As filed with the U.S. Securities and Exchange Commission on September 18, 2017
Registration No. 333-220318
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
ROKU, INC.
(Exact name of registrant as specified in its charter)
Delaware | 4841 | 26-2087865 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
150 Winchester Circle
Los Gatos, California 95032
(408) 556-9040
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Anthony Wood
President, Chief Executive Officer and Chairman
Roku, Inc.
150 Winchester Circle
Los Gatos, California 95032
(408) 556-9040
(Name, address, including zip code and telephone number, including area code, of agent for service)
Copies to:
Mark P. Tanoury John T. McKenna Seth J. Gottlieb Alex K. Kassai Cooley LLP 3175 Hanover Street Palo Alto, California 94304 (650) 843-5000 |
Stephen H. Kay David Y. Oh Roku, Inc. 150 Winchester Circle Los Gatos, California 95032 (408) 556-9040 |
Alan F. Denenberg Davis Polk & Wardwell LLP 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000 |
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, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||
Non-accelerated filer | ☒ | (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | ||||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Amount to be
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Proposed Maximum
Offering
Price
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Proposed Maximum Aggregate Offering Price (1)(2) |
Amount of
Registration Fee (3) |
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Class A common stock, par value $0.0001 per share |
18,018,200 | $14.00 | $252,254,800 | $29,237 | ||||
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(1) | Includes 2,350,200 shares that the underwriters have the option to purchase. |
(2) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended. |
(3) | The Registrant previously paid a registration fee of $11,590 in connection with the initial filing 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 which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued September 18, 2017
15,668,000 Shares
CLASS A COMMON STOCK
Roku, Inc. is offering 9,000,000 shares of its Class A common stock. The selling stockholders identified in this prospectus are offering an additional 6,668,000 shares of Class A common stock. We will not receive any proceeds from the sale of the shares being sold by the selling stockholders. This is our initial public offering and no public market currently exists for our shares of Class A common stock. We anticipate that the initial public offering price will be between $12.00 and $14.00 per share.
We have two classes of authorized 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 with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately 98.1% of the voting power of our outstanding capital stock immediately following this offering, with our directors, executive officers and principal stockholders representing approximately 97.1% of such voting power.
We have applied to list our Class A common stock on The NASDAQ Global Select Market under the trading symbol ROKU.
We are an emerging growth company as defined under the federal securities laws. Investing in our Class A common stock involves risks. See Risk Factors beginning on page 16.
PRICE $ A SHARE
Price to Public |
Underwriting
and
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Proceeds to Roku |
Proceeds to
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Per share |
$ | $ | $ | $ | ||||||||||||
Total |
$ | $ | $ | $ |
(1) | See Underwriters for a description of the compensation payable to the underwriters. |
We and the selling stockholders have granted the underwriters an option to purchase up to an additional 2,350,200 shares of Class A common stock at the initial public offering price less underwriting discounts and commissions.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of Class A common stock to purchasers on , 2017.
MORGAN STANLEY | CITIGROUP |
ALLEN & COMPANY LLC | RBC CAPITAL MARKETS |
NEEDHAM & COMPANY | OPPENHEIMER & CO. | WILLIAM BLAIR |
, 2017
We are in a golden age of TV. Our mission is to be the streaming platform that connects the entire TV ecosystem.
Roku Active accounts2 15.1M1 +43%
Roku Quarterly Streaming Hours3 3.5B1 + 60%
Roku ARPU4 $11.221 +35%
Annual Streaming Hours
0.9B 2012
1.7B 2013
3.2B 2014
5.5B 2015
9.4B 2016
11.9B5 TTM
Roku®
1 Fiscal Quarter ending June 30, 2017, and year-over-year comparison to the same period in the prior year.
2 Active Accounts represent distinct users who have streamed content on our platform in the last thirty days of the period.
3 Streaming hours are the aggregate amount of time users streamed content from channels on our platform in a given period.
4 Average Revenue per User (ARPU) represents platform revenue during the preceding four quarters divided by the average number of active accounts at the end of the period and the end of the prior four fiscal quarters.
5 Represents total streaming hours over the 12 months ended June 30, 2017.
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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F-1 |
We are responsible for the information contained in this prospectus and in any free writing prospectus we prepare or authorize. Neither we, the selling stockholders, nor any of the underwriters, have authorized anyone to provide you with any information or to make any representations other than as contained in this prospectus or in any free writing prospectuses we have prepared. Neither we, the selling stockholders, nor any of the underwriters, take responsibility for, or can provide any assurance about the reliability of, any information that others may give you. We are not, the selling stockholders are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the cover of this prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since that date.
Persons who come into possession of this prospectus and any applicable free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.
Until , 2017 (the 25th day after the date of this prospectus), 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 is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.
This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, especially the risks of investing in our Class A common stock discussed under the heading Risk Factors, and our consolidated financial statements and related notes included elsewhere in this prospectus before making an investment decision. Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to Roku, the Company, we, us and our refer to Roku, Inc. and its wholly-owned subsidiaries.
ROKU, INC.
Overview
We pioneered streaming to the TV. Roku connects users to the streaming content they love, enables content publishers to build and monetize large audiences, and provides advertisers with unique capabilities to engage consumers. We do this at scale today. As of June 30, 2017, we had 15.1 million active accounts. By comparison, the fourth largest multichannel video programming video distributor in the United States had approximately 13.3 million subscribers as of June 30, 2017. Our users streamed more than 6.7 billion hours on the Roku platform in the six months ended June 30, 2017, 62% growth from the six months ended June 30, 2016. TV streamings disruptive content distribution model is shifting billions of dollars of economic value. Roku is capitalizing on this large economic opportunity as a leading TV streaming platform for users, content publishers and advertisers.
Consumers win with TV streamingthey get a better user experience, more entertainment options and more control over what they spend on content. When users want to enjoy streaming entertainment, they start at the Roku home screen where we put users first by helping them find the content they want to watch. From our home screen, users can easily search, discover and access over 500,000 movies and TV episodes in the United States, as well as live sports, music, news and more. Users can also compare the price of content from various channels available on our platform and choose from ad-supported, subscription and transactional video on-demand content. The Roku platform delivers a significant expansion in consumer choice. Consumers can personalize their content selection with cable TV replacement offerings and other streaming services that suit their budgets and needs. Ad-supported channels available on the Roku platform include CBS News, Crackle, The CW and Vice; subscription channels include HBO Now, Hulu and Netflix, as well as traditional pay TV replacement services like DirecTV Now, Sling TV and Sony PlayStation Vue; and transactional channels include Amazon Video, Google Play and Vudu. Consumers are increasingly streaming ad-supported content. In the six months ended June 30, 2017, hours streamed on the Roku platform that included advertising grew to 2.9 billion hours, up 76% year-over-year from the six months ended June 30, 2016. Last year, searching for free content was the top reason users visited our website other than to manage their Roku accounts.
Roku operates the number one TV streaming platform in the United States as measured by total hours streamed, according to a survey conducted in the first quarter of 2017 by Kantar Millward Brown that we commissioned. Content publishers and advertisers win with Roku because our large and growing user base simplifies their access to the fragmented and complex over the top, or OTT, market and we provide them with direct to consumer engagement and monetization opportunities. We provide our content publishers with access to the most engaged OTT audience, as measured by average hours streamed, and the ability to monetize their content with advertising, subscription or transactional business models. Furthermore, as a pure play, neutral TV streaming platform, we are better able to serve content publishers compared to other platforms that have diversified business operations and competitive content offerings. Advertisers on our platform can reach our
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desirable OTT audience with ads that are more relevant, interactive and measurable than advertising delivered on traditional linear TV. As traditional TV audiences shrink, OTT audiences have become increasingly important to advertisers who must continue to reach large audiences. Our growth in active accounts and hours streamed has attracted more content publishers and advertisers to our TV streaming platform, creating a better user experience, which in turn attracts more users.
We have achieved significant growth. In the six months ended June 30, 2017, we generated revenue of $199.7 million, up 23% from $162.3 million in the six months ended July 2, 2016. In fiscal 2016, we generated revenue of $398.6 million, up 25% from $319.9 million in fiscal 2015. We generate player revenue from the sale of streaming players and platform revenue primarily from advertising and subscription revenue share on our platform. We earn platform revenue as users engage with content on our platform and we intend to continue to grow platform revenue by monetizing our TV streaming platform. In the six months ended June 30, 2017, player revenue represented 59% of total revenue and declined 2%, and platform revenue represented 41% of total revenue and grew 91% from the six months ended July 2, 2016. In fiscal 2016, player revenue represented 74% of total revenue and grew 9%, and platform revenue represented 26% of total revenue and grew 110% from fiscal 2015. In fiscal 2016 and the six months ended June 30, 2017, respectively, advertising revenue represented 63% and 67% of total platform revenue.
While we currently generate a majority of our revenue from sales of our streaming players, our business model is to grow gross profit by increasing the number of active accounts and growing average revenue per user, or ARPU, which we believe represents the inherent value of our business model. In the six months ended June 30, 2017, we generated gross profit of $76.5 million, up 52% from $50.3 million in the six months ended July 2, 2016. In fiscal 2016, we generated gross profit of $121.0 million, up 35% from $89.8 million in fiscal 2015. In the six months ended June 30, 2017, player gross profit represented 19% of total gross profit and declined 28%, and platform gross profit represented 81% of total gross profit and grew 104% from the six months ended July 2, 2016. In fiscal 2016, player gross profit represented 36% of total gross profit and declined 9%, and platform gross profit represented 64% of total gross profit and grew 87% from fiscal 2015. ARPU, which we define as our platform revenue during the preceding four fiscal quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four fiscal quarters, was $11.22 per active user in the period ended June 30, 2017 and $9.28 per active user in 2016, up 43% from $6.48 in 2015.
In the six months ended June 30, 2017, our net loss was $(24.2) million and our Adjusted EBITDA was $(14.0) million. In fiscal 2016 our net loss was $(42.8) million and our Adjusted EBITDA was $(29.9) million. See the section titled Non-GAAP Financial Measures below for a reconciliation between Adjusted EBITDA and net loss, the most directly comparable generally accepted accounting principle, or GAAP, financial measure and a discussion about the limitations of Adjusted EBITDA.
Our Market Opportunity
We believe all TV content will be available through streaming. The rapid adoption of TV streaming has disrupted the traditional linear TV distribution model, creating new options for consumers and new economic opportunities for content publishers and advertisers. OTT viewing has become mainstream in the United States. According to an April 2017 comScore report, 51 million U.S. homes have used OTT, and OTT has a 54% reach among homes with WiFi. Although traditional live TV still represents the majority of hours viewed by consumers, it declined year-over-year from 2015 to 2016 among adults by 1.5% on a Nielsens ratings basis, while streaming hours continue to grow both on an absolute basis, as well as on a percentage of total hours viewed basis. According to Activate, a high-tech, media and consumer retail consultancy firm in New York, it is projected that the average daily video consumption will increase to over 7 hours in 2018, 34% of which is attributed to digital video content, from 6.5 hours in 2013, 18% of which was attributed to digital video content. Further, the number of traditional pay TV subscribers continues to decline as consumers increasingly favor a
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streaming experience. As stated in a July 2017 eMarketer report, there were 25 million U.S. cord-cutter and cord-never households in 2016. We believe these consumer trends are creating significant opportunities for the TV streaming market.
When ad-supported TV is streamed, it creates an opportunity for content publishers and advertisers to use advanced digital advertising capabilities, such as one-to-one personalized delivery. We believe this presents a large market opportunity for streaming advertising to the TV. Consumers have watched TV content on an ad-supported basis since the 1940s. According to a March 2017 eMarketer report, the traditional TV advertising spend is large and continues to grow. In 2016, traditional TV advertising spend in the United States totaled $71 billion, and is expected to grow to approximately $80 billion in 2021. Simultaneously, total OTT revenue worldwide is expected to reach $60 billion by 2022, from $32 billion in 2016, with the greatest share of revenue in the United States, according to Ovum. While the majority of OTT revenue in the United States in 2016 was generated on a subscription or transactional basis according to Ovum, we believe there is a large opportunity for growth in the OTT advertising market given the long-standing consumer model of choosing ad-supported content, in addition to paid content.
