offering Period the Offering Date shall be the Effective Date.

(l) Offering Period ” shall mean a period with respect to which the right to purchase Common Stock may be granted under the Plan, as determined by the Committee pursuant to Section 5(a).

 

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(m) “ Parent ” shall have the same meaning as “parent corporation” in Sections 424(e) and 424(f) of the Code.

(n) Participant ” shall mean an eligible employee who meets the eligibility requirements set forth in Section 4 and who is either automatically enrolled in the initial Offering Period or who elects to participate in this Plan pursuant to Section 6(b).

(o) Participating Corporation ” shall mean any Parent, Subsidiary or Affiliate that the Committee designates from time to time as eligible to participate in this Plan, provided, however, that employees of Affiliates that are designated for participation may be granted only options that do not intend to comply with the Code Section 423 requirements.

(p) “ Plan ” shall mean this GoPro, Inc. 2014 Employee Stock Purchase Plan.

(q) Purchase Date ” shall mean the last business day of each Purchase Period.

(r) “ Purchase Period ” shall mean a period during which contributions may be made toward the purchase of Common Stock under the Plan, as determined by the Committee pursuant to Section 5(b).

(s) Purchase Price ” shall mean the price at which Participants may purchase shares of Common Stock under the Plan, as determined pursuant to Section 8.

(t) Subsidiary ” shall have the same meaning as “subsidiary corporation” in Sections 424(e) and 424(f) of the Code.

 

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G O P RO , I NC . ( THE “C OMPANY ”)

2014 E MPLOYEE S TOCK P URCHASE P LAN (“ESPP”)

  

N ON -U.S. P ARTICIPANT F ORM

E NROLLMENT /C HANGE F ORM

 

S ECTION 1:

 

A CTIONS

  

C HECK D ESIRED A CTION :

 

¨        Enroll in the ESPP

¨        Elect / Change Contribution Percentage

¨        Discontinue Contributions

¨        Elect / Change Automatic Sale on Purchase

 

  

AND  C OMPLETE  S ECTIONS :

 

2 + 3 + 4 + 8

2 + 4 + 8

2 + 5 + 8

2 + 6 + 8

 

     

S ECTION 2:

 

P ERSONAL D ATA

  

Name:                                                                                       

Home Address:                                                                        

                                                                                                    

Employee ID number:                                                             

 

  

        Department:

                                                        

   

S ECTION 3:

 

E NROLL

  

¨     I hereby elect to participate in the ESPP, effective at the beginning of the next Offering Period. I elect to purchase shares of the Common Stock of the Company pursuant to the ESPP. I understand that the stock certificate(s) for the shares purchased on my behalf will be issued in street name and deposited directly into my brokerage account. I hereby agree to take all steps, and sign all forms, required to establish an account with the Company’s broker for this purpose.

 

My participation will continue as long as I remain eligible, unless I withdraw from the ESPP by filing a new Enrollment/Change Form with the Company. I understand that I must notify the Company of any disposition of shares purchased under the ESPP.

 

   

S ECTION 4:

 

E LECT / C HANGE C ONTRIBUTION P ERCENTAGE

  

I hereby authorize the Company to withhold from each of my paychecks such amount as is necessary to equal at the end of the applicable Offering Period     % of my base salary paid during such Offering Period as long as I continue to participate in the ESPP. That amount, plus any accumulated payroll deductions thus far during the current Purchase Period if this is a change, will be applied to the purchase of shares of the Common Stock pursuant to the ESPP. The percentage must be a whole number (from 1%, up to a maximum of 15%, with respect to enrollment or an increase in contribution percentage; from 0%, up to a maximum of 14% for a decrease in contribution percentage).

 

If this is a change to my current enrollment, this represents an ¨ -increase ¨ -decrease to my contribution percentage.

 

Note:    You may not increase your contribution at any time within a Purchase Period. You may decrease your contribution percentage to a percentage other than 0% only once within a Purchase Period to be effective during that Purchase Period. A change will become effective as soon as reasonably practicable after the form is received by the Company. An increase in your contribution percentage can only take effect with the next Offering Period .

 

   

S ECTION 5:

 

D ISCONTINUE C ONTRIBUTIONS

  

¨        I hereby elect to stop my contributions under the ESPP , effective as soon as reasonably practicable after this form is received by the Company.

 

Please ¨ -refund all contributions to me in cash, without interest OR ¨ - use my contributions to purchase shares on the next Purchase Date. I understand that I cannot resume participation until the start of the next Offering Period and must timely file a new enrollment form to do so.

 


S ECTION 6:

 

A UTOMATIC S ALE ON P URCHASE D ATE

  

¨     I hereby authorize the Company’s broker to automatically sell all shares acquired by me under the ESPP each Purchase Date.

 

You hereby authorize the Company to arrange a mandatory sale through the Company’s broker (on your behalf and you hereby authorize such sales by this authorization) of all shares acquired by you under the ESPP with such sales to be effected on or about each Purchase Date until you revoke this authorization. You acknowledge that the broker is under no obligation to arrange for such sale at any particular price. You acknowledge that you will be responsible for all brokerage fees and other costs of sale, and you agree to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale.

 

You acknowledge that the instruction to the broker to sell is intended to comply with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Securities Exchange Act of 1934 and to be interpreted to comply with the requirements of Rule 10b5-1(c)(1) under the Exchange Act (a “10b5-1 Plan”), in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable. You acknowledge that you are not aware of any material, nonpublic information with respect to the Company or any securities of the Company as of the date of this Agreement, or that as of the date any sales are effected pursuant to the 10b5-1 Plan you will not effect such sales on the basis of material nonpublic information about the securities or the Company of which you were aware at the time you entered into this Agreement. You hereby appoint the Company as your agent and attorney-in-fact to instruct the broker regarding sales under this 10b5-1 Plan. You acknowledge that it may not be possible to sell shares during the term of this 10b5-1 Plan due to (a) a legal or contractual restriction applicable to you or to the broker, (b) a market disruption, (c) rules governing order execution priority on the New York Stock Exchange, (d) a sale effected pursuant to this 10b5-1 Plan that fails to comply (or in the reasonable opinion of the broker’s counsel is likely not to comply) with Rule 144 under the Securities Act, or (e) if the Company determines that sales may not be effected under this 10b5-1 Plan. You acknowledge that this 10b5-1 Plan is subject to the terms of any policy adopted now or hereafter by the Company governing the adoption of 10b5-1 plans.

 

¨      I hereby revoke a prior authorization for the Company’s broker to automatically sell all shares acquired by me under the ESPP each Purchase Date.

 

   

S ECTION  7:

 

E LECTRONIC D ELIVERY AND A CCEPTANCE

  

The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the ESPP by electronic means. I hereby consent to receive such documents by electronic delivery and agree to participate in the ESPP through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 

   

S ECTION  8:

 

A CKNOWLEDGMENT AND S IGNATURE

  

I hereby authorize the Company or an agent of the Company to enroll me in the ESPP, to make regular deductions in the amount indicated above, and to purchase shares of the Company’s Common Stock for me. I also authorize the Company to deposit shares purchased with my contributions into a brokerage account as set forth above or according to procedures as may be in effect from time to time. I acknowledge that I have received a copy of the ESPP Prospectus (which summarizes the major features of the ESPP). I have read the Prospectus and my signature below (or my clicking on the Accept box if this is an electronic form) indicates that I hereby agree to be bound by the terms of the ESPP. I also acknowledge and agree to the terms set forth on the attached Non-US Addendum to this Enrollment/Change Form.

 

Signature:                                                                                                        Date:                     

 


Non-U.S. Addendum


G O P RO , I NC . ( THE “C OMPANY ”)

2014 E MPLOYEE S TOCK P URCHASE P LAN (“ESPP”)

  

N ON -U.S. P ARTICIPANT F ORM - IPO

E NROLLMENT /C HANGE F ORM

 

S ECTION 1:

 

A CTIONS

  

C HECK D ESIRED A CTION :

 

¨        Elect / Change Contribution Percentage

¨        Discontinue Contributions

¨        Elect / Change Automatic Sale on Purchase

 

  

AND  C OMPLETE  S ECTIONS :

 

2 + 4 + 8

2 + 5 + 8

2 + 6 + 8

 

     

S ECTION  2:

 

P ERSONAL D ATA

  

Name:                                                                                       

Home Address:                                                                       

                                                                                                   

Employee ID number:    ¨ ¨ ¨ - ¨ ¨ - ¨ ¨ ¨ ¨

 

  

        Department:

                                                        

   

S ECTION 3:

 

E NROLLMENT C ONFIRMED

  

I understand that my enrollment in the ESPP is effective at the beginning of the Offering Period and as a result of that enrollment I am electing to purchase shares of the Common Stock of the Company pursuant to the ESPP. I understand that the stock certificate(s) for the shares purchased on my behalf will be issued in street name and deposited directly into my brokerage account. I hereby agree to take all steps, and sign all forms, required to establish an account with the Company’s broker for this purpose.

 

My participation will continue as long as I remain eligible, unless I withdraw from the ESPP by filing a new Enrollment/Change Form with the Company. I understand that I must notify the Company of any disposition of shares purchased under the ESPP.

 

   

S ECTION  4:

 

E LECT / C HANGE C ONTRIBUTION P ERCENTAGE

  

I hereby authorize the Company to withhold from each of my paychecks such amount as is necessary to equal at the end of the applicable Offering Period     % of my base salary paid during such Offering Period as long as I continue to participate in the ESPP. That amount, plus any accumulated payroll deductions thus far during the current Purchase Period if this is a change, will be applied to the purchase of shares of the Common Stock pursuant to the ESPP. The percentage must be a whole number (from 1%, up to a maximum of 15%, with respect to enrollment or an increase in contribution percentage; from 0%, up to a maximum of 14% for a decrease in contribution percentage).

 

If this is a change to my current enrollment, this represents an ¨ -increase ¨ -decrease to my contribution percentage.

 

Note:    You may not increase your contribution at any time within a Purchase Period. You may decrease your contribution percentage to a percentage other than 0% only once within a Purchase Period to be effective during that Purchase Period. A change will become effective as soon as reasonably practicable after the form is received by the Company. An increase in your contribution percentage can only take effect with the next Offering Period .

 

   

S ECTION 5:

 

D ISCONTINUE C ONTRIBUTIONS

  

¨        I hereby elect to stop my contributions under the ESPP, effective as soon as reasonably practicable after this form is received by the Company.

 

Please ¨ -refund all contributions to me in cash, without interest OR ¨ - use my contributions to purchase shares on the next Purchase Date. I understand that I cannot resume participation until the start of the next Offering Period and must timely file a new enrollment form to do so.

 


S ECTION  6:

 

A UTOMATIC S ALE ON P URCHASE D ATE

  

¨     I hereby authorize the Company’s broker to automatically sell all shares acquired by me under the ESPP each Purchase Date.

 

You hereby authorize the Company to arrange a mandatory sale through the Company’s broker (on your behalf and you hereby authorize such sales by this authorization) of all shares acquired by you under the ESPP with such sales to be effected on or about each Purchase Date until you revoke this authorization. You acknowledge that the broker is under no obligation to arrange for such sale at any particular price. You acknowledge that you will be responsible for all brokerage fees and other costs of sale, and you agree to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale.

 

You acknowledge that the instruction to the broker to sell is intended to comply with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Securities Exchange Act of 1934 and to be interpreted to comply with the requirements of Rule 10b5-1(c)(1) under the Exchange Act (a “10b5-1 Plan”), in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable. You acknowledge that you are not aware of any material, nonpublic information with respect to the Company or any securities of the Company as of the date of this Agreement, or that as of the date any sales are effected pursuant to the 10b5-1 Plan you will not effect such sales on the basis of material nonpublic information about the securities or the Company of which you were aware at the time you entered into this Agreement. You hereby appoint the Company as your agent and attorney-in-fact to instruct the broker regarding sales under this 10b5-1 Plan. You acknowledge that it may not be possible to sell shares during the term of this 10b5-1 Plan due to (a) a legal or contractual restriction applicable to you or to the broker, (b) a market disruption, (c) rules governing order execution priority on the New York Stock Exchange, (d) a sale effected pursuant to this 10b5-1 Plan that fails to comply (or in the reasonable opinion of the broker’s counsel is likely not to comply) with Rule 144 under the Securities Act, or (e) if the Company determines that sales may not be effected under this 10b5-1 Plan. You acknowledge that this 10b5-1 Plan is subject to the terms of any policy adopted now or hereafter by the Company governing the adoption of 10b5-1 plans.

 

¨      I hereby revoke a prior authorization for the Company’s broker to automatically sell all shares acquired by me under the ESPP each Purchase Date.

 

   

S ECTION  7:

 

E LECTRONIC D ELIVERY AND A CCEPTANCE

  

The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the ESPP by electronic means. I hereby consent to receive such documents by electronic delivery and agree to participate in the ESPP through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 

   

S ECTION  8:

 

A CKNOWLEDGMENT AND S IGNATURE

  

I hereby authorize the Company or an agent of the Company to enroll me in the ESPP, to make regular deductions in the amount indicated above, and to purchase shares of the Company’s Common Stock for me. I also authorize the Company to deposit shares purchased with my contributions into a brokerage account as set forth above or according to procedures as may be in effect from time to time. I acknowledge that I have received a copy of the ESPP Prospectus (which summarizes the major features of the ESPP). I have read the Prospectus and my signature below indicates that I hereby agree to be bound by the terms of the ESPP. I also acknowledge and agree to the terms set forth on the attached Non-US Addendum to this Enrollment/Change Form.

 

Signature:                                                                                                    Date:                     

 


Non-U.S. Addendum


G O P RO , I NC . ( THE “C OMPANY ”)

2014 E MPLOYEE S TOCK P URCHASE P LAN (“ESPP”)

 

U.S. F ORM

E NROLLMENT /C HANGE F ORM

 

S ECTION 1:

 

A CTIONS

  

C HECK D ESIRED A CTION :

 

¨        Enroll in the ESPP

¨        Elect / Change Contribution Percentage

¨        Discontinue Contributions

 

  

AND  C OMPLETE  S ECTIONS :

 

2 + 3 + 4 + 7

2 + 4 + 7

2 + 5 + 7

 

   

S ECTION  2:

 

P ERSONAL D ATA

  

Name:                                                                                               

Home Address:                                                                                

                                                                                                             

Social Security No.:    ¨ ¨ ¨ - ¨ ¨ - ¨ ¨ ¨ ¨

 

   

S ECTION  3:

 

E NROLL

  

¨     I hereby elect to participate in the ESPP, effective at the beginning of the next Offering Period. I elect to purchase shares of the Common Stock of the Company pursuant to the ESPP. I understand that the stock certificate(s) for the shares purchased on my behalf will be issued in street name and deposited directly into my brokerage account. I hereby agree to take all steps, and sign all forms, required to establish an account with the Company’s broker for this purpose.