How Our TV Streaming Platform Provides Value to Users, Content Publishers and Advertisers
Users. We provide a best-in-class TV experience for our users which drives our user growth and hours streamed. Key benefits we offer users include:
| Simple intuitive interface. Our user interface is easy to navigate and makes the search and discovery of relevant content a seamless part of the user experience. Our powerful cross-channel search capabilities make it easy to find TV episodes and movies across a wide variety of channels. |
| Choice, control and value. From the Roku home page users can choose content on an ad-supported, subscription or transactional basis, and users are able to decide what content they want to pay for. We use simple and intuitive navigation to quickly bring users to the content they desire and compare price among available channels to select what they watch. |
| Access to exceptional streamed content. Consumers are attracted to great content, and we believe that we offer unmatched breadth and depth of TV streaming content when compared to any other OTT platform. |
Content Publishers. We provide a robust platform for content publishers to build and monetize OTT audiences. We offer over 5,000 streaming channels on our platform in the United States and over 3,000 internationally. Key benefits we offer content publishers include:
| Direct-to-consumer distribution. Through our platform, content publishers can directly reach large and relevant audiences, including consumers who no longer use traditional linear TV services. We are an increasingly valuable partner to content publishers who deliver content exclusively via streaming, as well as traditional TV content programmers and distributors. |
| Ease of publishing and monetization. We make it easy for content publishers to launch streaming offerings on the Roku platform and build their audience through our open publishing platform. Our solution also allows content publishers to partner with Roku to sell advertising, and to designate Roku to monetize their content using our advertising sales or billing services. |
| Unmatched opportunity to drive tune in. We enable content publishers to drive tune in, or increase the audience for their content, through a range of advertising capabilities on our platform. Content publishers are featured prominently throughout a users experience on the Roku platform, such as channel promotions during the new user setup process and through ads in our user interface, including on the Roku home screen. We employ a wide variety of data-driven capabilities to help content publishers broaden their user base, drive engagement, and retain existing users. |
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Advertisers. Our TV streaming platform provides a differentiated advertising opportunity. We serve advertisers across multiple industry verticals and in 2016, we worked with seven of the ten largest advertisers in the United States as ranked by Ad Age. Some of the key benefits we offer advertisers include:
| Access to a hard to reach audience. With audiences consuming more TV via OTT, cord-cutters and cord-nevers are on the rise and traditional linear TV ratings are in decline, advertisers are increasingly focused on OTT platforms to reach the population of consumers who are watching less traditional linear TV. We aggregate this audience on our platform for advertisers. |
| Best of TV and digital advertising delivery. Video advertising on our platform offers the best of both traditional TV and advanced digital advertising. We offer the large format sight, sound and motion of traditional TV advertising and the relevance, interactivity and measurability of digital advertisingall within the context of what the user is watching. Our advertising capabilities offer many relevance and measurement advantages when compared to traditional TV advertising, because ads are delivered in real-time based on personalized user insights. |
| Large scale. Our platform offers advertisers access to the most engaged OTT audience, as measured by hours streamed, and we believe it offers the largest number of ad-supported TV streaming channels. Advertisers benefit because they can reach a large audience across a variety of video genres and audience attributes. We have 15.1 million active accounts streaming an average of approximately three hours per day across thousands of channels as of the second quarter of 2017. Given our significant scale, the age, gender and geographic demographics of our U.S. user base are approximately the same as the overall U.S. population, which we believe makes us attractive to a wide variety of advertisers. |
Our Products
Advertising. Our advertising products enable advertisers to serve relevant ads to our users and measure return on investment. Our primary advertising products include:
| Video ads . Our ad-supported content publishers use video ads to monetize our audiences and we also use video ads to monetize our platform. Video ads are sold as 15-second or 30-second spots inserted before a program starts, or during a program break, within channels on the Roku platform where we have video inventory access. One of the ways we secure video ad insertion rights from content publishers is via our distribution deals with those publishers. In addition, many publishers also authorize us to fill their own unsold inventory. For many small and medium publishers on our platform, Roku sells all or a majority of the ads on their channels. |
| Interactive video ads. We offer advertisers the ability to make their TV advertising interactive with customized clickable overlays that invite viewers to engage more intimately with brands, by watching additional videos, obtaining offer details, getting a coupon code via text or finding the nearest retailer to buy a product. |
| Audience development promotions. We utilize a variety of ad placements, particularly native display ads, on the Roku home screen and screen saver, to promote content publishers and their services to our users. We help them to drive channel downloads and traffic to their channels, and to drive subscriptions or movie and TV show consumption. Given our strategic role as a users TV streaming home screen, we are increasingly able to predict a users likelihood of taking action in response to an ad we serve. We also sell branded buttons on our remote controls which are reserved for content publishers who are in more prominent placement on the remote to drive incremental usage and reduce friction by allowing the user to launch straight to the channel. |
| Brand sponsorships. We support a variety of promotional opportunities for advertisers, such as sponsored themes to take over our home screen and content sponsorships to give users the opportunity to experience a free movie or show (e.g. Family movie night brought to you by ). |
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Roku TVs. Roku TVs are manufactured and sold by our TV brand licensees, integrate our Roku Operating System, or Roku OS, and leverage our smart TV hardware reference design. Current licensee brands include Element, Hisense, Hitachi, Insignia, RCA, Sharp and TCL. Roku TVs are available in sizes ranging from 24 to 65 at leading retailers in the United States and Canada. In 2017, we expect over 150 models to be available to consumers in North America, up from approximately 100 in 2016, featuring a wide range of prices as well as picture and display capabilities. We believe that approximately one in five smart TVs sold in the United States and Canada in the first half of 2017 were Roku TVs.
Streaming Players. We offer a popular, industry-leading line of streaming players for sale under the Roku brand in the United States, Canada, the United Kingdom, France and the Republic of Ireland, that allow users to access our TV streaming platform. All players run on the Roku OS and stream content via built-in Ethernet or Wi-Fi capability, depending on the model.
Competitive Strengths
| Large and engaged user base . Millions of users come to the Roku home screen to stream billions of hours of content per year. According to an analysis of Nielsen data from their national panel, Roku players accounted for approximately 48% of TV-connected digital streaming device usage (as compared among the top four brands) in the U.S. for the month of December 2016. Roku provides a best-in-class user experience by removing the complexity and driving the proliferation of OTT TV streaming. As we grow our large and engaged user base, we become an increasingly important partner for our content publishers and advertiser partners. As we attract more partners, our user experience improves, attracting more users to our platform in a virtuous cycle. |
| Roku OS purpose built for TV streaming. Our proprietary Roku OS is purpose built to manage TV streaming and integrates our streaming software, APIs, user interface, advertising technology stack, billing services and data insight tools. We continue to invest significantly in the Roku OS, and we believe it is difficult to replicate. |
| Powerful data analytics engine . Users have a direct relationship with Roku, and we provide their TV streaming home screen. This provides us with detailed insights about our users and their behavior on our platform, such as what channels they install and what content they search for. We collect and process 18 terabytes of uncompressed data per day, and we are able to develop actionable insights from the data on our platform to improve our user experience, as well as to enable our content publishers and advertisers to find relevant users and engage them. |
| Neutral OTT platform. We are a neutral OTT platform, making us an attractive partner. We do not focus on competing with content publishers on our platform, but instead, look to partner with publishers to build their audiences and maximize our mutual success on the platform. As a result, unlike other TV streaming platforms, we have not developed any original programming and do not have our own subscription service or video on-demand store. In addition, we do not compete directly with our retailers or our TV brand partners. We also endeavor to build trust with our users by providing unbiased search results and recommendations. |
| Ability to power TV streaming at low cost. The Roku OS is designed for exceptional performance using relatively low cost hardware. This approach enables us to drive account growth by offering Roku players at great value to consumers. We also believe we will be able to continue to drive active account growth from our TV brand partnerships. The low bill of materials required to run the Roku OS enables our TV brand license partners to build smart TVs using our operating system that are more competitively priced. As smart TVs take over most of the overall TV installed base over time, we believe we can power a very large portion of TVs based on our unique solution for TV brands. |
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Ability to rapidly deploy IP-based solution. There were over 918 million pay TV subscribers worldwide in 2016, according to Ovum. According to Kagan, a media research group within S&P Global Market intelligence, it is estimated, that 273 million cable boxes were shipped worldwide in |
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2016. Given the technology benefits of delivering content via internet instead of cable or satellite, many service operators are adding Internet protocol based, or IP-based, solutions for their customers. The Roku Powered program enables service operators to rapidly deploy an IP-based solution to deliver content to their subscribers. |
Growth Strategy
We are capitalizing on the large economic opportunity for a leading TV streaming platform for users, content publishers and advertisers. Our key growth strategies include:
| Grow active accounts. We intend to increase user adoption of the Roku platform by continuing to improve our user experience, to increase the depth and breadth of our content offering, and to enhance our TV streaming platform. We plan to continue to attract more users with a highly compelling TV streaming value proposition that allows users to access the largest collection of channel applications, pay only for the channels that they want, utilize the best search and discovery tools, and navigate a simple and easy to use user interface. We also plan to increase active accounts by continuing to expand our retail presence and grow our Roku OS licensing program for TV brands and service operators. |
| Grow hours streamed. We intend to increase user engagement and hours streamed by offering more content that is easier to find and discover on our platform. By increasing the available content on our platform and making it easily accessible, we have diversified the type of content streamed. To improve content discovery, we introduced More Ways to Watch on Roku TVs. This feature uses automatic content recognition technology to suggest relevant content options to users. |
| Grow ARPU. We expect to continue to grow ARPU by growing hours streamed and our monetization capabilities. We have experienced the fastest growth in hours streamed from our advertising-based content as measured by the number of hours streamed in the six months ended June 30, 2016, as compared to the six months ended June 30, 2017. We are increasing the monetization of these hours by expanding our advertising capabilities both on and off the Roku platform. |
Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties including those highlighted in the section titled Risk Factors immediately following this prospectus summary. These risks include, among others, the following:
| We have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability. |
| TV streaming is highly competitive and many companies, including large technology companies, TV brands and service operators, are actively focusing on this industry. If we fail to differentiate ourselves and compete successfully with these companies it will be difficult for us to attract users and our business will be harmed. |
| We may not be successful in our efforts to further monetize our streaming platform, which may harm our business. |
| We depend on a small number of content publishers for a majority of our streaming hours and if we fail to monetize these relationships, directly or indirectly, our business could be harmed. |
| We operate in an evolving industry, which makes it difficult to evaluate our business and prospects. If TV streaming develops more slowly than we expect, our operating results and growth prospects could be harmed. In addition, our future growth depends on the growth of TV streaming advertising. |
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| If we are unable to maintain an adequate supply of ad inventory on our platform, our business may be harmed. |
| Our players and Roku TVs must operate with various offerings, technologies and systems from our content publishers that we do not control. If Roku devices do not operate effectively with those offerings, technologies and systems, our business may be harmed. |
| Changes in consumer viewing habits could harm our business. |
| If we fail to obtain and maintain popular content, we may fail to retain existing users and attract new users. |
| If the advertisements on our platform are not relevant or not engaging to our users, our growth in active accounts and hours streamed may be adversely impacted. |
If we are unable to adequately address these and other risks we face, our business may be harmed.
In addition, we are an emerging growth company as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and therefore we intend to take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, 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 any golden parachute payments not previously approved. We may take advantage of these exemptions for up to five years or until we are no longer an emerging growth company, whichever is earlier. In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until those standards apply to private companies. We have not elected to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Corporate Information
We originally organized as a limited liability company in Delaware in October 2002 and subsequently incorporated in Delaware in February 2008. Our principal executive offices are located at 150 Winchester Circle, Los Gatos, California 95032, and our telephone number is (408) 556-9040. Our website address is www.roku.com. Information contained on or accessible through our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
Roku, the Roku logo and other trade names, trademarks or service marks of Roku appearing in this prospectus are the property of Roku. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders.
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THE OFFERING
Class A common stock offered by us |
9,000,000 shares | |
Class A common stock offered by the selling stockholders |
6,668,000 shares |
|
Class A common stock to be outstanding after this offering |
15,668,000 shares |
|
Class B common stock to be outstanding after this offering |
79,080,495 shares |
|
Total Class A and Class B common stock to be outstanding after this offering |
94,748,495 shares |
|
Option to purchase additional shares of Class A common stock offered by us |
1,350,000 shares |
|
Option to purchase additional shares of Class A common stock offered by the selling stockholders |
1,000,200 shares |
|
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 Class A and Class B common stock are identical, except with respect to voting and conversion rights. The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to 10 votes per share, on all matters that are subject to stockholder vote. Following this offering, each share of Class B common stock may be converted into one share of Class A common stock at the option of the holder thereof, and will be converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions. See the section titled Description of Capital Stock for additional information. | |
Use of proceeds |
We estimate that the net proceeds from this offering to us will be approximately $104.8 million (or approximately $121.1 million if the underwriters option to purchase additional shares of our Class A common stock from us is exercised in full), based on an assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of Class A common stock in this offering by the selling stockholders. | |
The principal purposes of this offering are to increase our capitalization and financial flexibility and create a public market for our Class A common stock. We |
8
intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital, research and development, business development, sales and marketing activities and capital expenditures. We may also use a portion of the net proceeds from this offering for acquisitions of, or investments in, technologies or businesses that complement our business, although we have no commitments or agreements to enter into such acquisitions or investments. See Use of Proceeds for additional information. | ||
Risk factors |
See Risk Factors and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock. | |
Proposed Nasdaq symbol |
ROKU |
The number of shares of Class A and Class B common stock to be outstanding after this offering is based on no shares of our Class A common stock and 85,748,495 shares of our Class B common stock (including preferred stock on an as-converted basis) outstanding as of June 30, 2017, and excludes:
| 24,559,747 shares of Class B common stock issuable upon the exercise of outstanding stock options as of June 30, 2017 with a weighted-average exercise price of $3.88 per share and 3,219,857 shares of Class B common stock issuable upon the exercise of outstanding stock options which were granted in August 2017 with an exercise price of $8.82 per share; |
| 2,225,966 shares of Class B common stock issuable upon the exercise of warrants outstanding as of June 30, 2017 with a weighted-average exercise price of $2.70 per share, which are expected to remain outstanding after the closing of this offering; |
| 357,283 shares of our Class B common stock issued in July 2017 upon the automatic net exercise of a warrant to purchase 375,000 shares of our Class B common stock outstanding as of June 30, 2017; |
| 4,256,161 additional shares of Class B common stock reserved for future issuance under our 2008 Equity Incentive Plan as of June 30, 2017 (without giving effect to options granted in August 2017), which shares will cease to be available for issuance at the time our 2017 Equity Incentive Plan becomes effective in connection with this offering; |
| 12,000,000 shares of Class A common stock reserved for future issuance under our 2017 Equity Incentive Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as (i) any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan and (ii) upon the expiration or termination prior to exercise of any shares of Class B common stock issuable upon the exercise of stock options outstanding under our 2008 Equity Incentive Plan, an equal number of shares of Class A common stock, such number of shares not to exceed 28,000,000; |
| 3,000,000 shares of Class A common stock reserved for future issuance under our 2017 Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement for this offering; and |
| 108,332 shares of Class B common stock issued in September 2017 in connection with an acquisition. |
9
In addition, unless we specifically state otherwise, all information in this prospectus assumes:
| a 1-for-6 reverse stock split of our common stock and preferred stock effected on September 15, 2017; |
| the reclassification of all 4,904,357 outstanding shares of our common stock into an equal number of shares of our Class B common stock and the authorization of our Class A common stock; |
| that our amended and restated certificate of incorporation, which we will file in connection with the closing of this offering, and our amended and restated bylaws adopted in connection with this offering are effective; |
| the conversion of all 80,844,138 outstanding shares of our preferred stock into an equal number of shares of Class B common stock immediately upon the closing of this offering; |
| the conversion of all of our outstanding warrants to purchase shares of preferred stock into warrants to purchase an equal number of shares of our Class B common stock immediately upon the closing of this offering; |
| the conversion of 6,668,000 shares of our Class B common stock into an equivalent number of shares of Class A common stock upon the sale of such shares by the selling stockholders; |
| no exercise of outstanding options or warrants; and |
| no exercise by the underwriters of their option to purchase up to an additional 2,350,200 shares of Class A common stock. |
10
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables summarize our consolidated financial and other data. We derived the consolidated statements of operations data for the fiscal years ended December 26, 2015 and December 31, 2016 from our audited financial statements included elsewhere in this prospectus. We derived the consolidated statements of operations data for the six months ended July 2, 2016 and June 30, 2017 and the consolidated balance sheet data as of June 30, 2017 from our unaudited consolidated interim financial statements and related notes included elsewhere in this prospectus. Our unaudited consolidated interim financial statements were prepared on the same basis as our audited consolidated financial statements and include, in our opinion, all adjustments, consisting of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those financial statements. Historical results are not necessarily indicative of the results that may be expected in the future and results for the six months ended June 30, 2017 are not necessarily indicative of results to be expected for the full fiscal year.
Prior to 2017, our fiscal year was the 52- or 53-week period that ends on the last Saturday of December. Our fiscal years 2015 and 2016 ended on December 26, 2015 and December 31, 2016, respectively. In 2017, we changed our fiscal year-end to match the calendar year-end. Fiscal year 2015 spanned 52 weeks and fiscal year 2016 spanned 53 weeks. The two fiscal quarters ended July 2, 2016 and June 30, 2017 spanned 27 weeks and 26 weeks, respectively, and references to the six months ended July 2, 2016 refer to the two fiscal quarters ended July 2, 2016, unless otherwise indicated.
You should read this data together with our consolidated financial statements and related notes, Selected Consolidated Financial and Other Data and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus.
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, | December 31, | July 2, | June 30, | |||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||||||
Net revenue: |
||||||||||||||||
Player |
$ | 269,977 | $ | 293,929 | $ | 119,116 | $ | 117,329 | ||||||||
Platform |
49,880 | 104,720 | 43,140 | 82,391 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Total net revenue |
319,857 | 398,649 | 162,256 | 199,720 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Cost of revenue: |
||||||||||||||||
Player (1) |
221,416 | 249,821 | 99,375 | 103,122 | ||||||||||||
Platform (1) |
8,663 | 27,783 | 12,549 | 20,121 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Total cost of revenue |
230,079 | 277,604 | 111,924 | 123,243 | ||||||||||||
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|
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|
|
|
|||||||||
Gross profit: |
||||||||||||||||
Player |
48,561 | 44,108 | 19,741 | 14,207 | ||||||||||||
Platform |
41,217 | 76,937 | 30,591 | 62,270 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Total gross profit |
89,778 | 121,045 | 50,332 | 76,477 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development (1) |
50,469 | 76,177 | 38,471 | 48,118 | ||||||||||||
Sales and marketing (1) |
45,153 | 52,888 | 26,245 | 28,722 | ||||||||||||
General and administrative (1) |
31,708 | 35,341 | 18,255 | 20,855 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
127,330 | 164,406 | 82,971 | 97,695 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(37,552 | ) | (43,361 | ) | (32,639 | ) | (21,218 | ) | ||||||||
|
|
|
|
|
|
|
|
11
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, | December 31, | July 2, | June 30, | |||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Other income (expense), net: |
||||||||||||||||
Interest expense |
$ | (696 | ) | $ | 146 | $ | (131 | ) | $ | (471 | ) | |||||
Change in fair value of preferred stock warrant liability |
(1,768 | ) | 888 | (394 | ) | (2,651 | ) | |||||||||
Other income (expense), net |
(448 | ) | (220 | ) | (25 | ) | 211 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss before income taxes |
(40,464 | ) | (42,547 | ) | (33,189 | ) | (24,129 | ) | ||||||||
Income tax expense |
147 | 211 | 53 | 86 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Net loss attributable to common stockholders |
$ | (40,611 | ) | $ | (42,758 | ) | $ | (33,242 | ) | $ | (24,215 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share attributable to common stockholdersbasic and diluted |
$ | (10.08 | ) | $ | (9.01 | ) | $ | (7.08 | ) | $ | (4.98 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average shares used in computing net loss per share attributable to common stockholdersbasic and diluted (2) |
4,030,579 | 4,745,943 | 4,696,170 | 4,866,028 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Pro forma net loss per share attributable to common stockholders-basic and diluted (unaudited) (2) |
$ | (0.51 | ) | $ | (0.25 | ) | ||||||||||
|
|
|
|
|||||||||||||
Pro forma weighted-average shares used in computing pro forma net loss per share attributable to common stockholders-basic and diluted (unaudited) (2) |
85,590,081 | 85,710,166 | ||||||||||||||
|
|
|
|
|||||||||||||
Other Financial and Operational Data (unaudited): |
||||||||||||||||
Adjusted EBITDA (in thousands) (3) |
$ | (29,713 | ) | $ | (29,853 | ) | $ | (25,784 | ) | $ | (14,045 | ) | ||||
Hours Streamed (in millions) (4) |
5,498 | 9,351 | 4,172 | 6,742 | ||||||||||||
Active Accounts (in thousands) (5) |
9,179 | 13,383 | 10,552 | 15,116 | ||||||||||||
ARPU for the preceding four fiscal quarters (in dollars) (6) |
$ | 6.48 | $ | 9.28 | $ | 8.32 | $ | 11.22 |
(1) | Stock-based compensation was allocated as follows: |
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, | December 31, |
July 2, |
June 30, |
|||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Cost of player revenue |
$ | 90 | $ | 136 | $ | 58 | $ | 74 | ||||||||
Cost of platform revenue |
54 | 224 | 102 | 40 | ||||||||||||
Research and development |
1,685 | 2,766 | 1,273 | 1,881 | ||||||||||||
Sales and marketing |
1,678 | 2,292 | 1,157 | 1,291 | ||||||||||||
General and administrative |
1,777 | 2,788 | 1,415 | 1,307 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Total stock-based compensation |
$ | 5,284 | $ | 8,206 | $ | 4,005 | $ | 4,593 | ||||||||
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|
|
|
|
|
|
(2) | See Note 11 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of basic and diluted net loss per common share and pro forma net loss per common share. |
(3) |
We define Adjusted EBITDA as net loss, plus: other (income) expense, net, stock-based compensation, depreciation and amortization, and income tax expense. See the section titled Non-GAAP Financial Measures below for a reconciliation between Adjusted EBITDA and net loss, the most directly comparable |
12
generally accepted accounting principle, or GAAP, financial measure and a discussion about the limitations of Adjusted EBITDA. |
(4) | We define hours streamed as the aggregate amount of time users streamed content from channels on our platform in a given period, including both channels installed from our channel stores and non-certified channels. Non-certified channels are channels that are accessed by users utilizing a code provided to the user by the content publisher and are not found in the Roku Channel Store. In each of the periods presented, hours streamed from non-certified channels comprised less than 8% of total hours streamed. Hours streamed are reported on a calendar basis. |
(5) | We define active accounts as the number of distinct user accounts that have streamed any content on our platform in the last 30 days of the period. Active accounts are reported on a calendar basis. |
(6) | We define average revenue per user as our platform revenue during the preceding four fiscal quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four fiscal quarters. |
As of June 30, 2017 | ||||||||||||
Actual | Pro Forma (1) |
Pro Forma
As Adjusted (2)(3) |
||||||||||
(in thousands) | ||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||
Cash |
$ | 70,169 | $ | 70,169 | $ | 174,969 | ||||||
Total assets |
184,996 | 184,996 | 289,796 | |||||||||
Long term debt |
22,811 | 22,811 | 22,811 | |||||||||
Preferred stock warrant liability |
14,673 | | | |||||||||
Total liabilities |
185,166 | 170,493 | 170,493 | |||||||||
Convertible preferred stock |
213,180 | | | |||||||||
Total stockholders (deficit) equity |
(213,350 | ) | 14,503 | 119,303 |
(1) | The pro forma column reflects the conversion of all outstanding shares of convertible preferred stock into 80,844,138 shares of Class B common stock and the reclassification of the preferred stock warrant liability to additional paid-in capital immediately upon the closing of this offering. |
(2) | The pro forma as adjusted column further reflects the receipt of $104.8 million in net proceeds from our sale of 9,000,000 shares of Class A common stock in this offering at an assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
(3) | Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash, total assets and total stockholders (deficit) 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, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 in the number of shares we are offering would increase or decrease, respectively, the amount of cash, total assets and stockholders (deficit) equity by $12.1 million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. |
13
Non-GAAP Financial Measures
Adjusted EBITDA
To provide investors with additional information about our financial results, we disclose within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We have provided below a reconciliation between Adjusted EBITDA and net income (loss), the most directly comparable GAAP financial measure.