 

My participation will continue as long as I remain eligible, unless I withdraw from the ESPP by filing a new Enrollment/Change Form with the Company. I understand that I must notify the Company of any disposition of shares purchased under the ESPP.

 

   

S ECTION  4:

 

E LECT /C HANGE C ONTRIBUTION P ERCENTAGE

  

I hereby authorize the Company to withhold from each of my paychecks such amount as is necessary to equal at the end of the applicable Offering Period     % of my base salary paid during such Offering Period as long as I continue to participate in the ESPP. That amount, plus any accumulated payroll deductions thus far during the current Purchase Period if this is a change, will be applied to the purchase of shares of the Common Stock pursuant to the ESPP. The percentage must be a whole number (from 1%, up to a maximum of 15%, with respect to enrollment or an increase in contribution percentage; from 0%, up to a maximum of 14% for a decrease in contribution percentage).

 

If this is a change to my current enrollment, this represents an ¨ -increase ¨ -decrease to my contribution percentage.

 

Note:    You may not increase your contribution at any time within an Offering Period. You may decrease your contribution percentage to a percentage other than 0% only once within a Purchase Period to be effective during that Purchase Period. A change will become effective as soon as reasonably practicable after the form is received by the Company. An increase in your contribution percentage can only take effect with the next Offering Period .

 

   

S ECTION  5:

 

D ISCONTINUE C ONTRIBUTIONS

  

¨        I hereby elect to stop my contributions under the ESPP , effective as soon as reasonably practicable after this form is received by the Company.

 

Please ¨ -refund all contributions to me in cash, without interest OR ¨ - use my contributions to purchase shares on the next Purchase Date. I understand that I cannot resume participation until the start of the next Offering Period and must timely file a new enrollment form to do so.

 


   

S ECTION  6:

 

E LECTRONIC D ELIVERY AND A CCEPTANCE

  

The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the ESPP by electronic means. I hereby consent to receive such documents by electronic delivery and agree to participate in the ESPP through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 

   

S ECTION  7:

 

A CKNOWLEDGMENT AND S IGNATURE

  

I acknowledge that I have received a copy of the ESPP Prospectus (which summarizes the major features of the ESPP). I have read the Prospectus and my signature below (or my clicking on the Accept box if this is an electronic form) indicates that I hereby agree to be bound by the terms of the ESPP.

 

Signature:                                                                                                     Date:                     

 


G O P RO , I NC . ( THE “C OMPANY ”)

2014 E MPLOYEE S TOCK P URCHASE P LAN (“ESPP”)

  

U.S. F ORM - IPO

E NROLLMENT /C HANGE F ORM

 

S ECTION 1:

 

A CTIONS

  

C HECK D ESIRED A CTION :

 

¨        Confirm / Change Contribution Percentage

¨        Opt out

 

  

AND  C OMPLETE  S ECTIONS :

 

2 + 4 + 7

2 + 5 + 7

 

   

S ECTION  2:

 

P ERSONAL D ATA

  

Name:                                                                                                           

Home Address:                                                                          

Social Security No.:    ¨ ¨ ¨ - ¨ ¨ - ¨ ¨ ¨ ¨

 

   

S ECTION 3:

 

E NROLLMENT C ONFIRMED

  

I understand that my enrollment in the ESPP is effective at the beginning of the Offering Period and as a result of that enrollment I am electing to purchase shares of the Common Stock of the Company pursuant to the ESPP. I understand that the stock certificate(s) for the shares purchased on my behalf will be issued in street name and deposited directly into my brokerage account. I hereby agree to take all steps, and sign all forms, required to establish an account with the Company’s broker for this purpose.

 

My participation will continue as long as I remain eligible, unless I withdraw from the ESPP by filing a new Enrollment/Change Form with the Company. I understand that I must notify the Company of any disposition of shares purchased under the ESPP.

 

   

S ECTION  4:

 

E LECT / C HANGE C ONTRIBUTION P ERCENTAGE

  

I understand that my enrollment in the ESPP is effective at the beginning of the Offering Period with a contribution of 15% of my base salary paid during such Offering Period as long as I continue to participate in the ESPP. I hereby authorize the Company to withhold from each of my paychecks such amount as is necessary to equal at the end of the applicable Offering Period 15% of my base salary paid during such Offering Period as long as I continue to participate in the ESPP. I may change the amount of my contribution effective from the first payday by inserting my desired contribution percentage here:     % (the percentage must be a whole number (from 1%, up to a maximum of 15%). That amount will be applied to the purchase of shares of the Common Stock pursuant to the ESPP.

 

Note:    You may decrease your contribution percentage to a percentage other than 0% only once within a Purchase Period to be effective during that Purchase Period. A change will become effective as soon as reasonably practicable after the form is received by the Company. You may not increase your contribution at any time within an Offering Period . An increase in your contribution percentage can only take effect with the next Offering Period .

 

   

S ECTION  5:

 

O PT O UT

  

I understand that my enrollment in the ESPP is effective at the beginning of the Offering Period. I hereby withdraw from the ESPP and elect 0% contribution.

 

Note:    No contributions will be deducted from your salary if you elect to opt out of the ESPP. You may next enroll in the new Offering Period that will begin in [                      ] .

 

   

S ECTION  6:

 

E LECTRONIC D ELIVERY AND A CCEPTANCE

  

The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the ESPP by electronic means. I hereby consent to receive such documents by electronic delivery and agree to participate in the ESPP through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 


   

S ECTION  7:

 

A CKNOWLEDGMENT AND S IGNATURE

  

I acknowledge that I have received a copy of the ESPP Prospectus (which summarizes the major features of the ESPP). I have read the Prospectus and my signature below indicates that I hereby agree to be bound by the terms of the ESPP.

 

Signature:                                                                                                    Date:                     

 

Exhibit 10.10

A MENDED AND R ESTATED C HANGE IN C ONTROL AND O THER S EVERANCE A GREEMENT

This Amended and Restated Change in Control and Other Severance Agreement (“Agreement”) is entered into as of June 8, 2014 (the “Effective Date”) by and between Jack Lazar (the “Executive”) and GOPRO, INC., a Delaware corporation (the “Company”) and amends and restates in its entirety the Severance Agreement between the Company and Executive, dated January 17, 2014.

 

1. Term of Agreement.

This Agreement shall commence on the Effective Date and shall terminate upon the date the Executive’s employment with the Company terminates for a reason other than a CIC Qualifying Termination or a Qualifying Termination.

 

2. Severance Benefit.

(a) Severance Payments upon a Qualifying Termination . If the Executive is subject to a Qualifying Termination, then, subject to Section 3 below, the Company shall pay the Executive (i) twelve (12) months of his or her monthly base salary, (ii) an amount equal to the greater of (A) one-hundred percent (100%) of the Executive’s annual target bonus or (B) one-hundred percent (100%) of the most recent annual bonus paid by the Company to Executive, and (iv) $3,000 per month for twelve (12) months in lieu of any COBRA or other employee benefits. In addition, if the Executive is subject to a Qualifying Termination, the Company will offer the Executive a consulting arrangement for 12 months, during which term, the vesting under his or her Equity Awards will continue to vest the maximum extent permitted by the applicable governing equity plan and equity agreements, provided that , this consulting arrangement shall impose a permanent limitation such that Executive may not perform consulting services that are more than 20% of the average level of service performed by Executive during the immediately preceding 36-month period, as well as any other conditions within the sole judgment of the Company to effect the mutual intention that the Qualifying Termination will be respected as a Separation for all purposes under this Agreement. However, in lieu of entering into the consulting agreement contemplated by the preceding sentence, the Company may accelerate the vesting of Executive’s outstanding Equity Awards as of the Qualifying Termination with respect to 25% of the shares initially subject to those Equity Awards.

(b) Severance Payments upon a CIC Qualifying Termination . If the Executive is subject to a CIC Qualifying Termination, then, subject to Section 3 below, the Company shall pay the Executive (i) twelve 12 months of his or her monthly base salary, (ii) an amount equal to the greater of (A) one-hundred percent (100%) of the Executive’s annual target bonus or (B) one-hundred percent (100%) of the most recent annual bonus paid by the Company to Executive, (iii) each of Executive’s then outstanding unvested Equity Awards, including awards that would otherwise vest only upon satisfaction of performance criteria, shall accelerate as of the Separation and become vested and exercisable with respect to 100% of the then unvested shares subject thereto, and (iv) $3,000 per month for twelve (12) months in lieu of any COBRA or other employee benefits.


(c) General Release . Any other provision of this Agreement notwithstanding, Sections 2(a) and 2(b) above shall not apply unless the Executive (i) has executed a general release (in a form prescribed by the Company) of all known and unknown claims that he or she may then have against the Company or persons affiliated with the Company and such release has become effective and (ii) has agreed not to prosecute any legal action or other proceeding based upon any of such claims. The release must be in the form prescribed by the Company, without alterations. The Company will deliver the form to the Executive within thirty (30) days after the Executive’s Separation. The Executive must execute and return the release within the time period specified in the form.

(d) Timing of Payment. The Executive will receive his or her cash severance payment described in Sections 2(a)(i) and 2(a)(ii), or 2(b)(i) and 2(b)(ii), each only as applicable, in a cash lump-sum which will be made on the sixtieth (60 th ) day following the Separation. The payments described in Section 2(a)(iv) or 2(b)(iv) shall be paid beginning on the sixtieth (60 th ) day following Separation. None of the foregoing payments will begin or be made unless the following have already occurred: (i) the date of Executive’s CIC Qualifying Termination or Qualifying Termination, as applicable; (ii) the date of the Company’s receipt of the Executive’s executed General Release; and (iii) the expiration of any rescission period applicable to the Executive’s executed General Release. Such payments shall be paid in accordance with the Company’s standard payroll procedures.

(e) Accrued Compensation and Benefits . In connection with any termination of employment, the Company shall pay Executive’s earned but unpaid base salary and other vested but unpaid cash entitlements for the period through and including the termination of employment, including unused earned vacation pay and unreimbursed documented business expenses incurred by Executive prior to the date of termination (collectively “Accrued Compensation and Expenses”), as required by law and the applicable Company plan or policy. In addition, Executive shall be entitled to any other vested benefits earned by Executive for the period through and including the termination date of Executive’s employment under any other employee benefit plans and arrangements maintained by the Company, in accordance with the terms of such plans and arrangements, except as modified herein (collectively “Accrued Benefits”). Any Accrued Compensation and Expenses to which the Executive is entitled shall be paid to the Executive in cash as soon as administratively practicable after the termination, and, in any event, no later than two and one-half (2-1/2) months after the end of the taxable year of the Executive in which the termination occurs. Any Accrued Benefits to which the Executive is entitled shall be paid to the Executive as provided in the relevant plans and arrangement.

(f) No Duplication . For the avoidance of doubt, and notwithstanding anything to the contrary in this Agreement, the benefits in Section 2(a) and Section 2(b) are mutually exclusive and not cumulative.

 

3. Covenants.

(a) Non-Competition . The Executive agrees that, during his or her employment with the Company, he or she shall not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company.

 

2


(b) Cooperation and Non-Disparagement . The Executive agrees that, during the six-month period following his or her cessation of employment, he or she shall cooperate with the Company in every reasonable respect and shall use his or her best efforts to assist the Company with the transition of Executive’s duties to his or her successor. The Executive further agrees that, during this six-month period, he or she shall not in any way or by any means disparage the Company, the members of the Company’s Board of Directors or the Company’s officers and employees.

 

4. Definitions.

(a) “Cause” means (a) an unauthorized use or disclosure by Executive of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company, (b) a material breach of any agreement between Executive and the Company, (c) a material failure to comply with the Company’s written policies or rules, (d) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any state thereof, (e) gross negligence or willful misconduct, (f) failure to cooperate with the Company in any investigation or formal proceeding if the Company has requested your cooperation, or (g) a continued failure to perform assigned duties after receiving written notification of such failure from the Company’s Chief Executive Officer (or, in the case of the Chief Executive Officer, from the Board of Directors); provided that Executive must be provided with written notice of Executive’s termination for “Cause” and Executive must be provided with a 30-day period following Executive’s receipt of such notice to cure the event(s) that trigger “Cause,” with the Company’s Board of Directors making the final determination whether Executive has cured any Cause.

(b) “ Code ” means the Internal Revenue Code of 1986, as amended.

(c) “Change in Control . For all purposes under this Agreement, “Change in Control” shall mean an “Acquisition,” as such term is defined in the Company’s 2010 Equity Incentive Plan, as may be amended from time to time, provided that the transaction also qualifies as a change in control under U.S. Treasury Regulation 1.409A-3(i)(5)(v) or 1.409A-3(i)(5)(vii).

(d) “ Equity Awards ” means all options to purchase shares of Company common stock as well as any and all other stock-based awards granted to the Executive, including but not limited to stock bonus awards, restricted stock, restricted stock units or stock appreciation rights. Subject to Section 3, the accelerated vesting described above shall be effective as of the Separation. All RSUs vested at the date of the Change in Control shall be settled upon or within thirty (30) days following the Change in Control; all RSUs that vest after the Change in Control shall settle within thirty (30) days of vesting.

(e) “Good Reason” means, without the Executive’s consent, (i) a material reduction in the Executive’s level of responsibility and/or scope of authority, (ii) a material reduction in Executive’s base salary (other than a reduction generally applicable to executive officers of the Company and in generally the same proportion as for the Executive), or (iii) relocation of the Executive’s principal workplace by more than 35 miles from Executive’s then current place of employment. For the Executive to receive the benefits under this Agreement as a result of a voluntary resignation under this subsection (d), all of the following requirements must be

 

3


satisfied: (1) the Executive must provide notice to the Company of his or her intent to assert Good Reason within 120 days of the initial existence of one or more of the conditions set forth in subclauses (i) through (iii); (2) the Company will have 30 days from the date of such notice to remedy the condition and, if it does so, the Executive may withdraw his or her resignation or may resign with no benefits; and (3) any termination of employment under this provision must occur within six months of the initial existence of one or more of the conditions set forth in subclauses (i) through (iii). Should the Company remedy the condition as set forth above and then one or more of the conditions arises again within twelve months following the occurrence of a Change in Control, the Executive may assert Good Reason again subject to all of the conditions set forth herein.

(f) “CIC Qualifying Termination” means a Separation within twelve (12) months following a Change in Control or within three (3) months preceding a Change in Control (if after a Potential Change in Control) resulting from (i) the Company termination of the Executive’s employment for any reason other than Cause or (ii) the Executive’s voluntary resignation of his or her employment for Good Reason. A “ Potential Change in Control ” means the date of execution of a definitive agreement whereby the Company will consummate a Change in Control if such transaction is consummated. In the case of a termination following a Potential Change in Control and before a Change in Control, solely for purposes of benefits under this Agreement, the date of Separation will be deemed the date the Change in Control is consummated.

(g) “ General Release ” means the general release as described in Section 2(c).

(h) A “ Qualifying Termination” means a Separation that is not a CIC Qualifying Termination, but which results from (i) the Company’s termination of Executive’s employment for any reason other than Cause or (ii) the Executive’s voluntary resignation of his or her employment for Good Reason.

(i) “Separation ” means a “separation from service,” as defined in the regulations under Section 409A of the Code.

 

5. Successors.

(a) Company’s Successors . The Company shall require any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets, by an agreement in substance and form satisfactory to the Executive, to assume this Agreement and to agree expressly to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets or which becomes bound by this Agreement by operation of law.

(b) Executive’s Successors . This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

 

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6. Golden Parachute Taxes.

(a) Best After-Tax Result . In the event that any payment or benefit received or to be received by Executive pursuant to this Agreement or otherwise (“Payments”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but for this subsection (a), be subject to the excise tax imposed by Section 4999 of the Code, any successor provisions, or any comparable federal, state, local or foreign excise tax (“Excise Tax”), then, subject to the provisions of Section 6(b) hereof, such Payments shall be either (A) provided in full pursuant to the terms of this Agreement or any other applicable agreement, or (B) provided as to such lesser extent which would result in no portion of such Payments being subject to the Excise Tax (“Reduced Amount”), whichever of the foregoing amounts, taking into account the applicable federal, state, local and foreign income, employment and other taxes and the Excise Tax (including, without limitation, any interest or penalties on such taxes), results in the receipt by Executive, on an after-tax basis, of the greatest amount of payments and benefits provided for hereunder or otherwise, notwithstanding that all or some portion of such Payments may be subject to the Excise Tax. Unless the Company and Executive otherwise agree in writing, any determination required under this Section shall be made by independent tax counsel designated by the Company and reasonably acceptable to Executive (“Independent Tax Counsel’), whose determination shall be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required under this Section, Independent Tax Counsel may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code; provided that Independent Tax Counsel shall assume that Executive pays all taxes at the highest marginal rate. The Company and Executive shall furnish to Independent Tax Counsel such information and documents as Independent Tax Counsel may reasonably request in order to make a determination under this Section. The Company shall bear all costs that Independent Tax Counsel may reasonably incur in connection with any calculations contemplated by this Section. In the event that Section 6(a)(ii)(B) above applies, then based on the information provided to Executive and the Company by Independent Tax Counsel, Executive may, in Executive’s sole discretion and within 30 days of the date on which Executive is provided with the information prepared by Independent Tax Counsel, determine which and how much of the Payments (including the accelerated vesting of equity compensation awards) to be otherwise received by Executive shall be eliminated or reduced (as long as after such determination the value (as calculated by Independent Tax Counsel in accordance with the provisions of Sections 280G and 4999 of the Code) of the amounts payable or distributable to Executive equals the Reduced Amount). If the Internal Revenue Service (the “IRS”) determines that any Payment is subject to the Excise Tax, then Section 6(b) hereof shall apply, and the enforcement of Section 6(b) shall be the exclusive remedy to the Company.

(b) Adjustments . If, notwithstanding any reduction described in Section 6(a) hereof (or in the absence of any such reduction), the IRS determines that Executive is liable for the Excise Tax as a result of the receipt of one or more Payments, then Executive shall be obligated to surrender or pay back to the Company, within 120 days after a final IRS determination, an amount of such payments or benefits equal to the “Repayment Amount.” The Repayment Amount with respect to such Payments shall be the smallest such amount, if any, as shall be required to be surrendered or paid to the Company so that Executive’s net proceeds with respect to such Payments (after taking into account the payment of the Excise Tax imposed on such

 

5


Payments) shall be maximized. Notwithstanding the foregoing, the Repayment Amount with respect to such Payments shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax imposed on such Payments or if a Repayment Amount of more than zero would not maximize the net amount received by Executive from the Payments. If the Excise Tax is not eliminated pursuant to this Section 6(b), Executive shall pay the Excise Tax.

 

7. Miscellaneous Provisions.

(a) Section 409A . For purposes of Section 409A of the Code, if the Company determines that Executive is a “specified employee” under Code Section 409A(a)(2)(B)(i) at the time of a Separation, then (i) the severance benefits under Section 2, to the extent subject to Code Section 409A, will commence during the seventh month after the Executive’s Separation and (ii) will be paid in a lump sum on the earliest practicable date permitted by Section 409A(a)(2) of the Code. Any termination of Executive’s employment is intended to constitute a Separation from Service and will be determined consistent with the rules relating to a “separation from service” as such term is defined in Treasury Regulation Section 1.409A-1. It is intended that each installment of the payments provided hereunder constitute separate “payments” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is further intended that payments hereunder satisfy, to the greatest extent possible, the exemption from the application of Section 409A of the Code (and any state law of similar effect) provided under Treasury Regulation Section 1.409A-1(b)(4) (as a “short-term deferral”). To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision will be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this Policy is determined to be subject to Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which Executive incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.

(b) Other Severance Arrangements . For any equity award that is outstanding on the Effective Date, Executive shall receive the vesting acceleration provisions set forth in the existing equity award agreement or the vesting acceleration benefits set forth in this Agreement, whichever arrangement would cause Executive to vest in the largest number of shares or largest portion of the Equity Award. Except as set forth in the preceding sentence, this Agreement supersedes any and all cash severance arrangements and vesting acceleration arrangements on change in control under any prior option agreement, restricted stock unit agreement, severance and salary continuation arrangements, programs and plans which were previously offered by the Company to the Executive, including change in control severance arrangements pursuant to an employment agreement or offer letter, and Executive hereby waives Executive’s rights to such other benefits. In no event shall any individual receive cash severance benefits under both this Agreement and any other severance pay or salary continuation program, plan or other arrangement with the Company.

 

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(c) Dispute Resolution . To ensure rapid and economical resolution of any and all disputes that might arise in connection with this Agreement, Executive and the Company agree that any and all disputes, claims, and causes of action, in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation, will be resolved solely and exclusively by final, binding, and confidential arbitration, by a single arbitrator, in San Mateo County, and conducted by Judicial Arbitration & Mediation Services, Inc. (“ JAMS ”) under its then-existing employment rules and procedures. Nothing in this section, however, is intended to prevent either party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Each party to an arbitration or litigation hereunder shall be responsible for the payment of its own attorneys’ fees.

(d) Notice . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid or deposited with Federal Express Corporation, with shipping charges prepaid. In the case of the Executive, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

(e) Waiver . No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(f) Withholding Taxes . All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law.

(g) Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(h) No Retention Rights . Nothing in this Agreement shall confer upon the Executive any right to continue in service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or any subsidiary of the Company or of the Executive, which rights are hereby expressly reserved by each, to terminate his or her service at any time and for any reason, with or without Cause.

(i) Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California (other than their choice-of-law provisions).

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

 

    GOPRO, INC.

/s/ Jack Lazar

   

/s/ Sharon Zezima

Jack Lazar     By:   Sharon Zezima
    Title:   General Counsel

 

8

Exhibit 10.16

 

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+1 650 332 7600 T

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3000 Clearview Way

San Mateo, CA 94402

June 2, 2014

Nicholas Woodman

Via Email

Dear Nick:

We are pleased to offer to continue your position with GoPro, Inc. (inclusive of any successors or assigns or subsidiaries, the “ Company ” or “ we ”), as the Company’s Chief Executive Officer reporting to the Company’s board of directors (the “ Board ”). In addition, we acknowledge that you serve as a member of the Board. You began your employment with the Company on February 2004. Your continued employment by the Company shall be governed by the following terms and conditions (this “ Agreement ”) effective June 2, 2014 (the “ Effective Date ”). This Agreement supersedes in its entirety the Change in Control Severance Agreement entered into between you and the Company as of January 13, 2014 and the Change in Control Severance Agreement is hereby terminated.

Compensation Terms

Salary . You will receive an annual salary of $800,000, which will be paid semi-monthly on the 15th and last day of the month in accordance with the Company’s normal payroll procedures and will be subject to annual review and evaluation for upward (but not downward) adjustment by the Board (as this salary may be adjusted from time to time, the “ Base Salary ”).

Target Bonus . You will also be eligible for an annual target bonus (as in effect from time to time, the “ Target Bonus ”), based on achievement of objectives mutually agreed upon by you and the Board. The Target Bonus is subject to an over/underachievement scale with possible payouts of 0% to 150% of your Base Salary, and with target achievement correlated to a Target Bonus of 150% of your Base Salary. Each Target Bonus will be paid no later than two and one-half months following the end of the performance period to which that Target Bonus relates.

Employee Benefits . Except as otherwise provided for in this letter agreement, you will be eligible to receive employee benefits and perquisites commensurate with those provided to the Company’s senior executives. A list of current employee benefits will be provided in the Benefits Information Guide . You should note that the Company may modify job titles, salaries, commission plans, bonuses and benefits from time to time as it deems necessary and at its sole discretion (subject to the limitations in this letter agreement).

Equity Opportunities . Subject to the approval of the Board, you will be granted restricted stock units representing shares of common stock (“ Initial RSUs ”) subject to the terms and conditions set forth in the Company’s 2010 Equity Incentive Plan (the “ Plan ”) and in the restricted stock unit agreement between you and the Company, which is attached hereto as Exhibit A .

In addition to the Initial RSU, you will be eligible to receive other equity awards in options or restricted stock units over the course of your employment.

Termination Benefits .

Upon the termination of your employment with the Company at any time for any reason, you will be paid your (i) salary through your termination date, (ii) the value of all unused paid time off earned through your termination date, and (iii) any earned but unpaid portion of your Target Bonus for the fiscal year preceding your termination date (but, for the avoidance of doubt, not any portion of the Target Bonus for the fiscal year in which your termination occurs). You will also be allowed to continue your medical coverage at your own expense under the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”). You will be allowed to exercise your vested options, if any, during the time period set forth in, and in accordance with, your governing stock option agreement. Your unvested restricted stock units, if any, will be forfeited without consideration upon your termination. The Company will reimburse you for any reasonable business expenses


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incurred by you during your employment with the Company, in accordance with the Company’s expense reimbursement policy, within 10 business days following the termination of your employment with the Company. The foregoing accrued payments and benefits will be collectively referred to herein as the “ Accrued Compensation .”

 

  (i) Involuntary Termination Prior to a Change in Control

If you Separate due to a termination of your employment by the Company other than for Cause or by your resignation for Good Reason, in either case, prior to a Change in Control, you will be entitled to receive the following: (i) your Accrued Compensation, (ii) a single lump sum severance payment equal to the sum of 12 months of your then-current Base Salary and your then-current Target Bonus (assuming a 150% achievement threshold), (iii) a payment equal to the pro rata portion of your actual Target Bonus through your Separation, which shall be calculated at the end of the fiscal year relevant to this Target Bonus, and (iv) subject to your timely and proper election for COBRA coverage, the continuation of your then-effective group health benefits for 12 months under COBRA, provided that, if the Company determines that it cannot provide such continued health benefits without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to you a lump sum payment in an amount equal to 12 months of such continued health benefits, which payment shall be made regardless of whether you elect COBRA continuation coverage (items (ii) through (iv) hereinafter referred to as the “ Severance ”). Receipt of the Severance shall be conditioned in its entirety upon your execution of a release of claims related to your employment and termination of employment with the Company in a reasonably customary form acceptable to the Company (the “ Release ”). Your Release must be executed and become irrevocable within 60 days of your Separation. The payment described in subpart (ii) of this paragraph, and if applicable, the cash payment described in subpart (iv) of this paragraph, shall be paid out in a lump sum on the first business day after the 60th day following your Separation, provided that , if these payments are to be made due to your resignation for Good Reason, and the Straddle Period spans two calendar years, then these payments under subpart (ii) and, if applicable, subpart (iv) will be paid on the first business day in the second calendar year that occurs after the expiration of said 60-day period in which the executed Release is to become irrevocable. The payment described in subpart (iii) of this paragraph shall occur no later than two and one half months following the fiscal year in which your Separation occurs and when other bonuses are generally paid to senior executives of the Company. For the avoidance of doubt, the release of claims will not apply to any claims that you may have as a stockholder of the Company.

 

  (ii) Involuntary Termination Within 24 Months Following a Change in Control

If, however, you Separate due to a termination of your employment by the Company other than for Cause or by your resignation for CIC Good Reason, in either case, within 24 months following a Change in Control, in lieu of the Severance referenced above, you shall be eligible to receive the following enhanced severance payments and benefits: (i) your Accrued Compensation, (ii) a single lump sum severance payment equal to the sum of 24 months of your then-current Base Salary and your then-current Target Bonus (assuming a 150% achievement threshold), (iii) a payment equal to the pro rata portion of your actual Target Bonus through your Separation, which shall be calculated at the end of the performance period relevant to this Target Bonus, (iv) fully accelerated vesting of any then-outstanding equity awards, as applicable, provided that the Initial RSU shall be governed by Exhibit A and not this subsection (iv), and (v) subject to your timely and proper election for COBRA coverage, the continuation of your then-effective group health benefits for 18 months under COBRA, provided that if the Company determines that it cannot provide such continued health benefits without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to you a lump sum payment in an amount equal to 18 months of such continued health benefits, which payment shall be made regardless of whether you elect COBRA continuation coverage (items (ii) through (v) hereinafter referred to as the “ CIC Severance ”). Receipt of the CIC Severance shall be conditioned in its entirety upon your execution of a Release. Your Release must be executed and become irrevocable within 60 days of your Separation. The severance payment described in subpart (ii) of this paragraph, and if applicable, the payment described in subpart (v) of this paragraph, shall be paid out in a lump sum on the first business day after the 60th day following your Separation, provided that , if these payments are to be made due to your resignation for CIC Good Reason, and the Straddle Period spans two calendar years, then these payments under subpart (ii) and, if applicable, subpart (v)


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will be paid on the first business day in the second calendar year that occurs after the expiration of said 60-day period in which the executed Release is to become irrevocable. The payment equal to the pro rata portion of your Target Bonus through your Separation shall occur no later than two and one half months following the fiscal year in which your Separation occurs and when other bonuses are generally paid to senior executives of the Company.

 

  (iii) Other Terminations

Upon any termination of your employment other than as described in (i) and (ii) immediately above, including any termination of employment that is not a Separation, you will be entitled only to the Accrued Compensation.