We have included Adjusted EBITDA in this prospectus because it is a key measure we use to evaluate our operating performance, generate future operating plans and make strategic decisions for the allocation of capital. 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. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared in accordance with GAAP.
Some limitations of Adjusted EBITDA are:
| Adjusted EBITDA does not include other (income) expense, net, which primarily includes changes in the fair value of warrants to purchase convertible preferred stock and interest expense; |
| Adjusted EBITDA does not include the impact of stock-based compensation; |
| Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash used for capital expenditures for such replacements or for new capital expenditures; |
| Adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us; and |
| Other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure. |
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our financial results presented in accordance with GAAP. The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the periods indicated:
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(in thousands) | ||||||||||||||||
Reconciliation of Net Loss to Adjusted EBITDA: |
||||||||||||||||
Net loss |
$ | (40,611 | ) | $ | (42,758 | ) | $ | (33,242 | ) | $ | (24,215 | ) | ||||
Other (income) expense, net |
2,912 | (814 | ) | 550 | 2,911 | |||||||||||
Stock-based compensation |
5,284 | 8,206 | 4,005 | 4,593 | ||||||||||||
Depreciation and amortization |
2,555 | 5,302 | 2,850 | 2,580 | ||||||||||||
Income tax expense |
147 | 211 | 53 | 86 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | (29,713 | ) | $ | (29,853 | ) | $ | (25,784 | ) | $ | (14,045 | ) | ||||
|
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14
Do you watch TV?
Most people do, and there are probably many shows that you absolutely love to watch and cant wait to see. We are in a golden age of TV, with more creators developing more amazing content than ever before.
At the same time, you probably also say but I am watching TV differently than I used to. Except for sports and a few other live events, you are probably watching a lot less live TV, and with increasing frequency streaming content to your TV.
The massive TV ecosystem is in the midst of a complete re-platforming, with streaming (aka OTT) at the heart of the industrys transformation. Companies like Netflix and Huluand there are hundreds moreare delighting consumers by making streamed content available on the consumers terms, when and how you want it, paying only for what you want.
Over time, I believe that streaming will allow consumers on-demand access to every movie and TV show ever made as well as brand new categories of short form videos and specialty content. As this essentially infinite amount of content is unleashed and made available from many sources, a new challenge emerges:
| How will you find the best content, the kind of content you stay up all night watching? |
| In a world where TV distribution is changing so dramatically, how will content publishers get paid so they can keep creating shows? |
| How will advertisers connect with the massive, yet fragmented audience in an OTT world? |
Thats where Roku comes in.
Our mission is to be the TV streaming platform that connects the entire TV ecosystem. We connect consumers with the content they love. We help content publishers find their audience and make money. We are pushing TV advertising out of the 1940swhen Bulova watches launched the first TV adand into the data-driven, machine learning, era of relevant and interactive TV ads. We partner with TV brands and service operators so they can thrive in this rapidly changing ad world.
I believe that just like mainframe operating systems didnt transition to PCs, and just like PC operating systems didnt make the transition to phones (is your phone powered by Windows?), TVs will be powered by a purpose-built operating system optimized for streaming.
Roku shipped the first Netflix player. Since then, we have expanded and delivered our platform through millions of little boxes and sticks that plug into the TV, and increasingly our OS is directly powering the TV itself.
Since starting Roku 15 years ago, we have been leading the streaming revolution. I believe the TV ecosystem is at a tipping point, and I couldnt be more excited about what the next 15 years of transformation and disruption will bring.
Its a great time to be in the TV streaming business!
Anthony
15
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our Class A common stock. If any of the following risks actually occur, it could harm our business, prospects, operating results and financial condition. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, user growth and engagement, financial condition, results of operations, revenue, gross profit and future prospects. In such event, the trading price of our Class A common stock could decline and you might lose all or part of your investment.
Risks Related to Our Business and Industry
We have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability.
We began operations in 2002 and for all of our history we have experienced net losses and negative cash flows from operations. As of June 30, 2017, we had an accumulated deficit of $244.0 million and for the six months ended June 30, 2017, we experienced a net loss of $(24.2) million. We expect our operating expenses to increase in the future as we expand our operations. Furthermore, as a public company, we will incur additional legal, accounting and other expenses that we did not incur as a private company. If our revenue and gross profit do not grow at a greater rate than our operating expenses, we will not be able to achieve and maintain profitability. We expect to incur significant losses in the future for a number of reasons, including without limitation the other risks and uncertainties described herein. Additionally, we may encounter unforeseen operating or legal expenses, difficulties, complications, delays and other factors that may result in losses in future periods. If our expenses exceed our revenue, we may never achieve or maintain profitability and our business may be harmed.
TV streaming is highly competitive and many companies, including large technology companies, TV brands and service operators, are actively focusing on this industry. If we fail to differentiate ourselves and compete successfully with these companies, it will be difficult for us to attract users and our business will be harmed.
TV streaming is increasingly competitive and global. Our success depends in part on attracting and retaining users on, and effective monetization of, our TV streaming platform. To attract and retain users, we need to be able to respond efficiently to changes in consumer tastes and preferences and continue to increase the type and number of content offerings. Effective monetization requires us to continue to update the features and functionality of our streaming platform for users, content publishers and advertisers. We must also effectively support the most popular sources of streaming content, such as Netflix, Amazon.com, Inc. and Hulu, including rapid responses to actual and anticipated market trends in the U.S. TV streaming industry.
Companies such as Amazon.com, Apple Inc. and Google Inc. offer TV streaming products that compete with our streaming players. Amazon.com has also recently launched a co-branded TV that natively runs its TV streaming platform that competes with Roku TV. In addition, Google licenses its operating system software for integration into smart TVs and service provider set top boxes. These companies have the financial resources to subsidize the cost of their streaming devices in order to promote their other products and services making it harder for us to acquire new users and increase hours streamed. These companies could also implement standards or technology that are not compatible with our products or that provide a better streaming experience on competitive products. These companies also promote their brands through traditional forms of advertising, such as TV commercials, as well as Internet advertising or website product placement, and have greater resources than us to devote to such efforts.
In addition, many TV brands, such as LG, Samsung Electronics Co., Ltd. and VIZIO, Inc., offer their own TV streaming solutions within their TVs. Other devices, such as Microsofts Xbox and Sonys PlayStation game
16
consoles and many DVD and Blu-ray players, also incorporate TV streaming functionality. Similarly, some service operators, such as Comcast and Cablevision, offer TV streaming applications as part of their cable service plans and can leverage their existing consumer bases, installation networks, broadband delivery networks and name recognition to gain traction in the TV streaming market. If users of TV streaming content prefer these alternative products to Roku streaming players and Roku TVs, we may not able to achieve our expected growth in player revenue or gross profit.
We expect competition in TV streaming from the large technology companies and service operators described above, as well as new and growing companies, to increase in the future. This increased competition could result in pricing pressure, lower revenue and gross profit or the failure of our players, Roku TV and our platform to gain or maintain broad market acceptance. To remain competitive and maintain our position as a leading TV streaming provider we need to continuously invest in product development, marketing, service and support and device distribution infrastructure. We may not have sufficient resources to continue to make the investments needed to maintain our competitive position. In addition, most of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than us, which provide them with advantages in developing, marketing or servicing new products and offerings. As a result, they may be able to respond more quickly to market demand, devote greater resources to the development, promotion and sales of their products or the distribution of their content, and influence market acceptance of their products better than we can. These competitors may also be able to adapt more quickly to new or emerging technologies or standards and may be able to deliver products and services at a lower cost. Increased competition could reduce our market share, revenue and operating margins, increase our operating costs, harm our competitive position and otherwise harm our business.
We may not be successful in our efforts to further monetize our streaming platform, which may harm our business.
In addition to generating player revenue, our business model depends on our ability to generate platform revenue from content publishers and advertisers. We generate platform revenue from advertising campaigns and on a transactional basis from new subscription purchases and content transactions that occur on our platform. As such, we are seeking to expand our user base and increase the number of hours that are streamed across our platform in an effort to create additional platform revenue opportunities and grow our ARPU, which we define as our platform revenue during the preceding four fiscal quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four fiscal quarters. The total number of hours streamed, however, does not correlate with platform revenue or ARPU on a period-by-period basis, because we do not monetize every hour streamed on our platform. As our user base grows and as we increase the amount of content offered and streamed across our platform, we must effectively monetize our expanding user base and streaming activity.
Our ability to deliver more relevant advertisements to our users and to increase our platforms value to advertisers depends on the collection of user engagement data, which may be restricted or prevented by a number of factors. Users may decide to opt out or restrict our ability to collect personal viewing data or to provide them with more relevant advertisements. Content publishers may also refuse to allow us to collect data regarding user engagement or refuse to implement mechanisms we request to ensure compliance with our legal obligations or technical requirements. For example, we are not able to fully utilize program level viewing data from many of our most popular channels to improve the relevancy of advertisements provided to our users. Other channels available on our platform, such as Amazon, Hulu and YouTube, are focused on increasing user engagement and time spent within their channel by allowing them to purchase additional content and streaming services within their channels. In addition, we do not currently monetize content provided on non-certified channels on our platform. If our users spend most of their time within particular channels where we have limited or no ability to place advertisements or leverage user information, or users opt out from our ability to collect data for use in providing more relevant advertisements, then we may not be able to achieve our expected growth in platform revenue or gross profit. If we are unable to further monetize our platform, our business may be harmed.
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To date, the majority of the hours streamed on our platform have consisted of subscription video on demand content; however, in order to materially increase the monetization of our platform through the sale of advertising-supported video, we will need our users to stream significantly more ad-supported content. Furthermore, our efforts to monetize our platform through ad-supported content is still developing, and may not grow as we expect. Accordingly, there can be no assurance that we will be successful in monetizing our platform through the sale of advertising-supported video.
We depend on a small number of content publishers for a majority of our streaming hours, and if we fail to monetize these relationships, directly or indirectly, our business could be harmed.
Historically, a small number of content publishers have accounted for a significant portion of the content streamed across our platform and the terms and conditions of our relationships with content publishers vary. For fiscal 2016 and the six months ended June 30, 2017, content streamed from our top five streaming channels accounted for approximately 70% and 69%, respectively, of the total hours of content streamed across our platform, with Netflix alone accounting for approximately one-third of all hours streamed in each period. However, although Netflix is the largest provider of content across our platform, revenue generated from Netflix was not material to our overall revenue during the six months ended June 30, 2017, and we do not expect revenue from Netflix to be material to our operating results for the foreseeable future. In addition, our agreements with content publishers generally have a term of one to three years and can be terminated before the end of the term by the content publisher under certain circumstances, such as if we materially breach the agreement, become insolvent, enter bankruptcy, commit fraud or fail to adhere to the content publishers security requirements. Further, we receive no revenue from YouTube, the most viewed ad-supported channel by hours streamed on our platform for fiscal 2016 and the six months ended June 30, 2017. If we fail to maintain our relationships with the content publishers that account for a significant amount of the content streamed by our users or if these content publishers face problems in delivering their content across our platform, we may lose users and our business may be harmed.
We operate in an evolving industry, which makes it difficult to evaluate our business and prospects. If TV streaming develops more slowly than we expect, our operating results and growth prospects could be harmed. In addition, our future growth depends on the growth of TV streaming advertising.
TV streaming is relatively new and rapidly evolving industry, making our business and prospects difficult to evaluate. The growth and profitability of this industry and the level of demand and market acceptance for our products and TV platform are subject to a high degree of uncertainty. We believe that the continued growth of streaming as an entertainment alternative will depend on the availability and growth of cost-effective broadband Internet access, the quality of broadband content delivery, the quality and reliability of new devices and technology, the cost for users relative to other sources of content, as well as the quality and breadth of content that is delivered across streaming platforms. These technologies, products and content offerings continue to emerge and evolve. Users, content publishers or advertisers may find TV streaming platforms to be less attractive than traditional TV, which would harm our business. In addition, many advertisers continue to devote a substantial portion of their advertising budgets to traditional advertising, such as TV, radio and print. The future growth of our business depends on the growth of TV streaming advertising, and on advertisers increasing spend on such advertising. We cannot be certain that they will do so. If advertisers do not perceive meaningful benefits of TV streaming advertising, then this market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow our business.
If we are unable to maintain an adequate supply of video ad inventory on our platform, our business may be harmed.
We may fail to attract content publishers that generate sufficient ad-supported content hours on our platform and continue to grow our video ad inventory. Our business model depends on our ability to grow video ad inventory on our platform and sell it to advertisers. We grow ad inventory by adding and retaining content publishers on our
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platform with ad-supported channels that we can monetize. In addition, we do not have access to all video ad inventory on our platform, and we may not secure access in the future. The amount, quality and cost of inventory available to us can change at any time. If we are unable to grow and maintain a sufficient supply of quality video advertising inventory at reasonable costs to keep up with demand, our business may be harmed.
We operate in a highly competitive industry and we compete for advertising revenue with other Internet streaming platforms and services, as well as traditional media, such as radio, broadcast, cable and satellite TV and satellite and Internet radio. These competitors offer content and other advertising mediums that may be more attractive to advertisers than our TV streaming platform. These competitors are often very large and have more advertising experience and financial resources than we do, which may adversely affect our ability to compete for advertisers and may result in lower revenue and gross profit from advertising. If we are unable to increase our advertising revenue by, among other things, continuing to improve our platforms data capabilities to further optimize and measure advertisers campaigns, increase our advertising inventory and expand our advertising sales team and programmatic capabilities, our business and our growth prospects may be harmed. We may not be able to compete effectively or adapt to any such changes or trends, which would harm our ability to grow our advertising revenue and harm our business.
Our players and Roku TVs must operate with various offerings, technologies and systems from our content publishers that we do not control. If Roku devices do not operate effectively with those offerings, technologies and systems, our business may be harmed.
Our Roku OS is designed for performance using relatively low cost hardware, which enables us to drive user growth with our players and Roku TVs offered at a low cost to consumers. However, our hardware must be interoperable with all channels and other offerings, technologies and systems from our content publishers, including virtual multi-channel video programming distributors such as Sling TV. We have no control over these offerings, technologies and systems beyond our channel certification requirements, and if our players dont provide our users with a high quality experience on those offerings on a cost effective basis or if changes are made to those offerings that are not compatible with our players, we may be unable to increase user growth and content hours streamed, we may be required to increase our hardware costs and our business will be harmed. We plan to continue to introduce new products regularly and we have experienced that it takes time to optimize such products to function well with these offerings, technologies and systems. In addition, many of our largest content publishers have the right to test and certify our new products before we can publish their channels on new products. These certification processes can be time consuming and introduce third party dependencies into our product release cycles. If content publishers do not certify new products on a timely basis, or require us to make changes in order to obtain certifications, our product release plans may be adversely impacted. To continue to grow our active accounts and user engagement, we will need to prioritize development of our products to work better with new offerings, technologies and systems. If we are unable to maintain consistent operability of Roku devices that is on parity with or better than other platforms, our business could be harmed. In addition, any future changes to offerings, technologies and systems from our content publishers such as virtual service operators may impact the accessibility, speed, functionality, and other performance aspects of our products, which issues are likely to occur in the future from time to time. We may not successfully develop products that operate effectively with these offerings, technologies or systems. If it becomes more difficult for our users to access and use these offerings, technologies or systems, our business could be harmed.
Changes in consumer viewing habits could harm our business.
The manner in which consumers access streaming content is changing rapidly. As the technological infrastructure for Internet access continues to improve and evolve, consumers will be presented with more opportunities to access video, music and games on-demand with interactive capabilities. Time spent on mobile devices is growing rapidly, in particular by young adults streaming video content, including popular streaming channels like Netflix and YouTube, as well as content from cable or satellite providers available live or
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on-demand on mobile devices. In addition, personal computers, smart TVs, DVD players, Blu-ray players, gaming consoles and cable set top boxes allow users to access streaming entertainment content. If other streaming or technology providers are able to respond and take advantage of changes in consumer viewing habits and technologies better than us, our business could be harmed.
New entrants may enter the TV streaming market with unique service offerings or approaches to providing video. In addition, our competitors may enter into business combinations or alliances that strengthen their competitive positions. If new technologies render the TV streaming market obsolete or we are unable to successfully compete with current and new competitors and technologies, our business will be harmed, and we may not be able to increase or maintain our market share and revenue.
If we fail to obtain or maintain popular content, we may fail to retain existing users and attract new users.
We have invested a significant amount of time to cultivate relationships with our content publishers; however, such relationships may not continue to grow or yield further financial results. We currently have over 5,000 streaming channels on our platform in the United States and over 3,000 channels in our international markets, and we must continuously maintain existing relationships and identify and establish new relationships with content publishers to provide popular content. In order to remain competitive, we must consistently meet user demand for popular streaming channels and content; particularly as we launch new players or enter new markets, including international markets. If we are not successful in helping our content publishers launch and maintain streaming channels that attract and retain a significant number of users on our platform or if we are not able to do so in a cost-effective manner, our business will be harmed. Our ability to successfully help content publishers maintain and expand their channel offerings on a cost-effective basis largely depends on our ability to:
| effectively market new streaming channels and enhancements to our existing streaming channels; |
| minimize launch delays of new and updated streaming channels; and |
| minimize platform downtime and other technical difficulties. |
If we fail to help our content publishers maintain and expand their channel offerings our business may be harmed.
If the advertisements on our platform are not relevant or not engaging to our users, our growth in active accounts and hours streamed may be adversely impacted.
We have made, and are continuing to make, investments to enable advertisers to deliver relevant advertising content to users on our platform. Existing and prospective Roku advertisers may not be successful in serving ads that lead to and maintain user engagement. Those ads may seem irrelevant, repetitive or overly targeted and intrusive. We are continuously seeking to balance the objectives of our users and advertisers with our desire to provide an optimal user experience, but we may not be successful in achieving a balance that continues to attract and retain users and advertisers. If we do not introduce relevant advertisements or such advertisements are overly intrusive and impede the use of our TV streaming platform, our users may stop using our platform which will harm our business.
The Roku Channel may not generate sufficient advertising revenues.
In September 2017, we launched The Roku Channel, an ad-supported streaming channel on the Roku platform that gives our users free access to a collection of films and other content. We will not receive subscriptions or other fees from users that access content on The Roku Channel. We have incurred, and will continue to incur, costs and expenses in connection with the launch and operation of The Roku Channel, which we plan to monetize through advertising. If our users do not stream the content we make available on The Roku Channel, we will not have the opportunity to monetize The Roku Channel through advertising. Furthermore, if
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the advertisements on The Roku Channel are not relevant to our users or such advertisements are overly intrusive and impede our users enjoyment of the content we make available, our users may not stream content and view advertisements on The Roku Channel, and The Roku Channel may not generate sufficient advertising revenues to be cost effective for us to operate.
Our growth will depend in part upon our ability to develop relationships with TV brands and, to a lesser extent, service operators.
We developed, and intend to continue to develop, relationships with TV brands and service operators in both the United States and international markets. Our licensing arrangements are complex and time-consuming to negotiate and complete. Our potential partners include TV brands, cable and satellite companies and telecommunication providers. Under these license arrangements, we generally have limited control over the amount and timing of resources these entities dedicate to the relationship. If our TV brand or service operator partners fail to meet their forecasts for distributing licensed devices, our business may be harmed.
We license our Roku OS to certain TV brands to manufacture co-branded smart TVs, or Roku TVs. The primary economic benefits that we derive from these license arrangements have been and will likely continue to be indirect, primarily from growing our active accounts and increasing hours streamed. We have not received, nor do we expect to receive significant license revenue from these arrangements in the near term, but we expect to incur expenses in connection with these commercial agreements. If these arrangements do not result in increased users, hours streamed or we are unable to increase the revenue under these arrangements, our business may be harmed. The loss of a relationship with a TV brand or service operator could harm our results of operations, damage our reputation, increase pricing and promotional pressures from other partners and distribution channels or increase our marketing costs. If we are not successful in maintaining existing and creating new relationships with TV brands and, to a lesser extent, service operators, or if we encounter technological, content licensing or other impediments to our development of these relationships, our ability to grow our business could be adversely impacted.
If our users sign up for offerings and services outside of our platform or though other channels on our platform, our business may be harmed.
We earn revenue by acquiring subscribers for certain of our content publishers activated on or through our platform. If users do not use our platform for these purchases or subscriptions for any reason, and instead pay for services directly with content publishers or by other means that we do not receive attribution for, our business may be harmed. In addition, certain channels available on our platform allow users to purchase additional streaming services from within their channels. The revenues we earn from these transactions are generally not equivalent to the revenues we earn from activations on or through our platform that we receive full attribution credit for. Accordingly, if users activate their subscriptions for content or services through other channels on our platform, our business may be harmed.
If we were to lose the services of our Chief Executive Officer or other members of our senior management team, we may not be able to execute our business strategy.
Our success depends in a large part upon the continued service of key members of our senior management team. In particular, our founder, President and Chief Executive Officer, Anthony Wood, is critical to our overall management, as well as the continued development of our devices and the Roku platform, our culture and our strategic direction. All of our executive officers are at will employees, and we do not maintain any key person life insurance policies. The loss of any member of our senior management team could harm our business.
If we are unable to attract and retain highly qualified employees, we may not be able to continue to grow our business.
Our ability to compete and grow depends in large part on the efforts and talents of our employees. Our employees, particularly engineers and other product developers, are in high demand, and we devote significant
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resources to identifying, hiring, training, successfully integrating and retaining these employees. As competition with other companies increases, we may incur significant expenses in attracting and retaining high quality engineers and other employees. The loss of employees or the inability to hire additional skilled employees as necessary to support the rapid growth of our business and the scale of our operations could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause additional disruptions to our business.
We believe a critical component to our success and our ability to retain our best people is our culture. As we continue to grow and develop a public company infrastructure, we may find it difficult to maintain our entrepreneurial, execution-focused culture. In addition, many of our employees, may be able to receive significant proceeds from sales of our equity in the public markets after our initial public offering, which may reduce their motivation to continue to work for us. Moreover, this offering could create disparities in wealth among our employees, which may harm our culture and relations among employees and our business.
Most of our agreements with content publishers are not long term. Any disruption in the renewal of such agreements may result in the removal of certain content from our platform and may harm our active account growth and engagement.
We enter into agreements with all our content publishers, which have varying expiration dates; typically over one to three years. Upon expiration of these agreements, we are required to re-negotiate and renew these agreements in order to continue providing offerings from these content publishers on our platform. For example, since 2008, we have offered Netflix on our platform pursuant to a series of multi-year contracts. We are in the final year of our current application distribution agreement with Netflix and we anticipate that this contract will be extended or renewed prior to its expiration. We may not be able to reach a satisfactory agreement before our existing agreements have expired. If we are unable to renew such agreements on a timely basis, we may be required to temporarily or permanently remove certain content from our platform. The loss of such content from our platform for any period of time may harm our business.
If our content publishers do not continue to develop channels for our platform and participate in new features that we may introduce from time to time, our business may be harmed.
As our platform and products evolve, we will continue to introduce new features, which may or may not be attractive to our content publishers or meet their requirements. For example, some content publishers have elected not to participate in our cross-channel search feature, our integrated advertising framework, known as RAF, or have imposed limits on our data gathering for usage within their channels. In addition, our platform utilizes our proprietary Brightscript scripting language in order to allow our content publishers to develop and create channels on our platform. If we introduce new features or utilize a new scripting language in the future, such a change may not comply with our content publishers certification requirements. In addition, our content publishers may find other languages, such as HTML5, more attractive to develop for and shift their resources to developing their channels on other platforms. If content publishers do not find our platform simple and attractive to develop channels for, do not value and participate in all of the features and functionality that our platform offers, or determine that our software developer kit or new features of our platform do not meet their certification requirements, our business may be harmed.
Our quarterly operating results may be volatile and are difficult to predict, and our stock price may decline if we fail to meet the expectations of securities analysts or investors.