 

  (iv) Definitions

The following terms have the meaning set forth below wherever they are used in this letter agreement:

Cause ” means the occurrence of any of the following: (A) your willful and continued failure to perform the reasonable, material duties of your position as generally described in this letter agreement to the Company that goes uncured for a period 30 days following written notice to you; (B) your willful or intentional conduct that causes material and demonstrable injury, monetarily or otherwise, to the Company; (C) your conviction of, or a plea of nolo contendere to, a crime constituting (x) a felony under the laws of the United States or any state thereof, or (y) a misdemeanor involving moral turpitude; or (D) your willful and material breach of a provision of this letter agreement or the Confidentiality Agreement (defined below) that is reasonably expected to have a material adverse economic impact on the Company. Any determination that you have engaged in conduct for which the Board wishes to terminate your employment shall be made after a meeting of the nonemployee directors of the Board at which you shall be invited to appear, with counsel, to respond to the allegations set forth in the written notice to you of such meeting (which notice shall provide sufficient specificity to allow you to respond to such allegations). For purposes of this letter agreement, an act (or failure to act) shall only be considered “willful” if done (or failed to be done) by you intentionally and in bad faith.

Change in Control ” shall mean an Acquisition or Other Combination, as such terms are defined in the Plan. The foregoing notwithstanding, a transaction that does not constitute a “change in control event” under Sections 1.409A-3(i)(5)(v) or 1.409A-3(i)(5)(vii) of the Treasury Regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) will not constitute a Change in Control for purposes of the RSUs.

Separate ” or “ Separation ” means that a “separation from service” has occurred, as defined under Section 1.409A-1(h) of the Treasury Regulations under Section 409A of the Code.

Good Reason ” means the occurrence of any of the following events or conditions, without your express written consent (which consent may be denied, withheld or delayed for any reason):

(i) a material reduction in your duties, authority or responsibilities;

(ii) a material reduction by the Company in your Base Salary or Target Bonus (but excluding any reduction of not more than 25% that applies to substantially all of the Company’s other executive officers);

(iii) the relocation of your principal place of employment to a location more than 30 miles from your principal place of employment immediately prior to your termination or the Company’s requiring you to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with your present business travel obligations or those of similarly situated senior executives ;

(iv) any action or inaction that constitutes a material breach by the Company of this letter agreement or any other agreement between the Company and you, or any material breach by the Company of a policy relating to the benefits to which you are entitled;


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Provided that , with respect to each trigger above, you shall provide notice to the Company of the condition giving rise to “Good Reason” within 90 days of the initial existence of such condition, the Company shall have 30 days following such notice to remedy such condition, and your resignation shall occur within 180 days following the expiration of the Company’s 30-day remedial period. Your right to terminate your employment for Good Reason shall not be affected by your incapacity due to death or physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

CIC Good Reason ” means the occurrence of any of the following events or conditions, without your express written consent (which consent may be denied, withheld or delayed for any reason):

(i) a material reduction in your duties, authority or responsibilities;

(ii) a material diminution in the authority, duties or responsibilities of the supervisor to whom you are required to report, including a requirement to report to a corporate officer or employee instead of directly to the Board;

(iii) a material diminution in the budget over which you retain authority;

(iv) a material reduction by the Company in your Base Salary or Target Bonus;

(v) your death or disability (as defined in the Company’s long-term disability plan, or if none, as defined in Section 22(e)(3) of the Code);

(vi) the relocation of your principal place of employment to a location more than 30 miles from your principal place of employment immediately prior to your termination or the Company’s requiring you to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with your present business travel obligations or those of similarly situated senior executives ;

(vii) any action or inaction that constitutes a material breach by the Company of this letter agreement or any other agreement between the Company and you, or any material breach by the Company of a policy relating to the benefits to which you are entitled; or

(viii) any material reduction in the value of any of the benefits provided to you as of the date hereof or as increased from time to time;

Provided that, with respect to each trigger above, you shall provide notice to the Company of the condition giving rise to “CIC Good Reason” within 90 days of the initial existence of such condition, the Company shall have 30 days following such notice to remedy such condition, and your resignation shall occur within 180 days following the expiration of the Company’s 30-day remedial period. Your right to terminate your employment for CIC Good Reason shall not be affected by your incapacity due to death or physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting CIC Good Reason hereunder.

The “ Straddle Period ” shall mean those 240 calendar days comprising the 180-day period following the Company’s failure to cure a Good Reason or CIC Good Reason condition, as applicable, and the 60-day period following Separation in which the Release is to be executed and become irrevocable.

Section 280G

Any payments described in this letter agreement or referenced herein which could constitute or result in your receipt of “parachute payments” within the meaning of Section 280G of the Code are referred to as “ Compensatory Payments .”


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For purposes of the immediately following paragraph related to Section 280G of the Code, unless the Company and you otherwise agree in writing, the determination of your excise tax liability and the amount required to be reduced or repaid pursuant to the paragraph below shall be made in writing by an accountant chosen by the Company, which shall be from one of the six largest national accounting firms (an “ Accountant ”). For purposes of its calculations, the Accountant may make reasonable assumptions and approximations concerning applicable taxes and may rely on interpretations of the Code for which there is a “substantial authority” tax reporting position, but the Accountant shall assume that you pay taxes at the highest marginal tax rates applicable to you. The Company and you shall furnish to the Accountant such information and documents as the Accountant may reasonably request in order to make its determinations. The Company shall bear all costs the Accountant may reasonably incur in connection with any calculations contemplated hereunder. The Accountant’s conclusions shall be conclusive and binding on both the Company and you, for all purposes of evaluating the reduction described in the paragraph below.

If any Compensatory Payment will be subject to the excise taxes under Section 4999 of the Code, then the Compensatory Payments will be payable to you either in full or in such lesser amounts as would result, after taking into account the applicable federal, state and local income taxes, employment taxes, and the excise tax imposed by Section 4999 (and any interest or penalties thereon), on your receipt on an after-tax basis of the greatest amount of payments and other benefits, by reducing payments in the following order: (A) first, a pro rata reduction of (i) cash payments subject to Section 409A of the Code as deferred compensation and (ii) cash payments not subject to Section 409A of the Code, (B) second, a pro rata cancellation of (i) equity award compensation subject to Section 409A of the Code as deferred compensation and (ii) equity award compensation not subject to Section 409A of the Code, provided that, following application of this pro-rata allocation, acceleration of vesting of equity award compensation is to be reduced under this (B) in the reverse order of the date of grant and (C) third, a pro rata reduction of (i) other compensation or benefits subject to Section 409A of the Code as deferred compensation and (ii) other compensation or benefits not subject to Section 409A of the Code (the “ Cut Back Formula ”). If a reduction of your Compensatory Payments occurs pursuant to this paragraph, and notwithstanding any reduction described in this paragraph (or in the absence of any such reduction), the Internal Revenue Service (“ IRS ”) determines that you are liable for excise taxes under Section 4999 of the Code as a result of the receipt of one or more Compensatory Payments, then you shall be obligated to surrender or pay back to the Company, within 120 days after a final IRS determination, an amount of such Compensatory Payments equal to the “ Repayment Amount ,” provided that payment to the Company of the Repayment Amount would result in the elimination of your excise tax liabilities under Section 4999 of the Code with respect to any of your Compensatory Payments. The Repayment Amount with respect to such Compensatory Payments shall be the smallest such amount, if any, as shall be required to be surrendered or paid to the Company so that your net proceeds with respect to such Compensatory Payments (after taking into account the payment of the excise, employment, and income taxes imposed on such Compensatory Payments) shall be maximized, and subject to such maximization, shall be repaid on the same schedule and priority as set forth in the Cut Back Formula. Notwithstanding the foregoing, the Repayment Amount with respect to such Payments shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax imposed on such Compensatory Payments or if a Repayment Amount of more than zero would not maximize the net amount received by you from the Compensatory Payments. If the excise tax under Section 4999 of the Code is not eliminated pursuant to this paragraph, you shall pay said excise tax without indemnification by the Company.

Section 409A

To the extent (i) any payments to which you become entitled under this letter agreement, or any agreement or plan referenced herein, in connection with your termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code and (ii) you are deemed at the time of such termination of employment to be a “specified” employee under Section 409A of the Code, then such payment or payments shall not be made or commence until the earlier of (i) the expiration of the six (6)-month period measured from the date of your “separation from service” (as such term is at the time defined in regulations under Section 409A of the


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Code) with the Company; or (ii) the date of your death following such separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you, including (without limitation) the additional twenty percent (20%) tax for which you would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. The first payment thereof will include a catch-up payment covering the amount that would have otherwise been paid during the period between your termination of employment and the first payment date but for the application of this provision, and the balance of the installments (if any) will be payable in accordance with their original schedule.

For purposes of this letter agreement or any agreement or plan referenced herein, and notwithstanding any other provision herein, with respect to any payment that is subject to (and not exempt from) Section 409A of the Code, no payment shall be made upon disability or terminal illness unless and until such condition qualifies as a “Disability” within the meaning of Section 409A of the Code and Section 1.409A-3(i)(4) of the regulations thereunder.

Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this letter agreement (or otherwise referenced herein) is determined to be subject to (and not exempt from) Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement or in kind benefits to be provided in any other calendar year, in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.

To the extent that any provision of this letter agreement is ambiguous as to its exemption or compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder are exempt from Section 409A to the maximum permissible extent, and for any payments where such construction is not tenable, that those payments comply with Section 409A to the maximum permissible extent. To the extent any payment under this offer letter may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A.

Payments pursuant to this letter agreement (or referenced in this letter agreement) are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the regulations under Section 409A.

Other Terms

The Company looks forward to a continued beneficial and productive relationship. Nevertheless, you should be aware that your employment with the Company is for no specified period and constitutes at will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice. We request that, in the event of resignation, you give the Company at least two weeks’ notice. Any modification or change in your at will status may only occur by way of a written employment agreement signed by you and a member of the Board.

If you are made a party, or at any time are threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of your status as a director, officer or employee of the Company, you will be eligible for indemnification and coverage under the Company’s director and officer liability insurance policy to the same extent as other similarly situated directors and officers of the Company, which indemnification shall be subject to the limitations of applicable law and the Company’s certificate of incorporation and bylaws.

The Company will reimburse you for reasonable fees actually incurred by you and reasonably substantiated to the Company in connection with your legal representation in the negotiation of this letter agreement. Furthermore, if any contest or dispute shall arise between the Company and you regarding any provision of this letter agreement


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+1 650 332 7600 T

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3000 Clearview Way

San Mateo, CA 94402

 

or your termination of employment, the Company shall reimburse you for all reasonable legal fees and expenses actually incurred by you in connection with such contest or dispute, but only if you prevail to a substantial extent with respect to any of your substantive legal claims brought and pursued in connection with such contest or dispute, so long as each of your substantive legal claims was reasonable and raised in good faith. Such reimbursement described in the immediately preceding sentence shall be made as soon as practicable following the resolution of such contest or dispute (whether or not appealed) to the extent the Company receives reasonable written evidence of such fees and expenses and shall not exceed $200,000.

You agree that, during the term of your employment with the Company, you will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to the Company. Similarly, you agree not to bring any third party confidential information to the Company, including that of your former employer, and that in performing your duties for the Company you will not in any way utilize any such information.

As a Company employee, you will be expected to abide by the Company’s rules and standards. Specifically, you will be required to sign an acknowledgment that you have read and that you understand the Company’s rules of conducts which are included in the Company Handbook.

As a condition of your employment, you are also required to sign and comply with the Company’s standard Employee Invention Assignment and Confidentiality Agreement (the “ Confidentiality Agreement ”) which requires, among other provisions, (i) the assignment of patent rights to any invention made during your employment at the Company, and non-disclosure of Company proprietary information and (ii) that you refrain from disclosure of certain confidential information, except to carry out your duties to the Company under this letter agreement or your other fiduciary responsibilities to the Company.

You and the Company agree to submit to mandatory binding arbitration any and all claims arising out of or related to your employment with the Company and the termination thereof, including, but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision except that each party may, at its, his or her option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s proprietary, confidential or trade secret information. All arbitration hearings shall be conducted in San Mateo County, California. The parties hereby waive any rights they may have to trial by jury in regard to such claims. This Agreement does not restrict your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict the employee’s ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The JAMS rules may be found and reviewed at http://www.jamsadr.com/rules-employment-arbitration. If you are unable to access these rules, please let me know and I will provide you with a hardcopy. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based. This letter agreement will be governed by the laws of the state of California without reference to conflict of laws provisions.

Any payment made to you under this letter agreement will be less all applicable deductions and withholding.

To accept this agreement, please sign and date this letter in the space provided below. This letter, along with any agreements relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements relating to the subject matter hereof, whether written or oral.

[SIGNATURE PAGE FOLLOWS]


LOGO   

+1 650 332 7600 T

gopro.com W

 

3000 Clearview Way

San Mateo, CA 94402

 

We look forward to your favorable reply and to continuing to work with you at GoPro.

Sincerely,

Edward Gilhuly

On Behalf of the Board of Directors

 

                  /s/ Edward Gilhuly   

 

Agreed to and accepted:

 

 

                      /s/ Nicholas Woodman    6/3/14
Nicholas Woodman    Signature    Date

[SIGNATURE PAGE TO LETTER AGREEMENT]


NOTICE OF RESTRICTED STOCK UNIT AWARD

GOPRO, INC.

2010 EQUITY INCENTIVE PLAN

Unless otherwise defined herein, the terms defined in the GoPro, Inc. (the “ Company ”) 2010 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Restricted Stock Unit Award (the “ Notice ”) and the attached Award Agreement (Restricted Stock Unit Agreement) (hereinafter “ RSU Agreement ”). You (“ you ”) have been granted an award of Restricted Stock Units (“ RSUs ”) under the Plan subject to the terms and conditions of the Plan, this Notice and the attached RSU Agreement.

 

Name:    Nicholas Woodman
Number of RSUs:    RSUs for 4,500,000 Shares
Date of Grant:    June 3, 2014
Expiration Date:    June 1, 2024
Vesting Commencement Date:    See Attachment 1 .
Vesting Schedule:    Vesting is dependent upon Continuous Service throughout the applicable vesting period. Subject to the limitations set forth in this Notice, the Plan and the RSU Agreement, vesting shall be as set forth on Attachment 1 . “ Continuous Service ” shall mean service as an employee (as defined under applicable law), “officer” (as defined under Rule 16a-1 promulgated under the Securities Act), and/or consultant of the Company or any Parent or Subsidiary, and/or a member of the Board.

You acknowledge that the vesting of the RSUs pursuant to this Notice is earned by Continuous Service and certain Additional Terms. By accepting this RSU, you consent to electronic delivery as set forth in the RSU Agreement.

 

PARTICIPANT     GOPRO, INC.
Signature:  

/s/ Nicholas Woodman

    By:  

/s/ Sharon Zezima

Print Name:  

Nicholas Woodman

    Its:  

General Counsel


Attachment 1 to Notice of Restricted Stock Unit Award

GOPRO, INC.

2010 EQUITY INCENTIVE PLAN

Terms and Conditions to Notice

Name: Nicholas Woodman

Number of Shares: 4,500,000

Date of Grant: June 3, 2014

The following terms and conditions apply to the RSUs described above and granted pursuant to the Notice of Restricted Stock Unit Award to which this Attachment 1 is attached:

Capitalized terms not herein defined shall have the meaning ascribed to them in the Plan. Ordinary rounding principles will apply for purposes of vesting under this Attachment 1 .

The RSUs shall vest in three portions: (i) 1,500,000 (the “ First Tranche ”), (ii) 1,500,000 (the “ Second Tranche ”), and (iii) 1,500,000 (the “ Third Tranche ”), each as may be adjusted pursuant to Sections 2.2 and 11 of the Plan, as follows:

 

  1. The First Tranche shall immediately vest;

 

  2. The Second Tranche shall vest in equal monthly installments over three years from the Grant Date provided the First Milestone Price has been satisfied while Participant is in Continuous Service, as follows: (A) on the First Milestone Price Date, as to 1/36 th of the Second Tranche for each full month of Participant’s Continuous Service from the Date of Grant through this First Milestone Price Date, and (B) any portion of the Second Tranche not vested on the First Milestone Price Date will vest after the First Milestone Price Date such that 1/36 th of the Second Tranche will be vested at the end of each monthly anniversary of the Date of Grant following the First Milestone Price Date, and only for so long as Participant remains in Continuous Service. For clarity, if the First Milestone Price is satisfied after Participant has completed three years of Continuous Service from the Date of Grant, then the Second Tranche shall be fully vested on the First Milestone Price Date;

 

  3. The Third Tranche shall vest in equal monthly installments over three years from the Date of Grant provided the Second Milestone Price has been satisfied while Participant is in Continuous Service as follows: (A) on the Second Milestone Price Date, as to 1/36 th of the Third Tranche for each full month of Participant’s Continuous Service from the Date of Grant through this Second Milestone Price Date, and (B) any portion of the Third Tranche not vested on the Second Milestone Price Date will vest after the Second Milestone Price Date such that 1/36 th of the Third Tranche will be vested at the end of each monthly anniversary of the Date of Grant following the Second Milestone Price Date, and only for so long as Participant remains in Continuous Service. For clarity, if the Second Milestone Price is satisfied after Participant has completed three years of Continuous Service from the Date of Grant, then the Third Tranche shall be fully vested on the Second Milestone Price Date;

 

  4. Provided that ,

 

  (a)

If the Second Tranche has not previously vested prior to the closing date of an Acquisition (i) where the price per share of Class A common stock (“ Class A Share Price ”) equals at least the IPO Price and (ii) where Participant has been in Continuous

 

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  Service at all times between the Date of Grant and the closing date of the Acquisition, then, in lieu of the vesting in Section 2, the Revised Second Tranche shall be vested and the remainder of the Second Tranche, if any, shall be cancelled in full immediately upon closing of the Acquisition;

 

  (b) If the Third Tranche has not previously vested prior to the closing date of an Acquisition (i) where the price per share of Class A Share Price equals at least the First Milestone Price and (ii) where Participant has been in Continuous Service at all times between the Date of Grant and the closing date of the Acquisition, then, in lieu of the vesting in Section 3, the Revised Third Tranche shall be vested and the remainder of the Third Tranche, if any, shall be cancelled in full immediately upon closing of the Acquisition;

 

  (c) This Section 4 supersedes Section 2(b) of the Change in Control Severance Agreement entered into between Participant and the Company as of January 13, 2014.

 

  5. The following definitions shall apply to this Attachment 1:

 

  (a) The “ IPO Price ” equals the initial price per Class A common share set forth in the final prospectus included within the Company’s registration statement on Form S-1 filed with the SEC for the initial public offering of the Company’s Class A common shares.

 

  (b) First Milestone Price ” shall mean a 30 consecutive day average closing price per Class A common share of $34.03, as may be adjusted in a manner consistent with any adjustment effected pursuant to Sections 2.2 and 11 of the Plan and Section 3 of the RSU Agreement, provided that , this 30 consecutive day period may not commence until the date that is one hundred eighty one (181) days after the Company’s initial public offering pursuant to the Securities Act of 1933, as amended (the effective date of any such offering, the “ IPO Date ”). The first day following the 30 consecutive days described in this definition shall be the “ First Milestone Price Date .”

 

  (c) Second Milestone Price ” shall mean a 30 consecutive day average closing price per Class A common share of $44.24, may be adjusted in a manner consistent with any adjustment effected pursuant to Sections 2.2 and 11 of the Plan and Section 3 of the RSU Agreement, provided that , this 30 consecutive day period may not commence until the date that is one hundred eighty one (181) days after the IPO Date. The first day following the 30 consecutive days described in this definition shall be the “ Second Milestone Price Date .”

 

  (d) The “ Revised Second Tranche ” shall mean:

 

  i. If the Class A Share Price in the Acquisition is greater than or equal to the First Milestone Price, then the Second Tranche; and

 

  ii. If the Class A Share Price in the Acquisition is greater than or equal to the IPO Price but less than the First Milestone Price, then the product of the Second Tranche multiplied by a fraction where (i) the numerator is the Class A Share Price in the Acquisition less the IPO Price and (ii) the denominator is difference between the First Milestone Price and the IPO Price.

 

  (e) The “ Revised Third Tranche ” shall mean:

 

  i. If the Class A Share Price in the Acquisition is greater than or equal to the Second Milestone Price, then the Third Tranche; and

 

  ii. If the Class A Share Price in the Acquisition is greater than or equal to the First Milestone Price but less than the Second Milestone Price, then the product of the Third Tranche multiplied by a fraction where (i) the numerator is the Class A Share Price in the Acquisition less the First Milestone Price and (ii) the denominator is difference between the Second Milestone Price and the First Milestone Price.

 

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Examples:

The following examples are for illustration purposes only:

Example 1:

Facts : The Date of Grant is June 2, 2014. The effectiveness of the Company’s IPO occurs on June 20, 2014. The First Milestone Price Date is January 1, 2016, Participant ceases Continuous Service on June 1, 2016, and the Second Milestone Price Date is January 1, 2017.

Treatment:

 

  A. Participant vested as to the First Tranche on June 2, 2014 which settled pursuant to Section 1 of the RSU Agreement on or before March 15, 2015.

 

  B. On January 1, 2016, Participant vested as to 19/36 of the Second Tranche, which settled 30 days thereafter. Between January 1, 2016 and June 1, 2016, Participant vested in monthly installments of 1/36 th of the Second Tranche on each monthly anniversary of the Date of Grant, and settled within 30 days of each such 1/36 th vesting installment. Participant never vested into the last third of the Second Tranche, which cancelled in full when Participant ceased Continuous Service.

 

  C. Participant never vested in the Third Tranche. Even though the Second Milestone Price Date occurs, Participant is not entitled to the Third Tranche since he ceased Continuous Service prior to the occurrence of the Second Milestone Price Date, and therefore, the Third Tranche cancelled in full when he ceased Continuous Service.

Example 2:

Facts : The Date of Grant is June 2, 2014. The effectiveness of the Company’s IPO occurs on June 20, 2014. The First Milestone Price Date is January 1, 2016. An Acquisition occurs March 1, 2016 with a per share price of $40.84. Participant ceases Continuous Service on June 1, 2016.

Treatment:

 

  A. Participant vested as to the First Tranche on June 2, 2014, which settled pursuant to Section 1 of the RSU Agreement on or before March 15, 2015.

 

  B. On January 1, 2016, Participant vested as to 19/36 of the Second Tranche, which settled within 30 days thereafter, and was scheduled to vest as to 1/36 th on each subsequent monthly anniversary of the Date of Grant (i.e., on January 30, 2016 and February 29, 2016). Upon the closing of the Acquisition on March 1, 2016 at a Class A Share Price greater than the First Milestone Price, Participant vests as to the balance of the Second Tranche.

 

  C. The Class A Share Price in the Acquisition is $40.84. Correspondingly, the Revised Third Tranche is equal to 2/3 of the original Third Tranche [($40.84 – $34.03)/($44.24 – $34.03)].

 

  a. On March 1, 2016, Participant vests in the Revised Third Tranche, or two-thirds of the original Third Tranche.

 

  b. The remaining portion of the Third Tranche (i.e., one-third of the original Third Tranche) cancels in full on March 1, 2016.

IN WITNESS WHEREOF , GoPro, Inc. has caused this Attachment to be executed by its duly-authorized officer as of the Date of Grant.

 

 

FOR GOPRO, INC.
By:  

/s/ Sharon Zezima

Title:  

General Counsel

 

5


RESTRICTED STOCK UNIT AGREEMENT

GOPRO, INC.

2010 EQUITY INCENTIVE PLAN

You have been granted Restricted Stock Units (“ RSUs ”) subject to the terms, restrictions and conditions of the Plan, the Notice of Restricted Stock Unit Award (the “ Notice ”) and this RSU Agreement.

1. Settlement . Settlement of RSUs shall be made in the period following the applicable date of vesting under the vesting schedule set forth in the Notice that is no later than March 15 of the succeeding calendar year. Settlement of any portion of the Tranche Two and Tranche Three vested RSUs will occur within 30 days of vesting of that portion. Settlement of RSUs shall be in Shares. Settlement means the delivery of the Shares vested under an RSU. No fractional RSUs or rights for fractional Shares shall be created pursuant to this RSU Agreement. If and when the Company establishes separate classes of Company Common Stock in the form of Class A and Class B Company Common Stock (or similar structure of Company Common Stock), each Share granted under the RSUs automatically will represent one share of Class B Common Stock of the Company and, upon settlement of RSUs, each Share otherwise issuable under the RSUs will be issued as one share of Class B Common Stock of the Company (or similar applicable class of shares of Company Common Stock).

2. No Stockholder Rights . Unless and until such time as Shares are issued in settlement of vested RSUs, you shall have no ownership of the Shares allocated to the RSUs and shall have no right to dividends or to vote such Shares.

3. Dividends; Dividend Equivalents . You will receive no benefit or adjustment to your RSUs with respect to any dividend except with respect to a capitalization adjustment as provided under Section 2.2 of the Plan. For the avoidance of doubt, in the event that the number of outstanding shares of the Company’s Common Stock is changed by a dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), reorganization, merger, consolidation, split-up, spin-off, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, then the number of Shares subject to your RSUs will be proportionately adjusted in order to prevent diminution or enlargement of the benefits or potential benefits granted or otherwise intended to be provided under your RSUs. In addition, in the event of an extraordinary dividend in the form of cash, Shares or other property occurs with respect to outstanding shares of the Company’s Common Stock, the number of Shares subject to your RSUs will be proportionately adjusted in order to prevent diminution or enlargement of the benefits or potential benefits granted or otherwise intended to be provided under your RSUs. Further, for the avoidance of doubt, upon the occurrence of the Company’s sale of Shares or other securities of the Company in any secondary or follow-on offering occurring after the Company’s initial public offering, or any of the events under this Section 3 of this RSU Agreement or Section 2.2 of the Plan, the performance criteria described in Attachment 1 to the Notice will be proportionately adjusted in order to prevent diminution or enlargement of the benefits or potential benefits granted or otherwise intended to be provided under your RSUs.

4. No Transfer . RSUs may not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of in any manner other than by will or by the laws of descent or distribution or court order or unless otherwise permitted by the Committee on a case-by-case basis.

5. Termination . If your Service is Terminated for any reason, all unvested RSUs shall be forfeited to the Company forthwith, and all rights you have to such RSUs shall immediately terminate. In case of any dispute as to whether your Termination has occurred, the Committee shall have sole discretion to determine whether such Termination has occurred and the effective date of such Termination.

6. Tax Consequences . You acknowledge that there will be tax consequences upon settlement of the RSUs or disposition of the Shares, if any, received in connection therewith, and you should consult a tax adviser regarding your tax obligations prior to such settlement or disposition in the jurisdiction where you are subject to tax.

 

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7. Withholding Taxes and Stock Withholding . Regardless of any action the Company or your actual employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the settlement of the RSUs, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends; and (2) do not commit to structure the terms of the award or any aspect of the RSUs to reduce or eliminate your liability for Tax-Related Items. You acknowledge that if you are subject to Tax-Related Items in more than one jurisdiction, the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to the settlement of your RSUs, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when your RSUs are settled, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf and you hereby authorize such sales by this authorization), (c) your payment of a cash amount, or (d) any other arrangement approved by the Company; all under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if you are a Section 16 officer of the Company under the Exchange Act, then the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish the method of withholding from alternatives (a)-(d) above, and the Committee shall establish the method prior to the Tax-Related Items withholding event. The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. You shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described. Finally, you acknowledge that the Company has no obligation to deliver Shares to you until you have satisfied the obligations in connection with the Tax-Related Items as described in this Section.

8. Acknowledgement . The Company and you agree that the RSUs are granted under and governed by the Notice, this RSU Agreement and the provisions of the Plan. You: (i) acknowledge receipt of a copy of the Notice, this RSU Agreement, the Plan and the Rule 701(e) Information Statement, (ii) represent that you have carefully read and are familiar with their provisions, and (iii) hereby accept the RSUs subject to all of the terms and conditions set forth herein and those set forth in the Notice.

9. Entire Agreement; Enforcement of Rights . This RSU Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this RSU Agreement, nor any waiver of any rights under this RSU Agreement, shall be effective unless in writing and signed by the parties to this RSU Agreement. The failure by either party to enforce any rights under this RSU Agreement shall not be construed as a waiver of any rights of such party.

 

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10. Compliance with Laws and Regulations . The issuance of Shares will be subject to and conditioned upon compliance by the Company and you with all applicable state, federal and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Shares shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the issuance of any Shares pursuant to this RSU, the Company may require you to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. The Shares issued pursuant to this Agreement shall be endorsed with appropriate legends, if any, determined by the Company.

11. Governing Law; Severability . If one or more provisions of this RSU Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this RSU Agreement, (ii) the balance of this RSU Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this RSU Agreement shall be enforceable in accordance with its terms. This RSU Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that may arise directly or indirectly from the Plan, the Notice and this RSU Agreement, the parties hereby submit and consent to litigation in the exclusive jurisdiction of the State of California and agree that any such litigation shall be conducted only in the courts of California or the federal courts of the United States for the Northern District of California and no other courts.

11. No Rights as Employee, Director or Consultant . Nothing in this RSU Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate your Service, for any reason, with or without Cause.

12. Consent to Electronic Delivery of All Plan Documents and Disclosures . By acceptance of this RSU, you consent to the electronic delivery of the Notice, this RSU Agreement, the Plan, account statements, the Rule 701(e) Information Statement, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the RSU. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at stocks@gopro.com. You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at stocks@gopro.com. Finally, you understand that you are not required to consent to electronic delivery.