Our revenue, gross profit and other operating results could vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance due to a variety of factors, including many factors that are outside of our control. Factors that may contribute to the variability of our operating results and cause the market price of our Class A common stock to fluctuate include:
| the entrance of new competitors or competitive products in our market, whether by established or new companies; |
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| our ability to retain and grow our active account base and increase engagement among new and existing users; |
| our revenue mix, which drives gross profit; |
| seasonal or other shifts in advertising revenue or player sales; |
| the timing of the launch of new or updated products, streaming channels or features; |
| the addition or loss of popular content; |
| the ability of retailers to anticipate consumer demand; |
| an increase in the manufacturing or component costs of our players or the manufacturing or component costs of our TV brand licensees for Roku TVs; and |
| an increase in costs associated with protecting our intellectual property, defending against third-party intellectual property infringement allegations or procuring rights to third-party intellectual property. |
Our gross profit margins vary across our devices and platform offerings. Player revenue has a lower gross margin compared to platform revenue derived through our arrangements with advertising, content distribution, billing and licensing activities. Gross margins on our players vary across player models and can change over time as a result of product transitions, pricing and configuration changes, component costs, player returns and other cost fluctuations. In addition, our gross margin and operating margin percentages, as well as overall profitability, may be adversely impacted as a result of a shift in device, geographic or sales channel mix, component cost increases, price competition, or the introduction of new players, including those that have higher cost structures with flat or reduced pricing. We have in the past and may in the future strategically reduce our player gross margin in an effort to increase our active accounts and grow our gross profit. As a result, our player revenue may not increase as rapidly as it has historically, or at all, and, unless we are able to adequately increase our platform revenue and grow our active accounts, we may be unable to grow gross profit and our business will be harmed. If a reduction in gross margin does not result in an increase in our active accounts and gross profit, our financial results may suffer and our business may be harmed.
Our revenue and gross profit are subject to seasonality and if our sales during the holiday season fall below our expectations, our business may be harmed.
Seasonal consumer shopping patterns significantly affect our business. Specifically, our revenue and gross profit are traditionally strongest in the fourth quarter of each fiscal year due to higher consumer purchases and increased advertising during holiday periods. Fourth quarter revenue comprised 40% and 37% of our fiscal 2015 and 2016 total net revenue, respectively, and fourth quarter gross profit comprised 39% and 37% of our fiscal 2015 and 2016 gross profit, respectively. Furthermore, a significant percentage of our player sales through retailers in the fourth quarter are pursuant to committed sales agreements with retailers for which we recognize significant discounts in the average selling prices in the third quarter in an effort to grow our active accounts, which will reduce our player gross margin.
Given the seasonal nature of our player sales, accurate forecasting is critical to our operations. We anticipate that this seasonal impact on revenue and gross profit is likely to continue and any shortfall in expected fourth quarter revenue, due to macroeconomic conditions, a decline in the effectiveness of our promotional activities, actions by our competitors or disruptions in our supply or distribution chain, or for any other reason, would cause our results of operations to suffer significantly. For example, delays or disruptions at U.S. ports of entry could adversely affect our or our licensees ability to timely deliver players and co-branded Roku TVs to retailers during the holiday season. A substantial portion of our expenses are personnel related and include salaries, stock-based compensation and benefits that are not seasonal in nature. Accordingly, in the event of a revenue shortfall, we would be unable to mitigate the negative impact on margins, at least in the short term, and our business would be harmed.
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We and our TV brand partners depend on our retail sales channels to effectively market and sell our players and Roku TVs, and if we or our partners fail to maintain and expand effective retail sales channels we could experience lower player or Roku TV sales.
To continue to acquire new active accounts, we must maintain and expand our retail sales channels. The majority of our players and Roku TVs are sold through traditional brick and mortar retailers, such as Best Buy, Costco, Target and Walmart, including their online sales platforms, and online retailers such as Amazon.com. To a lesser extent, we sell players directly through our website and internationally through distributors. In 2015 and 2016, Amazon.com, Best Buy and Walmart each accounted for more than 10% of our player revenue and are expected to each account for more than 10% of our player revenue in fiscal 2017. These three retailers collectively accounted for 57% and 61% of our player revenue in fiscal 2015 and 2016, respectively. These retailers and our international distributors also sell products offered by our competitors. We have no minimum purchase commitments or long-term contracts with any of these retailers or distributors. If one or several retailers or distributors were to discontinue selling our players or Roku TVs, or choose not to prominently display those devices in their stores or on their websites, the volume of Roku devices sold could decrease, which would harm our business. Traditional retailers have limited shelf and end cap space in their stores and limited promotional budgets, and online retailers have limited prime website product placement space. Competition is intense for these resources, and a competitor with more extensive product lines and stronger brand identity, such as Apple or Google, possesses greater bargaining power with retailers. In addition, one of our online retailers, Amazon.com, sells its own competitive TV streaming products and is able to market and promote these products more prominently on its website, and could refuse to offer our devices. Any reduction in our ability to place and promote our devices, or increased competition for available shelf or website placement, would require us to increase our marketing expenditures simply to maintain our product visibility, which may harm our business. In particular, the availability of product placement during peak retail periods, such as the holiday season, is critical to our revenue growth, and if we are unable to effectively sell our devices during these periods, our business would be harmed.
If our efforts to build a strong brand and maintain customer satisfaction and loyalty are not successful, we may not be able to attract or retain users, and our business may be harmed.
Building and maintaining a strong brand is important to attract and retain users, as potential users have a number of TV streaming choices. Successfully building a brand is a time consuming and comprehensive endeavor, and can be positively and negatively impacted by any number of factors. Some of these factors, such as the quality or pricing of our players or our customer service, are within our control. Other factors, such as the quality and reliability of Roku TVs and the quality of the content that our content publishers provide, may be out of our control, yet users may nonetheless attribute those factors to us. Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. Many of our competitors are larger companies and promote their brands through traditional forms of advertising, such as print media and TV commercials, and have substantial resources to devote to such efforts. Our competitors may also have greater resources to utilize Internet advertising or website product placement more effectively than we can. If we are unable to execute on building a strong brand, it may be difficult to differentiate our business and platform from our competitors in the marketplace, therefore our ability to attract and retain users may be adversely affected and our business may be harmed.
We must successfully manage device introductions and transitions in order to remain competitive.
We must continually develop new and improved devices that meet changing consumer demands. Moreover, the introduction of a new device is a complex task, involving significant expenditures in research and development, promotion and sales channel development, and management of existing inventories to reduce the cost associated with returns and slow moving inventory. As new devices are introduced, we have to monitor closely the inventory at our contract manufacturers, and phase out the manufacture of prior versions in a controlled manner. For example, in 2017 we participated in the introduction of dozens of new models of Roku TVs with TCL that incorporate new high-dynamic range technologies and high-end Roku TVs with Hisense that
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feature new 4K technologies and larger screen sizes. Whether users will broadly adopt new devices is not certain. Our future success will depend on our ability to develop new and competitively priced devices and add new desirable content and features to our platform. Moreover, we must introduce new devices in a timely and cost-effective manner, and we must secure production orders for those devices from our contract manufacturers and component suppliers. The development of new devices is a highly complex process, and while our research and development efforts are aimed at solving increasingly complex problems, we do not expect that all of our projects will be successful. The successful development and introduction of new devices depends on a number of factors, including the following:
| the accuracy of our forecasts for market requirements beyond near term visibility; |
| our ability to anticipate and react to new technologies and evolving consumer trends; |
| our development, licensing or acquisition of new technologies; |
| our timely completion of new designs and development; |
| the ability of our contract manufacturers to cost-effectively manufacture our new devices; |
| the availability of materials and key components used in the manufacture of our new devices; and |
| our ability to attract and retain world-class research and development personnel. |
If any of these or other factors becomes problematic, we may not be able to develop and introduce new devices in a timely or cost-effective manner, and our business may be harmed.
We do not have manufacturing capabilities and depend upon a small number of contract manufacturers, and our operations could be disrupted if we encounter problems with these contract manufacturers.
We do not have any internal manufacturing capabilities and primarily rely upon two contract manufacturers, Hon Hai Precision Industry Co. Ltd., or Foxconn, and Lite-On Technology Corporation, or Lite-On, to build our devices. Our contract manufacturers are vulnerable to capacity constraints and reduced component availability, and our control over delivery schedules, manufacturing yields and costs, particularly when components are in short supply or when we introduce a new device or feature, is limited. In addition, we have limited control over Foxconns and Lite-Ons quality systems and controls, and therefore must rely on Foxconn and Lite-On to manufacture our devices to our quality and performance standards and specifications. Delays, component shortages and other manufacturing and supply problems could impair the retail distribution of our devices and ultimately our brand. Furthermore, any adverse change in our contract manufacturers financial or business condition could disrupt our ability to supply devices to our retailers and distributors.
Our contracts with Foxconn and Lite-On do not obligate these manufacturers to supply our devices in any specific quantity or at any specific price. In the event either Foxconn or Lite-On is unable to fulfill our production requirements in a timely manner or decide to terminate their relationship with us, our order fulfillment may be delayed and we would have to identify, select and qualify acceptable alternative contract manufacturers. Alternative contract manufacturers may not be available to us when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices or to our quality and performance standards. Any significant interruption in manufacturing at Foxconn or Lite-On would require us to reduce our supply of devices to our retailers and distributors, which in turn would reduce our revenue. In addition, the Foxconn and Lite-On facilities are located in the Peoples Republic of China and may be subject to political, economic, social and legal uncertainties that may harm our relationships with these parties. We believe that the international location of these facilities increases supply risk, including the risk of supply interruptions. Furthermore, any manufacturing issues affecting the quality of our products, including Roku TVs or players, could harm our business.
If Foxconn or Lite-On fail for any reason to continue manufacturing our devices in required volumes and at high quality levels, or at all, we would have to identify, select and qualify acceptable alternative contract
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manufacturers. Alternative contract manufacturers may not be available to us when needed, or may not be in a position to satisfy our production requirements at commercially reasonable prices or to our quality and performance standards. Any significant interruption in manufacturing at Foxconn or Lite-On would require us to reduce our supply of devices to our retailers and distributors, which in turn would reduce our revenue and user growth.
If we fail to accurately forecast our manufacturing requirements and manage our inventory with our contract manufacturers, we could incur additional costs, experience manufacturing delays and lose revenue.
We bear supply risk under our contract manufacturing arrangements with Foxconn and Lite-On. Lead times for the materials and components that Foxconn and Lite-On order on our behalf through different component suppliers vary significantly and depend on numerous factors, including the specific supplier, contract terms and market demand for a component at a given time. Lead times for certain key materials and components incorporated into our devices are currently lengthy, requiring our contract manufacturers to order materials and components several months in advance. If we overestimate our production requirements, our contract manufacturers may purchase excess components and build excess inventory. If our contract manufacturers, at our request, purchase excess components that are unique to our players or build excess players, we could be required to pay for these excess components or players. In the past, we have agreed to reimburse our contract manufacturers for purchased components that were not used as a result of our decision to discontinue players or the use of particular components. If we incur costs to cover excess supply commitments, this would harm our business.
Conversely, if we underestimate our player requirements, our contract manufacturers may have inadequate component inventory, which could interrupt the manufacturing of our players and result in delays or cancellation of orders from retailers and distributors. In addition, from time to time we have experienced unanticipated increases in demand that resulted in the need to ship devices via air freight, which is more expensive than ocean freight, and adversely affected our device gross margin during such periods of high demand, for example, during end-of-year holidays. If we fail to accurately forecast our manufacturing requirements, our business may be harmed.
Our players incorporate key components from sole source suppliers and if our contract manufacturers are unable to source these components on a timely basis, due to fabrication capacity issues or other material supply constraints, we will not be able to deliver our players to our retailers and distributors.
We depend on sole source suppliers for key components in our players. Our players utilize specific system on chip, or SoC, WiFi silicon products and WiFi front-end modules from various manufacturers, depending on the player, for which we do not have a second source. Although this approach allows us to maximize player performance on lower cost hardware, reduce engineering qualification costs and develop stronger relationships with our strategic suppliers, this also creates supply chain risk. These sole source suppliers could be constrained by fabrication capacity issues or material supply issues, stop producing such components, cease operations or be acquired by, or enter into exclusive arrangements with, our competitors or other companies. Neither we nor our contract manufacturers have long-term supply agreements with these suppliers. Instead, our contract manufacturers typically purchase the components required to manufacture our devices on a purchase order basis. As a result, most of these suppliers can stop selling to us at any time, requiring us to find another source, or can raise their prices, which could impact our gross margins. Any such interruption or delay may force us to seek similar components from alternative sources, which may not be available. Switching from a sole source supplier would require that we redesign our players to accommodate new components, and would require us to re-qualify our players with regulatory bodies, such as the Federal Communications Commission, or FCC, which would be costly and time-consuming.