13. Market Standoff Agreement . You agree in connection with any registration of the Company’s securities under the Securities Act or other public offering that, upon the request of the Company or the underwriters managing any registered public offering of the Company’s securities, you will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the

 

3


case may be, for a period of time (not to exceed one hundred eighty (180) days, but subject to extension as provided below) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-stockholders generally. If during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the 16-day period beginning on the last day of the restricted period, and if the Company’s securities are listed on the Nasdaq Stock Market and Rule 2711 thereof (or any other successor rule) applies, then the restrictions imposed by this Section 13 shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond two hundred fifteen (215) days after the effective date of the registration statement. For purposes of this Section 13, the term “Company” shall include any wholly-owned subsidiary of the Company into which the Company merges or consolidates. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section and to impose stop transfer instructions with respect to the Shares until the end of such period. You further agree to enter into any agreement reasonably required by the underwriters to implement the foregoing and that such underwriters are express third party beneficiaries of this Section 13.

14. Code Section 409A . Notwithstanding anything else provided herein, to the extent any payments provided under this RSU Agreement in connection with your termination of employment constitute deferred compensation subject to Section 409A of the Internal Revenue Code and the regulations thereunder (“ Section 409A ”), and you are deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payment shall not be made or commence until the earlier of (i) the expiration of the six-month period measured from your separation from service from the Company or (ii) the date of your death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you including, without limitation, the additional tax for which you would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. To the extent any payment under this RSU Agreement may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

15 . Award Subject to Company Clawback or Recoupment . The RSU shall be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of your employment or other Service with the Company that is applicable to executive officers, Employees, Directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law may require the cancellation of your RSU (whether vested or unvested) and the recoupment of any gains realized with respect to your RSU; provided, however, that any clawback or recoupment policy adopted by the Board shall not disproportionately adversely apply to you as compared to all other senior executives of the Company (to the extent that the compensation arrangements of any one or more of the other senior executives of the Company are structured in a comparable manner to your compensation arrangements), unless otherwise required under applicable law.

BY ACCEPTING THIS RSU, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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Exhibit 10.17

 

LOGO   

+1 650 332 7600 T

gopro.com W

 

3000 Clearview Way

San Mateo, CA 94402

June 2, 2014

Anthony J. Bates

Via Email

Dear Tony:

We are pleased to offer you a position with GoPro, Inc. (inclusive of any successors or assigns or subsidiaries, the “ Company ” or “ we ”), as President, with initial operating responsibility for Media, Product Management, Sales and Marketing Groups reporting to the Company’s Chief Executive Officer. In addition, subject to the Company’s bylaws, you will be appointed to the Company’s board of directors (the “ Board ”) effective as of your commencement of employment. We would like you to commence employment as soon as practicable, but no later than June 3, 2014 (the actual date when you commence employment, the “ Start Date ”). This offer of employment will terminate if it is not accepted, signed and returned by 8:00 p.m. PDT on June 3, 2014.

Compensation Terms

Salary . If you decide to join us, you will receive an annual salary of $800,000, which will be paid semi-monthly on the 15th and last day of the month in accordance with the Company’s normal payroll procedures and will be subject to annual review and evaluation for upward (but not downward) adjustment by the Board (as this salary may be adjusted from time to time, the “ Base Salary ”).

Target Bonus . You will also be eligible for an annual target bonus (as in effect from time to time, the “ Target Bonus ”), based on achievement of objectives mutually agreed upon by you and the Board. The Target Bonus is subject to an over/underachievement scale with possible payouts of 0% to 200% of your Base Salary, and with target achievement correlated to a Target Bonus of 100% of your Base Salary. Your actual Target Bonus for fiscal year 2014 will be pro-rated for time worked during your first year of employment. Each Target Bonus will be paid no later than two and one-half months following the end of the performance period to which that Target Bonus relates.

Employee Benefits . Except as otherwise provided for in this letter agreement, you will be eligible to receive employee benefits and perquisites commensurate with those provided to the Company’s senior executives. A list of current employee benefits will be provided in the Benefits Information Guide . Eligibility for benefits begins on the first (1st) day of the month following your first day of employment, with the exception of participating in our 401k which you will be eligible on the first day of your employment. You should note that the Company may modify job titles, salaries, commission plans, bonuses and benefits from time to time as it deems necessary and at its sole discretion (subject to the limitations in this letter agreement).

Equity Opportunities . Effective as of the Start Date, you will be granted an option (the “ Initial Option ”) to purchase 2,272,688 shares of the Company’s Class B common stock representing 1.6% of the Company’s Fully-Diluted Equity Capitalization, with a per share exercise price equal to $18.40, which is the fair market value of the Company’s Class B common stock, as determined by the Board as of the date of grant of the Initial Option. The current fair market value of the Company’s Common Stock, as determined most recently by the Board, is $18.40 per share. You will vest in equal monthly installments of the shares subject to the Initial Option over the first 48 months of continuous service, as described in the applicable stock option agreement. The Initial Option will be subject to the terms and conditions applicable to options granted under the Company’s 2010 Equity Incentive Plan (the “ Plan ”) 1 , as described in the Plan and the applicable stock option agreement.

The Company’s “ Fully Diluted Capitalization ” shall mean, as measured on June 2, 2014, the total number of issued and outstanding shares of the Company’s Class A and Class B common stock, calculated to include conversion of all issued and outstanding securities then convertible into shares of common stock, the exercise of

 

 


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all then outstanding options, warrants, and other rights to purchase or obtain shares of common stock, whether or not exercisable or whether or not then vested, and the total number of shares reserved for issuance under the Company’s then outstanding stock incentive plans (without double counting).

Effective as of the Start Date, you will be granted restricted stock units representing 248,266 shares of Class B common stock (“ Initial RSUs ”) under the Plan. The Initial RSUs will vest in in equal quarterly installments over the first 48 months of continuous service, as described in the applicable restricted stock unit agreement, and the Initial RSUs will be settled as soon as practicable following each vesting date, and in no event later than March 15 in the calendar year following the year of vesting. The Initial RSUs shall be subject to the terms and conditions set forth in the Plan and in the restricted stock unit agreement between you and the Company. You will be responsible for applicable withholding taxes that become due upon settlement of the Initial RSUs. The Initial RSUs will permit payment of taxes through stock withholding in our sole discretion and, to the extent there is a public market for our common stock, sell-to-cover transactions.

Upon a Change in Control that occurs within six months of your Start Date (single trigger), you will be immediately vested in 25% of the shares underlying your Initial Option and Initial RSUs. In contrast, upon a Change in Control that occurs on or after the six month anniversary of your Start Date (single trigger), you will be immediately vested in 50% of each of your Initial Option and Initial RSU. Notwithstanding anything herein or in the Plan to the contrary, in the event that the Initial Option and Initial RSUs are not assumed or substituted for by an acquirer or successor entity in connection with a Change in Control, the Initial Option and Initial RSUs shall become fully vested with respect to 100% of the shares underlying such awards immediately prior to the consummation of such Change in Control.

In addition to the Initial Option and Initial RSU, you will be eligible to receive other equity awards in options or restricted stock units over the course of your employment. Subject to insider trading restrictions and policies and applicable securities laws, on or prior to June 20, 2014, you will be entitled to invest in our Class A common stock at an amount to be mutually agreed upon by both you and the Board, which shares acquired for investment will be fully vested upon purchase. Your purchase price for this investment will be (i) our then-current fair market value, pursuant to a recent independent appraisal, or (ii) if the securities are Tradable (defined below), the applicable market price on the purchase date.

Termination Benefits .

Upon the termination of your employment with the Company at any time for any reason, you will be paid your (i) salary through your termination date, (ii) the value of all unused paid time off earned through your termination date, and (iii) any earned but unpaid portion of your Target Bonus for the fiscal year preceding your termination date (but, for the avoidance of doubt, not any portion of the Target Bonus for the fiscal year in which your termination occurs). You will also be allowed to continue your medical coverage at your own expense under the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”). You will be allowed to exercise your vested options (including the Initial Option, to the extent vested), if any, during the time period set forth in, and in accordance with, your governing stock option agreement). Your unvested restricted stock units, if any, will be forfeited without consideration upon your termination. The foregoing accrued payments and benefits will be collectively referred to herein as the “ Accrued Compensation .”

 

  (i) Involuntary Termination Prior to a Change in Control

If you Separate due to a termination of your employment by the Company other than for Cause or by your resignation for Good Reason, in either case, prior to a Change in Control, you will be entitled to receive the following: (i) your Accrued Compensation, (ii) a single lump sum severance payment equal to the sum of 12 months of your then-current Base Salary and your then-current Target Bonus (assuming a 100% achievement threshold), (iii) a payment equal to the pro rata portion of your actual Target Bonus through your Separation, which shall be calculated at the end of the fiscal year relevant to this Target Bonus, (iv) accelerated vesting of any then-outstanding equity awards with respect to 25% of the shares initially subject to any such awards, including the Initial Option and Initial RSU, as applicable and (v) subject to your timely and proper election for COBRA coverage,


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the continuation of your then-effective group health benefits for 12 months under COBRA, provided that, if the Company determines that it cannot provide such continued health benefits without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to you a lump sum payment in an amount equal to 12 months of such continued health benefits, which payment shall be made regardless of whether you elect COBRA continuation coverage (items (ii) through (v) hereinafter referred to as the “ Severance ”). Receipt of the Severance shall be conditioned in its entirety upon your execution of a release of claims in a reasonably customary form acceptable to you and the Company (the “ Release ”) and your resignation from the Board. Your Release must be executed and become irrevocable within 60 days of your Separation, provided that , if these payments are to be made due to your resignation for Good Reason, and the Straddle Period spans two calendar years, then these payments under subpart (ii) and, if applicable, subpart (iv) will be paid on the first business day in the second calendar year that occurs after the expiration of said 60-day period in which the executed Release is to become irrevocable. The payment described in subpart (iii) of this paragraph shall occur no later than two and one half months following the fiscal year in which your Separation occurs and when other bonuses are generally paid to senior executives of the Company. The payment described in subpart (ii) of this paragraph, and if applicable, the cash payment described in subpart (iv) of this paragraph, shall be paid out in a lump sum on the first business day after the 60th day following your Separation, and the payment described in subpart (iii) of this paragraph shall occur no later than two and one half months following the fiscal year in which your Separation occurs and when other target bonuses are generally paid.

 

  (ii) Involuntary Termination Within 24 Months Following a Change in Control

If, however, you Separate due to a termination of your employment by the Company other than for Cause or by your resignation for CIC Good Reason, in either case, within 24 months following a Change in Control, in lieu of the Severance referenced above, you shall be eligible to receive the following enhanced severance payments and benefits: (i) your Accrued Compensation, (ii) a single lump sum severance payment equal to the sum of 24 months of your then-current Base Salary and your then-current Target Bonus (assuming a 200% achievement threshold), (iii) a payment equal to the pro rata portion of your actual Target Bonus through your Separation, which shall be calculated at the end of the performance period relevant to this Target Bonus, (iv) fully accelerated vesting of any then-outstanding equity awards, including the Initial Option and Initial RSU, as applicable, and (v) subject to your timely and proper election for COBRA coverage, the continuation of your then-effective group health benefits for 18 months under COBRA, provided that if the Company determines that it cannot provide such continued health benefits without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to you a lump sum payment in an amount equal to 18 months of such continued health benefits, which payment shall be made regardless of whether you elect COBRA continuation coverage (items (ii) through (v) hereinafter referred to as the “ CIC Severance ”). Receipt of the CIC Severance shall be conditioned in its entirety upon your execution of a Release and your resignation from the Board. Your Release must be executed and become irrevocable within 60 days of your Separation, provided that , if these payments are to be made due to your resignation for CIC Good Reason, and the Straddle Period spans two calendar years, then these payments under subpart (ii) and, if applicable, subpart (v) will be paid on the first business day in the second calendar year that occurs after the expiration of said 60-day period in which the executed Release is to become irrevocable. The severance payment described in subpart (ii) of this paragraph, and if applicable, the payment described in subpart (v) of this paragraph, shall be paid out in a lump sum on the first business day after the 60th day following your Separation, and the payment equal to the pro rata portion of your Target Bonus through your Separation shall occur no later than two and one half months following the fiscal year in which your Separation occurs and when other target bonuses are generally paid.

 

  (iii) Other Terminations

Upon any termination of your employment other than as described in (ii) and (iii) immediately above, including any termination of employment that is not a Separation, you will be entitled only to the Accrued Compensation.


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  (iv) Definitions

The following terms have the meaning set forth below wherever they are used in this letter agreement:

Cause ” means the occurrence of any of the following: (A) your willful and continued failure to perform the material duties of your position as generally described in this letter agreement to the Company that goes uncured for a period 30 days following written notice to you; (B) your willful or intentional conduct that causes material and demonstrable injury, monetarily or otherwise, to the Company; (C) your conviction of, or a plea of nolo contendere to, a crime constituting (x) a felony under the laws of the United States or any state thereof, or (y) a misdemeanor involving moral turpitude; or (D) your willful and material breach of a provision of this letter agreement or the Confidentiality Agreement (defined below) that is reasonably expected to have a material adverse economic impact on the Company. Any determination that you have engaged in conduct for which the Board wishes to terminate your employment shall be made after a meeting of the nonemployee directors of the Board at which you shall be invited to appear, with counsel, to respond to the allegations set forth in the written notice to you of such meeting (which notice shall provide sufficient specificity to allow you to respond to such allegations). For purposes of this letter agreement, an act (or failure to act) shall only be considered “willful” if done (or failed to be done) by you intentionally and in bad faith.

“Change in Control” shall mean an Acquisition or Other Combination, as such terms are defined in the Plan. The foregoing notwithstanding, a transaction that does not constitute a “change in control event” under Sections 1.409A-3(i)(5)(v) or 1.409A-3(i)(5)(vii) of the Treasury Regulations under Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) will not constitute a Change in Control for purposes of the RSUs.

Separate ” or “ Separation ” means that a “separation from service” has occurred, as defined under Section 1.409A-1(h) of the Treasury Regulations under Section 409A of the Code.

“Good Reason ” means the occurrence of any of the following events or conditions, without your express written consent (which consent may be denied, withheld or delayed for any reason):

(i) a material reduction in your duties, authority or responsibilities;

(ii) a material reduction by the Company in your Base Salary or Target Bonus (but excluding any reduction of not more than 25% that applies to substantially all of the Company’s other executive officers);

(iii) the relocation of your principal place of employment to a location more than 30 miles from your principal place of employment immediately prior to your termination or the Company’s requiring you to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with your present business travel obligations or those of similarly situated senior executives ;

(iv) any action or inaction that constitutes a material breach by the Company of this letter agreement or any other agreement between the Company and you, or any material breach by the Company of a policy relating to the benefits to which you are entitled;

Provided that , with respect to each trigger above, you shall provide notice to the Company of the condition giving rise to “Good Reason” within 90 days of the initial existence of such condition and the Company shall have 30 days following such notice to remedy such condition and your resignation shall occur within 90 days following the expiration of the Company’s 30-day remedial period. Your right to terminate your employment for Good Reason shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

CIC Good Reason ” means the occurrence of any of the following events or conditions, without your express written consent (which consent may be denied, withheld or delayed for any reason):

(i) a material reduction in your duties, authority or responsibilities;


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(ii) a material diminution in the authority, duties or responsibilities of the supervisor to whom you are required to report, including a requirement to report to a corporate officer or employee instead of directly to the Board;

(iii) a material diminution in the budget over which you retain authority;

(iv) a material reduction by the Company in your Base Salary or Target Bonus;

(v) your death or disability (as defined in the Company’s long-term disability plan, or if none, as defined in Section 22(e)(3) of the Code);

(vi) the relocation of your principal place of employment to a location more than 30 miles from your principal place of employment immediately prior to your termination or the Company’s requiring you to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with your present business travel obligations or those of similarly situated senior executives ;

(vii) any action or inaction that constitutes a material breach by the Company of this letter agreement or any other agreement between the Company and you, or any material breach by the Company of a policy relating to the benefits to which you are entitled; or

(viii) any material reduction in the value of any of the benefits provided to you as of the date hereof or as increased from time to time;

Provided that , with respect to each trigger above, you shall provide notice to the Company of the condition giving rise to “CIC Good Reason” within 90 days of the initial existence of such condition and the Company shall have 30 days following such notice to remedy such condition and your resignation shall occur within 90 days following the expiration of the Company’s 30-day remedial period. Your right to terminate your employment for CIC Good Reason shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting CIC Good Reason hereunder.

The “ Straddle Period ” shall mean those 150 calendar days comprising the 90-day period following the Company’s failure to cure a Good Reason or CIC Good Reason condition, as applicable, and the 60-day period following Separation in which the Release is to be executed and become irrevocable.

Section 280G

Any payments described in this letter agreement or referenced herein which could constitute or result in your receipt of “parachute payments” within the meaning of Section 280G of the Code are referred to as “ Compensatory Payments .”

For purposes of the immediately following paragraphs related to Section 280G of the Code, unless the Company and you otherwise agree in writing, the determination of your excise tax liability and the amount required to be paid shall be made in writing by an accountant chosen by the Company, which shall be from one of the six largest national accounting firms (an “ Accountant ”). For purposes of its calculations, the Accountant may make reasonable assumptions and approximations concerning applicable taxes and may rely on interpretations of the Code for which there is a “substantial authority” tax reporting position. The Company and you shall furnish to the Accountant such information and documents as the Accountant may reasonably request in order to make its determinations. The Company shall bear all costs the Accountant may reasonably incur in connection with any calculations contemplated hereunder.

If any Compensatory Payment will be subject to the excise taxes under Section 4999 of the Code, then the Compensatory Payments will be payable to you either in full or in such lesser amounts as would result, after taking


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into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, on your receipt on an after-tax basis of the greatest amount of payments and other benefits, by reducing payments in the following order: first a pro rata reduction of (i) cash payments subject to Section 409A of the Code as deferred compensation and (ii) cash payments not subject to Section 409A of the Code, and second a pro rata cancellation of (i) equity award compensation subject to Section 409A of the Code as deferred compensation and (ii) equity award compensation not subject to Section 409A of the Code (the “ Best Results Reduction ”). In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant.

For so long as none of the Company’s securities are “ Tradable ” (which shall mean “readily tradable on an established securities market or otherwise,” as described in Section 1.280G-1, Q/A-6 of the Treasury Regulations under Section 280G of the Code), and upon your written request, the Company will submit those Compensatory Payments in excess of three times your applicable “base amount” (as defined in Section 280G(b)(3) of the Code) after applying the Best Results Reduction (this excess, the “ Subject Payments ”) for approval by the Company’s stockholders, all in accordance with Section 280G(b)(5) of the Code. This obligation of the Company is conditioned upon your reasonable cooperation with this solicitation of stockholder approval and your agreement to irrevocably condition your receipt of the Subject Payments upon stockholder approval satisfying the Section 280G(b)(5) requirements. Alternatively, absent your written request described above and for so long as none of the Company’s securities are Tradable, if any Compensatory Payment (for this purpose, Compensatory Payments shall exclude equity awards other than the Initial Option and the Initial RSU) will be subject to the excise tax imposed by Section 4999 of the Code as a result of a change in control within three years of your Start Date, you shall receive a payment equal to 50% of the Subject Payments, as measured prior to the application of this sentence (i.e., the payment described in this sentence shall not constitute a Subject Payment under this sentence even if it would also be subject to, or result in, excise taxes under Section 4999 of the Code) and without any payment by the Company for any federal, state, employment, or excise taxes imposed on any Compensatory Payments. In the event that the Subject Payments are determined by the Internal Revenue Service to be greater or lesser than the amount so determined by the Accountant, the Company and you agree to promptly make such additional payment, including interest, to the other party as the Accountant reasonably determines is appropriate.

After any of the Company’s securities become Tradable, the foregoing paragraph shall not apply, but in the event that any portion of the Compensatory Payments will be subject to the excise tax imposed by Section 4999 of the Code pursuant to a change in control within three years of your Start Date after applying the Best Results Reduction, you shall receive (i) a payment from the Company sufficient to pay such excise tax, and (ii) an additional payment from the Company sufficient to pay the excise tax, employment tax, and federal and state income taxes arising from the payments made by the Company to you pursuant to this sentence. For purposes of this paragraph, Compensatory Payments shall exclude equity awards other than the Initial Option and the Initial RSU. Notwithstanding all of the foregoing, in order to receive the gross-up described in this paragraph, you agree that your Subject Payments will be reduced by 10% (the “ 10% Cut Back ”). The 10% Cut Back shall be applied in the following manner: first a pro-rata reduction of (i) cash or cash-equivalent payments, (ii) equity-based compensation, and (iii) other benefits. Reductions within any subpart (i), (ii), and (iii) shall apply on a pro-rata basis between amounts subject to Section 409A of the Code and amounts not so subject. In the event that the excise tax incurred by you is determined by the Internal Revenue Service to be greater or lesser than the amount so determined by the Accountant, the Company and you agree to promptly make such additional payment, including interest and any tax penalties, to the other party as the Accountant reasonably determines is appropriate to ensure that the net economic effect to you under this paragraph, on an after-tax basis, is as if the Code Section 4999 excise tax did not apply to you, but that the 10% Cut Back shall not be refunded or restored to you and will be disregarded in the analysis described in this sentence.

Section 409A

To the extent (i) any payments to which you become entitled under this letter agreement, or any agreement or plan referenced herein, in connection with your termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code and (ii) you are deemed at the time of such termination of employment to be a “specified” employee under Section 409A of the Code, then such payment or payment shall


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not be made or commence until the earlier of (i) the expiration of the six (6)-month period measured from the date of your “separation from service” (as such term is at the time defined in regulations under Section 409A of the Code) with the Company; or (ii) the date of your death following such separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you, including (without limitation) the additional twenty percent (20%) tax for which you would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. The first payment thereof will include a catch-up payment covering the amount that would have otherwise been paid during the period between your termination of employment and the first payment date but for the application of this provision, and the balance of the installments (if any) will be payable in accordance with their original schedule.

For purposes of this letter agreement or any agreement or plan referenced herein, and notwithstanding any other provision herein, with respect to any payment that is subject to (and not exempt from) Section 409A of the Code, no payment shall be made upon disability or terminal illness unless and until such condition qualifies as a “Disability” within the meaning of Section 409A of the Code and Section 1.409A-3(i)(4) of the regulations thereunder.

Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this letter agreement (or otherwise referenced herein) is determined to be subject to (and not exempt from) Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement or in kind benefits to be provided in any other calendar year, in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.

To the extent that any provision of this letter agreement is ambiguous as to its exemption or compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder are exempt from Section 409A to the maximum permissible extent, and for any payments where such construction is not tenable, that those payments comply with Section 409A to the maximum permissible extent. To the extent any payment under this offer letter may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A.

Payments pursuant to this letter agreement (or referenced in this letter agreement) are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the regulations under Section 409A.

Other Terms

The Company is excited about your joining and looks forward to a beneficial and productive relationship. Nevertheless, you should be aware that your employment with the Company is for no specified period and constitutes at will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice. We request that, in the event of resignation, you give the Company at least two weeks’ notice. Any modification or change in your at will status may only occur by way of a written employment agreement signed by you and the Chief Executive Officer of the Company.

If you are made a party, or at any time are threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of your status as a director, officer or employee of the Company, you will be eligible for indemnification and coverage under the Company’s director and officer liability insurance policy to the same extent as other similarly situated directors and officers of the Company, which indemnification shall be subject to the limitations of applicable law and the Company’s certificate of incorporation and bylaws.


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The Company will reimburse you for reasonable fees actually incurred by you and reasonably substantiated to the Company in connection with your legal representation in the negotiation of this letter agreement. Furthermore, if any contest or dispute shall arise between the Company and you regarding any provision of this letter agreement or your termination of employment, the Company shall reimburse you for all reasonable legal fees and expenses actually incurred by you in connection with such contest or dispute, but only if you prevail to a substantial extent with respect to any of your substantive legal claims brought and pursued in connection with such contest or dispute, so long as each of your substantive legal claims was reasonable and raised in good faith. Such reimbursement shall be made as soon as practicable following the resolution of such contest or dispute (whether or not appealed) to the extent the Company receives reasonable written evidence of such fees and expenses and shall not exceed $200,000.

The Company reserves the right to conduct background and reference checks on all of its potential employees. Your job offer, therefore, is contingent upon satisfactory verification of your criminal, education and employment history, and this offer can be rescinded based upon data received in the verification.

For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.

By your signature below, you acknowledge that you have disclosed to the Company any and all agreements relating to your prior employment that may affect your eligibility to be employed by the Company or limit the manner in which you may be employed, and you represent that your signing of this offer and commencement of employment with the Company will not violate any such agreement. Moreover, you agree that, during the term of your employment with the Company, you will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to the Company. Similarly, you agree not to bring any third party confidential information to the Company, including that of your former employer, and that in performing your duties for the Company you will not in any way utilize any such information.

As a Company employee, you will be expected to abide by the Company’s rules and standards. Specifically, you will be required to sign an acknowledgment that you have read and that you understand the Company’s rules of conducts which are included in the Company Handbook.

As a condition of your employment, you are also required to sign and comply with the Company’s standard Employee Invention Assignment and Confidentiality Agreement (the “ Confidentiality Agreement ”) which requires, among other provisions, (i) the assignment of patent rights to any invention made during your employment at the Company, and non-disclosure of Company proprietary information and (ii) that you refrain from disclosure of certain confidential information, except to carry out your duties to the Company under this letter agreement or your other fiduciary responsibilities to the Company.

You and the Company agree to submit to mandatory binding arbitration any and all claims arising out of or related to your employment with the Company and the termination thereof, including, but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision except that each party may, at its, his or her option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s proprietary, confidential or trade secret information. All arbitration hearings shall be conducted in San Mateo County, California. The parties hereby waive any rights they may have to trial by jury in regard to such claims. This Agreement does not restrict your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict the employee’s ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in


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accordance with the JAMS employment arbitration rules then in effect. The JAMS rules may be found and reviewed at http://www.jamsadr.com/rules-employment-arbitration. If you are unable to access these rules, please let me know and I will provide you with a hardcopy. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based. This letter agreement will be governed by the laws of the state of California without reference to conflict of laws provisions.

Any payment made to you under this letter agreement will be less all applicable deductions and withholding.

To accept the Company’s offer, please sign and date this letter in the space provided below. This letter, along with any agreements relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements including, but not limited to, any representations made during your recruitment, interviews or pre-employment negotiations, whether written or oral.

[SIGNATURE PAGE FOLLOWS]


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We look forward to your favorable reply and to working with you at GoPro.

Sincerely,

Nicholas Woodman

Chief Executive Officer

 

                       /s/ Nicholas Woodman    6/3/14

Agreed to and accepted:

 

                      /s/ Anthony J. Bates    6/3/14
Anthony J. Bates    Signature    Date

[SIGNATURE PAGE TO LETTER AGREEMENT]

Exhibit 10.18

A MENDED AND R ESTATED C HANGE IN C ONTROL AND O THER S EVERANCE A GREEMENT

This Amended and Restated Change in Control and Other Severance Agreement is entered into as of June 8, 2014 (the “Effective Date”) by and between Nina Richardson (the “Executive”) and GOPRO, INC., a Delaware corporation (the “Company”) and amends and restates in its entirety the Change in Control Severance Agreement between the Company and Executive, dated January 13, 2014.

 

1. Term of Agreement.

Except to the extent renewed as set forth in this Section 1, this Agreement shall terminate the earlier of December 31, 2016 (the “Expiration Date”) or the date the Executive’s employment with the Company terminates for a reason other than a CIC Qualifying Termination or a Qualifying Termination; however, if a definitive agreement relating to a Change in Control has been signed by the Company on or before December 31, 2016, then this Agreement shall remain in effect through the earlier of:

(a) The date the Executive’s employment with the Company terminates for any reason other than a CIC Qualifying Termination; or

(b) The date the Company has met all of its obligations under this Agreement following Executive’s CIC Qualifying Termination.

This Agreement shall renew automatically and continue in effect for three year periods measured from the initial Expiration Date, unless the Company provides Executive notice of non-renewal at least three months prior to the date on which this Agreement would otherwise expire.

 

2. Severance Benefit.

(a) Severance Payments upon a Qualifying Termination . If the Executive is subject to a Qualifying Termination, then, subject to Section 3 below, the Company shall pay the Executive (i) twelve (12) months of his or her monthly base salary, (ii) an amount equal to the greater of (A) one-hundred percent (100%) of the Executive’s annual target bonus or (B) one-hundred percent (100%) of the most recent annual bonus paid by the Company to Executive, and (iii) $3,000 per month for twelve (12) months in lieu of any COBRA or other employee benefits. In addition, if the Executive is subject to a Qualifying Termination, the Company will offer the Executive a consulting arrangement for 12 months, during which term, the vesting under his or her Equity Awards will continue to vest the maximum extent permitted by the applicable governing equity plan and equity agreements, provided that , this consulting arrangement shall impose a permanent limitation such that Executive may not perform consulting services that are more than 20% of the average level of service performed by Executive during the immediately preceding 36-month period, as well as any other conditions within the sole judgment of the Company to effect the mutual intention that the Qualifying Termination will be respected as a Separation for all purposes under this Agreement. However, in lieu of entering into the consulting agreement contemplated by the preceding sentence, the Company may accelerate the vesting of Executive’s outstanding Equity Awards as of the Qualifying Termination with respect to 25% of the shares initially subject to those Equity Awards.