Our reliance on sole source suppliers involves a number of additional risks, including risks related to:
| supplier capacity constraints; |
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| price increases; |
| timely delivery; |
| component quality; and |
| delays in, or the inability to execute on, a supplier roadmap for components and technologies. |
Any interruption in the supply of sole source components for our players could adversely affect our ability to meet scheduled player deliveries to our retailers and distributors, result in lost sales and higher expenses and harm our business.
If we have difficulty managing our growth in operating expenses, our business could be harmed.
We have experienced significant growth in research and development, sales and marketing, support services and operations in recent years and expect to continue to expand these activities. For example, our research and development expenses increased from $38.5 million for the six months ended July 2, 2016 to $48.1 million for the six months ended June 30, 2017. In addition, in January 2016, we moved our corporate headquarters and had commenced activities to sublet our old office space. We have secured sublessors for a substantial portion of our old office space, but continue to incur rent expense on the remaining space. If we are unable to find sublessors for all or a substantial portion of this remaining space, our quarterly financial performance will be impacted as a result of this additional expense through 2020. Our historical growth has placed, and expected future growth will continue to place, significant demands on our management, as well as our financial and operational resources, to:
| manage a larger organization; |
| hire more employees, including engineers with relevant skills and experience; |
| expand our manufacturing and distribution capacity; |
| increase our sales and marketing efforts; |
| broaden our customer support capabilities; |
| support a larger number of TV brand and service operators; |
| implement appropriate operational and financial systems; |
| expand internationally; and |
| maintain effective financial disclosure controls and procedures. |
If we fail to manage our growth effectively, we may not be able to execute our business strategies and our business will be harmed.
We may be unable to successfully expand our international operations. In addition, our international expansion plans, if implemented, will subject us to a variety of risks that may harm our business.
We currently generate almost all of our revenue in the United States and have limited experience marketing, selling and supporting our players and monetizing our platform outside the United States. In addition, we have limited experience managing the administrative aspects of a global organization. While we intend to continue to explore opportunities to expand our business in international markets in which we see compelling opportunities to build relationships with users, advertisers and retail distributors, TV brands and service operators, we may not be able to create or maintain international market demand for our devices and TV streaming platform. In addition, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. We may also be subject to new statutory restrictions and risks. For example, there may be no foreign equivalents to the Digital Millennium Copyright Act to shield us from liability in connection with infringing materials that content publishers may make available on our platform. In addition, we may be required in international
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jurisdictions to offer longer warranty periods than we currently offer in the United States. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and financial condition may be harmed.
In the course of expanding our international operations and operating overseas, we will be subject to a variety of risks, including:
| differing regulatory requirements, including tax laws, trade laws, labor regulations, tariffs, export quotas, custom duties or other trade restrictions; |
| greater difficulty supporting and localizing our devices and platform; |
| our ability to deliver or provide access to popular streaming channels to users in certain international markets; |
| different or unique competitive pressures as a result of, among other things, the presence of local consumer electronics companies and the greater availability of free content on over-the-air channels in certain countries; |
| challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, compensation and benefits and compliance programs; |
| differing legal and court systems, including limited or unfavorable intellectual property protection; |
| risk of change in international political or economic conditions; |
| restrictions on the repatriation of earnings; and |
| working capital constraints. |
If we experience higher device returns than we expect and are unable to resell such returned devices as refurbished devices our business could be harmed.
We offer customers who purchase devices through our website 30 days to return such devices. We also generally honor the return policies of our retail and distribution partners, who typically allow customers to return devices, even with open packaging within certain time periods that may exceed 30 days. We generally resell any returned devices as refurbished devices. In the event we decide to permanently reduce the retail prices of our devices, we provide price protection to certain distribution partners for the devices they hold in inventory at the time of the price drop. To the extent we experience a greater number of returns than we expect, are unable to resell returned devices as refurbished devices or are required to provide price protection in amounts greater than we expect, our business could be harmed.
We are subject to payment-related risks and, if our advertisers or advertising agencies do not pay or dispute their invoices, our business may be harmed.
Many of our contracts with advertising agencies provide that if the advertiser does not pay the agency, the agency is not liable to us, and we must seek payment solely from the advertiser, a type of arrangement called sequential liability. Contracting with these agencies, which in some cases have or may develop higher-risk credit profiles, may subject us to greater credit risk than if we were to contract directly with advertisers. This credit risk may vary depending on the nature of an advertising agencys aggregated advertiser base. We may also be involved in disputes with agencies and their advertisers over the operation of our platform or the terms of our agreements. If we are unable to collect or make adjustments to bills, we could incur write-offs for bad debt, which could have a material adverse effect on our results of operations for the periods in which the write-offs occur. In the future, bad debt may exceed reserves for such contingencies and our bad debt exposure may increase over time. Any increase in write-offs for bad debt could have a materially negative effect on our business, financial condition and operating results. If we are not paid by our advertisers or advertising agencies on time or at all, our business may be harmed.
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Any significant disruption in our computer systems or those of third parties we utilize in our operations could result in a loss or degradation of service on our platform and could harm our business.
We rely on the expertise of our engineering and software development teams for the performance and operation of our platform and computer systems. Service interruptions, errors in our software or the unavailability of computer systems used in our operations could diminish the overall attractiveness of our devices and platform to existing and potential users. We utilize computer systems located either in our facilities or those of third-party server hosting providers and third-party Internet-based or cloud computing services. Although we generally enter into service level agreements with these parties, we exercise no control over their operations, which makes us vulnerable to any errors, interruptions or delays that they may experience. In the future, we may transition additional features of our services from our managed hosting systems to cloud computing services, which may require significant expenditures and engineering resources. If we are unable to manage a transition effectively, we may experience operational delays and inefficiencies until the transition is complete. Upon the expiration or termination of any of our agreements with third-party vendors, we may not be able to replace their services in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete. In addition, fires, floods, earthquakes, power losses, telecommunications failures, break-ins and similar events could damage these systems and hardware or cause them to fail completely. As we do not maintain entirely redundant systems, a disrupting event could result in prolonged downtime of our operations and could adversely affect our business. Any disruption in the services provided by these vendors could have adverse impacts on our business reputation, customer relations and operating results.
Our servers and those of the third parties we use in our operations may be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions and delays in platform availability and operations, as well as the loss, misuse or theft of personal and identifying information of our users. We also rely on third-party contractors to collect, process, transmit and store personal information of our users, including our users credit card data. We maintain limited insurance policies to cover losses relating to our systems. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure to the satisfaction of our users may harm our reputation and our ability to retain existing users and attract new users. Because of our prominence in the TV streaming industry, we believe we may be a particularly attractive target for hackers. Our platform also incorporates licensed software from third-parties, including open source software, and we may also be vulnerable to attacks that focus on such third-party software. Any attempts by hackers to disrupt our platform, our devices, website, computer systems or our mobile apps, if successful, could harm our business, be expensive to remedy and damage our reputation. Efforts to prevent hackers from entering our computer systems or exploiting vulnerabilities in our devices are expensive to implement and may not be effective in detecting or preventing intrusion or vulnerabilities. Such unauthorized access to users data could damage our reputation and our business and could expose us of the risk to contractual damages, litigation and regulatory fines and penalties that could harm our business.
If any aspect of our computer systems fails, it may lead to downtime or slow processing time, either of which may harm the experience of users. We have experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. We expect to continue to make significant investments in our technology infrastructure to maintain and improve the user experience and platform performance. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate increasingly complex services and functions, increasing numbers of users, and actual and anticipated changes in technology, our business may be harmed.
Changes in how network operators manage data that travel across their networks could harm our business.
Our business relies upon the ability of consumers to access high-quality streaming content through the Internet. As a result, the growth of our business depends on our users ability to obtain low-cost, high-speed
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access to the Internet, which relies in part on the network operators continuing willingness to upgrade and maintain their equipment as needed to sustain a robust Internet infrastructure as well as their continued willingness to preserve the open and interconnected nature of the Internet. We exercise no control over network operators, which makes us vulnerable to any errors, interruptions or delays in their operations. Any material disruption in Internet services could harm our business.
To the extent that the number of Internet users continues to increase, network congestion could adversely affect the reliability of our platform. We may also face increased costs of doing business if network operators engage in discriminatory practices with respect to streamed video content in an effort to monetize access to their networks by data providers. In the past, ISPs have attempted to implement usage-based pricing, bandwidth caps and traffic shaping or throttling. To the extent network operators were to create tiers of Internet access service and either charge us for access to these tiers or prohibit our content offerings from being available on some or all of these tiers, our quality of service could decline, our operating expenses could increase and our ability to attract and retain customers could be impaired, each of which would harm our business.
In addition, most network operators that provide consumers with access to the Internet also provide these consumers with multichannel video programming. These network operators have an incentive to use their network infrastructure in a manner adverse to the continued growth and success of other companies seeking to distribute similar video programming. To the extent that network operators are able to provide preferential treatment to their own data and content, as opposed to ours, our business could be harmed.
We could become subject to litigation regarding intellectual property rights that could be costly, result in the loss of rights important to our devices and platform or otherwise harm our business.
Some Internet, technology and media companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use to assert claims against us. Third parties have asserted, and may in the future assert, that we have infringed, misappropriated or otherwise violated their intellectual property rights. As we face increasing competition, the possibility of intellectual property rights claims against us will grow. Plaintiffs who have no relevant product revenue may not be deterred by our own issued patents and pending patent applications in bringing intellectual property rights claims against us. The cost of patent litigation or other proceedings, even if resolved in our favor, could be substantial. Some of our competitors may be better able to sustain the costs of such litigation or proceedings because of their substantially greater financial resources. Patent litigation and other proceedings may also require significant management time and divert management from our business. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could harm our business.
As a result of intellectual property infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on commercially reasonable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, with the potential for our competitors to gain access to the same intellectual property. In addition, the rights that we secure under intellectual property licenses may not include rights to all of the intellectual property owned or controlled by the licensor, and the scope of the licenses granted to us may not include rights covering all of the products and services provided by us and our licensees. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys fees, if we are found to have willfully infringed a partys intellectual property; cease making, licensing or using technologies that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our solutions; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content or materials; and to indemnify our partners and other third parties. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel.
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Under our agreements with many of our content publishers, licensees, contract manufacturers and suppliers, we are required to provide indemnification in the event our technology is alleged to infringe upon the intellectual property rights of third parties.
In certain of our agreements we indemnify our content publishers, licensees, manufacturing partners and suppliers. We could incur significant expenses defending these partners if they are sued for patent infringement based on allegations related to our technology. In addition, if a partner were to lose a lawsuit and in turn seek indemnification from us, we could be subject to significant monetary liabilities. In addition, because the devices sold by our licensing partners and TV brands often involve the use of third-party technology, this increases our exposure to litigation in circumstances where there is a claim of infringement asserted against the player in question, even if the claim does not pertain to our technology.
If we fail to protect or enforce our intellectual property or proprietary rights, our business and operating results could be harmed.
We regard the protection of our patents, trade secrets, copyrights, trademarks, trade dress, domain names and other intellectual property or proprietary rights as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We seek to protect our confidential proprietary information, in part, by entering into confidentiality agreements and invention assignment agreements with all our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology. However, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. Any party with whom we have executed such an agreement could potentially breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Detecting the disclosure or misappropriation of a trade secret and enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, time-consuming and could result in substantial costs and the outcome of such a claim is unpredictable. Further, the laws of certain foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property or proprietary rights both in the United States and abroad. If we are unable to prevent the disclosure of our trade secrets to third parties, or if our competitors independently develop any of our trade secrets, we may not be able to establish or maintain a competitive advantage in our market, which could harm our business.
We have filed and will in the future file patent applications on inventions that we deem to be innovative. There is no guarantee that our patent applications will issue as granted patents, that the scope of the protection gained will be sufficient or that an issued patent may subsequently be deemed invalid or unenforceable. Patent laws, and scope of coverage afforded by them, have recently been subject to significant changes, such as the change to first-to-file from first-to-invent resulting from the Leahy-Smith America Invents Act. This change in the determination of inventorship may result in inventors and companies having to file patent applications more frequently to preserve rights in their inventions, which may favor larger competitors that have the resources to file more patent applications. Another change to the patent laws may incentivize third parties to challenge any issued patent in the United States Patent and Trademark Office, or USPTO, as opposed to having to bring such an action in U.S. federal court. Any invalidation of a patent claim could have a significant impact on our ability to protect the innovations contained within our devices and platform and could harm our business.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. We may fail to take the necessary actions and to pay the applicable fees to obtain or maintain our patents. Noncompliance with these requirements can result in abandonment or lapse of a patent or patent application,
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resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to use our technologies and enter the market earlier than would otherwise have been the case.