(b) Severance Payments upon a CIC Qualifying Termination . If the Executive is subject to a CIC Qualifying Termination, then, subject to Section 3 below, the Company shall pay the Executive (i) twelve (12) months of his or her monthly base salary, (ii) an amount equal to the greater of (A) one-hundred percent (100%) of the Executive’s annual target bonus or (B) one-hundred percent (100%) of the most recent annual bonus paid by the Company to Executive, (iii) each of Executive’s then outstanding unvested Equity Awards, including awards that would otherwise vest only upon satisfaction of performance criteria, shall accelerate as of the Separation and become vested and exercisable with respect to 100% of the then unvested shares subject thereto, and (iv) $3,000 per month for twelve (12) months in lieu of any COBRA or other employee benefits.

(c) General Release . Any other provision of this Agreement notwithstanding, Sections 2(a) and 2(b) above shall not apply unless the Executive (i) has executed a general release (in a form prescribed by the Company) of all known and unknown claims that he or she may then have against the Company or persons affiliated with the Company and such release has become effective and (ii) has agreed not to prosecute any legal action or other proceeding based upon any of such claims. The release must be in the form prescribed by the Company, without alterations. The Company will deliver the form to the Executive within thirty (30) days after the Executive’s Separation. The Executive must execute and return the release within the time period specified in the form.

(d) Timing of Payment. The Executive will receive his or her cash severance payment described in Sections 2(a)(i) and 2(a)(ii), or 2(b)(i) and 2(b)(ii), each only as applicable, in a cash lump-sum which will be made on the sixtieth (60 th ) day following the Separation. The payments described in Section 2(a)(iv) or 2(b)(iv) shall be paid beginning on the sixtieth (60 th ) day following Separation. None of the foregoing payments will begin or be made unless the following have already occurred: (i) the date of Executive’s CIC Qualifying Termination or Qualifying Termination, as applicable; (ii) the date of the Company’s receipt of the Executive’s executed General Release; and (iii) the expiration of any rescission period applicable to the Executive’s executed General Release. Such payments shall be paid in accordance with the Company’s standard payroll procedures.

(e) Accrued Compensation and Benefits . In connection with any termination of employment, the Company shall pay Executive’s earned but unpaid base salary and other vested but unpaid cash entitlements for the period through and including the termination of employment, including unused earned vacation pay and unreimbursed documented business expenses incurred by Executive prior to the date of termination (collectively “Accrued Compensation and Expenses”), as required by law and the applicable Company plan or policy. In addition, Executive shall be entitled to any other vested benefits earned by Executive for the period through and including the termination date of Executive’s employment under any other employee benefit plans and arrangements maintained by the Company, in accordance with the terms of such plans and arrangements, except as modified herein (collectively “Accrued Benefits”). Any Accrued Compensation and Expenses to which the Executive is entitled shall be paid to the Executive in cash as soon as administratively practicable after the termination, and, in

 

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any event, no later than two and one-half (2-1/2) months after the end of the taxable year of the Executive in which the termination occurs. Any Accrued Benefits to which the Executive is entitled shall be paid to the Executive as provided in the relevant plans and arrangement.

(f) No Duplication . For the avoidance of doubt, and notwithstanding anything to the contrary in this Agreement, the benefits in Section 2(a) and Section 2(b) are mutually exclusive and not cumulative.

 

3. Covenants.

(a) Non-Competition . The Executive agrees that, during his or her employment with the Company, he or she shall not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company.

(b) Cooperation and Non-Disparagement . The Executive agrees that, during the six-month period following his or her cessation of employment, he or she shall cooperate with the Company in every reasonable respect and shall use his or her best efforts to assist the Company with the transition of Executive’s duties to his or her successor. The Executive further agrees that, during this six-month period, he or she shall not in any way or by any means disparage the Company, the members of the Company’s Board of Directors or the Company’s officers and employees.

 

4. Definitions.

(a) “Cause” means (a) an unauthorized use or disclosure by Executive of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company, (b) a material breach of any agreement between Executive and the Company, (c) a material failure to comply with the Company’s written policies or rules, (d) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any state thereof, (e) gross negligence or willful misconduct, (f) failure to cooperate with the Company in any investigation or formal proceeding if the Company has requested your cooperation, or (g) a continued failure to perform assigned duties after receiving written notification of such failure from the Company’s Chief Executive Officer (or, in the case of the Chief Executive Officer, from the Board of Directors); provided that Executive must be provided with written notice of Executive’s termination for “Cause” and Executive must be provided with a 30-day period following Executive’s receipt of such notice to cure the event(s) that trigger “Cause,” with the Company’s Board of Directors making the final determination whether Executive has cured any Cause.

(b) “ Code ” means the Internal Revenue Code of 1986, as amended.

(c) “Change in Control.” For all purposes under this Agreement, “Change in Control” shall mean an “Acquisition,” as such term is defined in the Company’s 2010 Equity Incentive Plan, as may be amended from time to time, provided that the transaction also qualifies as a change in control under U.S. Treasury Regulation 1.409A-3(i)(5)(v) or 1.409A-3(i)(5)(vii).

 

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(d) “ Equity Awards ” means all options to purchase shares of Company common stock as well as any and all other stock-based awards granted to the Executive, including but not limited to stock bonus awards, restricted stock, restricted stock units or stock appreciation rights. All RSUs vested at the date of the Change in Control shall be settled upon or within thirty (30) days following the Change in Control; all RSUs that vest after the Change in Control shall settle within thirty (30) days of vesting.

(e) “Good Reason” means, without the Executive’s consent, (i) a material reduction in the Executive’s level of responsibility and/or scope of authority, (ii) a material reduction in Executive’s base salary (other than a reduction generally applicable to executive officers of the Company and in generally the same proportion as for the Executive), or (iii) relocation of the Executive’s principal workplace by more than 35 miles from Executive’s then current place of employment. For the purpose of clause (a), a change in responsibility shall not be deemed to occur (i) solely because Executive is part of a larger organization, or (ii) solely because of a change in title. For the Executive to receive the benefits under this Agreement as a result of a voluntary resignation under this subsection (d), all of the following requirements must be satisfied: (1) the Executive must provide notice to the Company of his or her intent to assert Good Reason within 120 days of the initial existence of one or more of the conditions set forth in subclauses (i) through (iii); (2) the Company will have 30 days from the date of such notice to remedy the condition and, if it does so, the Executive may withdraw his or her resignation or may resign with no benefits; and (3) any termination of employment under this provision must occur within six months of the initial existence of one or more of the conditions set forth in subclauses (i) through (iii). Should the Company remedy the condition as set forth above and then one or more of the conditions arises again within twelve months following the occurrence of a Change in Control, the Executive may assert Good Reason again subject to all of the conditions set forth herein.

(f) “CIC Qualifying Termination” means a Separation within twelve (12) months following a Change in Control or within three (3) months preceding a Change in Control (if after a Potential Change in Control) resulting from (i) the Company’s termination of the Executive’s employment for any reason other than Cause or (ii) the Executive’s voluntary resignation of his or her employment for Good Reason. A “ Potential Change in Control ” means the date of execution of a definitive agreement whereby the Company will consummate a Change in Control if such transaction is consummated. In the case of a termination following a Potential Change in Control and before a Change in Control, solely for purposes of benefits under this Agreement, the date of Separation will be deemed the date the Change in Control is consummated.

(g) A “ Qualifying Termination” means a Separation that is not a CIC Qualifying Termination, but which results from (i) the Company’s termination of Executive’s employment for any reason other than Cause or (ii) the Executive’s voluntary resignation of his or her employment for Good Reason.

(h) “Separation ” means a “separation from service,” as defined in the regulations under Section 409A of the Code.

 

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5. Successors.

(a) Company’s Successors . The Company shall require any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets, by an agreement in substance and form satisfactory to the Executive, to assume this Agreement and to agree expressly to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets or which becomes bound by this Agreement by operation of law.

(b) Executive’s Successors . This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

 

6. Golden Parachute Taxes.

(a) Best After-Tax Result . In the event that any payment or benefit received or to be received by Executive pursuant to this Agreement or otherwise (“Payments”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but for this subsection (a), be subject to the excise tax imposed by Section 4999 of the Code, any successor provisions, or any comparable federal, state, local or foreign excise tax (“Excise Tax”), then, subject to the provisions of Section 6(b) hereof, such Payments shall be either (A) provided in full pursuant to the terms of this Agreement or any other applicable agreement, or (B) provided as to such lesser extent which would result in no portion of such Payments being subject to the Excise Tax (“Reduced Amount”), whichever of the foregoing amounts, taking into account the applicable federal, state, local and foreign income, employment and other taxes and the Excise Tax (including, without limitation, any interest or penalties on such taxes), results in the receipt by Executive, on an after-tax basis, of the greatest amount of payments and benefits provided for hereunder or otherwise, notwithstanding that all or some portion of such Payments may be subject to the Excise Tax. Unless the Company and Executive otherwise agree in writing, any determination required under this Section shall be made by independent tax counsel designated by the Company and reasonably acceptable to Executive (“Independent Tax Counsel”), whose determination shall be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required under this Section, Independent Tax Counsel may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code; provided that Independent Tax Counsel shall assume that Executive pays all taxes at the highest marginal rate. The Company and Executive shall furnish to Independent Tax Counsel such information and documents as Independent Tax Counsel may reasonably request in order to make a determination under this Section. The Company shall bear all costs that Independent Tax Counsel may reasonably incur in connection with any calculations contemplated by this Section. In the event that Section 6(a)(ii)(B) above applies, then based on the information provided to Executive and the Company by Independent Tax Counsel, Executive may, in Executive’s sole discretion and within 30 days of the date on which Executive is provided with the information prepared by Independent Tax Counsel, determine which and how much of the Payments (including the accelerated vesting of equity compensation awards) to be

 

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otherwise received by Executive shall be eliminated or reduced (as long as after such determination the value (as calculated by Independent Tax Counsel in accordance with the provisions of Sections 280G and 4999 of the Code) of the amounts payable or distributable to Executive equals the Reduced Amount). If the Internal Revenue Service (the “IRS”) determines that any Payment is subject to the Excise Tax, then Section 6(b) hereof shall apply, and the enforcement of Section 6(b) shall be the exclusive remedy to the Company.

(b) Adjustments . If, notwithstanding any reduction described in Section 6(a) hereof (or in the absence of any such reduction), the IRS determines that Executive is liable for the Excise Tax as a result of the receipt of one or more Payments, then Executive shall be obligated to surrender or pay back to the Company, within 120 days after a final IRS determination, an amount of such payments or benefits equal to the “Repayment Amount.” The Repayment Amount with respect to such Payments shall be the smallest such amount, if any, as shall be required to be surrendered or paid to the Company so that Executive’s net proceeds with respect to such Payments (after taking into account the payment of the Excise Tax imposed on such Payments) shall be maximized. Notwithstanding the foregoing, the Repayment Amount with respect to such Payments shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax imposed on such Payments or if a Repayment Amount of more than zero would not maximize the net amount received by Executive from the Payments. If the Excise Tax is not eliminated pursuant to this Section 6(b), Executive shall pay the Excise Tax.

 

7. Miscellaneous Provisions.

(a) Section 409A . For purposes of Section 409A of the Code, if the Company determines that Executive is a “specified employee” under Code Section 409A(a)(2)(B)(i) at the time of a Separation, then (i) the severance benefits under Section 2, to the extent subject to Code Section 409A, will commence during the seventh month after the Executive’s Separation and (ii) will be paid in a lump sum on the earliest practicable date permitted by Section 409A(a)(2) of the Code. Any termination of Executive’s employment is intended to constitute a Separation from Service and will be determined consistent with the rules relating to a “separation from service” as such term is defined in Treasury Regulation Section 1.409A-1. It is intended that each installment of the payments provided hereunder constitute separate “payments” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is further intended that payments hereunder satisfy, to the greatest extent possible, the exemption from the application of Section 409A of the Code (and any state law of similar effect) provided under Treasury Regulation Section 1.409A-1(b)(4) (as a “short-term deferral”). To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision will be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this Policy is determined to be subject to Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which Executive incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.

 

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(b) Other Severance Arrangements . For any equity award that is outstanding on the Effective Date, Executive shall receive the vesting acceleration provisions set forth in the existing equity award agreement or the vesting acceleration benefits set forth in this Agreement, whichever arrangement would cause Executive to vest in the largest number of shares or largest portion of the Equity Award. Except as set forth in the preceding sentence, this Agreement supersedes any and all cash severance arrangements and vesting acceleration arrangements on change in control under any prior option agreement, restricted stock unit agreement, severance and salary continuation arrangements, programs and plans which were previously offered by the Company to the Executive, including change in control severance arrangements pursuant to an employment agreement or offer letter, and Executive hereby waives Executive’s rights to such other benefits. In no event shall any individual receive cash severance benefits under both this Agreement and any other severance pay or salary continuation program, plan or other arrangement with the Company.

(c) Dispute Resolution . To ensure rapid and economical resolution of any and all disputes that might arise in connection with this Agreement, Executive and the Company agree that any and all disputes, claims, and causes of action, in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation, will be resolved solely and exclusively by final, binding, and confidential arbitration, by a single arbitrator, in San Mateo County, and conducted by Judicial Arbitration & Mediation Services, Inc. (“ JAMS ”) under its then-existing employment rules and procedures. Nothing in this section, however, is intended to prevent either party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Each party to an arbitration or litigation hereunder shall be responsible for the payment of its own attorneys’ fees.

(d) Notice . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid or deposited with Federal Express Corporation, with shipping charges prepaid. In the case of the Executive, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

(e) Waiver . No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(f) Withholding Taxes . All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law.

(g) Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

 

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(h) No Retention Rights . Nothing in this Agreement shall confer upon the Executive any right to continue in service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or any subsidiary of the Company or of the Executive, which rights are hereby expressly reserved by each, to terminate his or her service at any time and for any reason, with or without Cause.

(i) Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California (other than their choice-of-law provisions).

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

 

    GOPRO, INC.

/s/ Nina Richardson

   

/s/ Sharon Zezima

Nina Richardson     By:   Sharon Zezima
    Title:   General Counsel

 

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Exhibit 23.02

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Amendment No. 1 to the Registration Statement on Form S-1 of GoPro, Inc. of our report dated March 14, 2014 relating to the financial statements of GoPro, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

San Jose, California

June 11, 2014