We pursue the registration of our domain names, trademarks and service marks in the United States and in certain locations outside the United States. We are seeking to protect our trademarks, patents and domain names in an increasing number of jurisdictions, a process that is expensive and time-consuming and may not be successful or which we may not pursue in every location.
Litigation may be necessary to enforce our intellectual property or proprietary rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity or diversion of management and technical resources, any of which could adversely affect our business and operating results. If we fail to maintain, protect and enhance our intellectual property or proprietary rights, our business may be harmed.
We and our third-party contractors collect, process, transmit and store the personal information of our users, which creates legal obligations and exposes us to potential liability.
We collect, process, transmit and store information about our users device usage patterns, and rely on third-party contractors to collect, process, transmit and store personal information of our users, including our users credit card data. Further, we and third parties use tracking technologies, including cookies, device identifiers and related technologies, to help us manage and track our users interactions with our platform, devices, website and partners content streaming channels and deliver relevant advertising for ourselves and on behalf of our partners on our devices.
We collect information about the interaction of users with our devices, our advertisements and our partners streaming channels. To deliver relevant advertisements effectively, we must successfully leverage this data as well as data provided by third parties. Our ability to collect and use such data could be restricted by a number of factors, including consumers choosing to opt out from our collection of this data or the ability of our advertisers to use such data to provide more relevant advertisements, restrictions imposed by advertisers, content publishers and service providers, changes in technology, and new developments in laws, regulations and industry standards. For example, our privacy policy outlines the type of data we collect and discloses to users how to disable or restrict such data collection and the use of such data in providing more relevant advertisements. Any restrictions on our ability to collect data could harm our ability to grow our revenue, particularly our advertising revenue which depends on engaging the relevant recipients of advertising campaigns.
Various federal and state laws and regulations govern the collection, use, retention, sharing and security of the data we receive from and about our users. The regulatory environment for the collection and use of consumer data by device manufacturers, online service providers, content distributors, advertisers and publishers is very unsettled in the United States and internationally. Privacy groups and government bodies, including the Federal Trade Commission, have increasingly scrutinized privacy issues with respect to devices that link personal identities or user and device data, with data collected through the Internet, and we expect such scrutiny to continue to increase. The United States and foreign governments have enacted and are considering regulations that could significantly restrict industry participants ability to collect, use and share personal information and pseudonymous data, such as by regulating the level of consumer notice and consent required before a company can place cookies or other tracking technologies. Any failure or perceived failure to comply with privacy-related legal obligations, or any compromise of security of user data, may result in governmental enforcement actions, litigation, contractual indemnity or public statements against us by consumer advocacy groups or others. In addition to potential liability, these events could harm our business.
We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards and contractual obligations. Increased regulation of data collection, use and distribution practices, including self-regulation and industry standards, changes in existing
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laws, enactment of new laws, increased enforcement activity, and changes in interpretation of laws could increase our cost of compliance and operation, limit our ability to grow our business or otherwise harm our business.
If service operators refuse to authenticate streaming channels on our platform, our users may be restricted from accessing certain content on our platform and our business may be harmed.
Certain service operators, including pay TV providers, have from time to time refused to grant our users access to streaming content through TV Everywhere channels and have made that content available only on certain devices favored by such service operators, including devices offered by that service operator or its partners. If major service operators do not authenticate popular TV Everywhere channels on our platform, we may be unable to offer a broad selection of popular streaming channels and consumers may not purchase or use our streaming players. If we are unable to continue to provide access to popular streaming channels on our platform, our business may be harmed.
United States or international rules that permit ISPs to limit Internet data consumption by users, including unreasonable discrimination in the provision of broadband Internet access services, could harm our business.
Laws, regulations or court rulings that adversely affect the popularity or growth in use of the Internet, including decisions that undermine open and neutrally administered Internet access, could decrease customer demand for our service offerings, may impose additional burdens on us or could cause us to incur additional expenses or alter our business model. On February 26, 2015, the FCC adopted open Internet rules intended to protect the ability of consumers and content producers to send and receive legal information on the Internet. The FCCs Open Internet Order prohibits broadband Internet access service providers from: (i) blocking access to legal content, applications, services or non-harmful devices; (ii) throttling, impairing or degrading performance based on content, applications, services or non-harmful devices; and (iii) charging more for favorable delivery of content or favoring self-provisioned content over third-party content. The Open Internet Order also prohibits broadband Internet access service providers from unreasonably interfering with consumers ability to select, access and use the lawful content, applications, services or devices of their choosing as well as edge providers ability to make lawful content, applications, services or devices available to consumers.
On June 14, 2016, the U.S. Court of Appeals for the District of Columbia Circuit upheld the Open Internet Order against a challenge by twelve parties, including AT&T Inc., the United States Telecom Association and the National Cable & Telecommunications Association. On May 1, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied rehearing en banc . Multiple parties subsequently requested and received additional time to seek further review of the Open Internet Order from the Supreme Court of the United States. Petitions for certiorari in the proceeding are now due September 28, 2017. In the interim, the FCC issued a notice of proposed rulemaking on May 18, 2017 that proposes to limit or reverse some of the provisions of the Open Internet Order, including its prohibitions against blocking, throttling and paid prioritization. To the extent the appellate courts or the FCC do not uphold sufficient safeguards to protect against discriminatory conduct or in the event that any existing or future rules fail to offer protections against such conduct, network operators may seek to extract fees from us or our content publishers to deliver our traffic or otherwise engage in blocking, throttling or other discriminatory practices, and our business could be harmed.
As we expand internationally, government regulation protecting the non-discriminatory provision of Internet access may be nascent or non-existent. In those markets where regulatory safeguards against unreasonable discrimination are nascent or non-existent and where local network operators possess substantial market power, we could experience anti-competitive practices that could impede our growth, cause us to incur additional expenses or otherwise harm our business. Future regulations or changes in laws and regulations or their existing interpretations or applications could also hinder our operational flexibility, raise compliance costs and result in additional liabilities for us, which may harm our business.
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Broadband Internet providers are subject to government regulation, and changes in current or future laws or regulations that negatively impact our content publishers could harm our business.
The FCC exercises jurisdiction over many broadband Internet providers in the United States. The FCC could promulgate new regulations or interpret existing regulations in a manner that would cause us or our content publishers to incur significant compliance costs or force us to alter or eliminate certain features or functionality of our products or services which may harm our business. Future FCC regulation affecting providers of broadband Internet access services could impede the penetration of broadband Internet access into certain markets or affect the prices they may charge in such markets. As part of its February 26, 2015 network neutrality order, the FCC changed the regulatory classification of broadband Internet service from a lightly regulated information service to a common carrier telecommunication service. It also extended regulation to Internet traffic exchange and interconnection arrangements. On May 18, 2017, the FCC issued a notice of proposed rulemaking proposing to reinstate the classification of broadband Internet service as an information service that would not be subject to common carrier regulation. Classification as a telecommunications service could subject broadband Internet access to significant new regulation, including rate regulation, although the FCC has decided to forbear at this time from applying many common carrier requirements, including price regulation; market entry and exit regulation; the obligation to contribute to the federal universal service fund; and telephone-specific interconnection and unbundling requirements. Furthermore, many broadband Internet providers provide traditional telecommunications services that are subject to FCC and state rate regulation of interstate telecommunications services, and are recipients of federal universal service fund payments, which are intended to subsidize telecommunications services in areas that are expensive to serve. Changes in rate regulations or in universal service funding rules, either at the federal or state level, could adversely affect these broadband Internet providers revenue and capital spending plans. In addition, various international regulatory bodies have jurisdiction over non-United States broadband Internet providers. To the extent these broadband Internet providers are adversely affected by laws or regulations regarding their business, products or service offerings, our business would be harmed.
If government regulations relating to the Internet or other areas of our business change, we may need to alter the manner in which we conduct our business and we may incur greater operating expenses.
We are subject to general business regulations and laws, as well as regulations and laws specific to the Internet, which may include laws and regulations related to user privacy, data collection and protection, consumer protection, payment processing, taxation, intellectual property, electronic contracts, Internet access and content restrictions. We cannot guarantee that we have been or will be fully compliant in every jurisdiction. Litigation and regulatory proceedings are inherently uncertain, and the laws and regulations governing issues such as privacy, payment processing, taxation and consumer protection related to the Internet continue to develop. For example, laws relating to the liability of providers of online services for activities of their users and other third parties have been tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the advertisements posted or the content provided by users. Moreover, as Internet commerce and advertising continues to evolve, increasing regulation by federal, state and foreign regulatory authorities becomes more likely.
As we develop new devices, and improve our TV streaming platform, we may also be subject to new laws and regulations specific to such technologies. For example, in developing our Roku TV reference design, we were required to understand, address and comply with an evolving regulatory framework for developing, manufacturing, marketing and selling TVs. If we fail to adequately address or comply with such regulations regarding the manufacture and sale of TVs, we may be subject to fines or sanctions, and our licensees may be unable to sell Roku TVs at all, which would harm our business and our ability to grow our user base.
Laws relating to privacy and data collection continue to proliferate, often with little harmonization between jurisdictions and little guidance. A number of existing bills are pending in U.S. Congress that contain provisions
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that would regulate how companies can use cookies and other tracking technologies to collect and use user information. The European Union has already enacted laws requiring advertisers or companies like ours to obtain informed consent from users for the placement of cookies or other tracking technologies and the delivery of relevant advertisements. If the third parties that we work with, such as contract payment processing services, content publishers, vendors or developers violate or are alleged to violate applicable privacy or security laws, industry standards, our contractual obligations, or our policies, such violations and alleged violations may also put our users information at risk and could in turn harm our business. Any of these consequences could cause our users, advertisers or publishers to lose trust in us, which could harm our business. Furthermore, any failure on our part to comply with these laws may subject us to liability and reputational harm.
Our use of data to deliver relevant advertising on our platform places us and our content publishers at risk for claims under various unsettled laws, including the Video Privacy Protection Act, or VPPA. Some of our content publishers have been engaged in litigation over alleged violations of the VPPA relating to activities on our platform in connection with advertising provided by unrelated third parties. The Federal Trade Commission has also revised its rules implementing the Childrens Online Privacy Protection Act, or COPPA Rules, broadening the applicability of the COPPA Rules, including the types of information that are subject to these regulations, and could effectively apply to limit the information that we or our content publishers and advertisers collect and use through certain content publishers, the content of advertisements and in relation to certain channel partner content. We and our content publishers and advertisers could be at risk for violation or alleged violation of these and other privacy laws.
Our actual or perceived failure to adequately protect personal data could harm our business.
A variety of state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These privacy and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. Compliance with these laws and regulations can be costly and can delay or impede the development of new products.
We historically have relied upon adherence to the U.S. Department of Commerces Safe Harbor Privacy Principles and compliance with the U.S.-EU Safe Harbor Framework under Directive 95/46/EC, commonly referred to as the Data Protection Directive, agreed to by the U.S. Department of Commerce and the EU. The U.S.-EU Safe Harbor Framework, which established means for legitimizing the transfer of personal data by U.S. companies from the European Economic Area, or EEA, to the United States, recently was invalidated by a decision of the European Court of Justice, or the ECJ.
On July 12, 2016, the European Commission adopted the EU-U.S. Privacy Shield, which provides a framework for the transfer of personal data of EU data subjects, and on May 4, 2016, the EU General Data Protection Regulation, or GDPR, which will replace Directive 95/46/EC, was formally published. The GDPR will go into effect on May 25, 2018 and as a regulation as opposed to a directive will be directly applicable in EU member states. Among other things, the GDPR applies to data controllers and processors outside of the EU whose processing activities relate to the offering of goods or services to, or monitoring the behavior within the EU of, EU data subjects.
In light of these developments, we are reviewing our business practices and may find it necessary or desirable to make changes to our personal data handling to cause our transfer and receipt of EEA residents personal data to be legitimized under applicable European law. The regulation of data privacy in the EU continues to evolve, and it is not possible to predict the ultimate content, and therefore the effect, of data protection regulation over time.
Our actual or alleged failure to comply with applicable laws and regulations or to protect personal data, could result in enforcement actions and significant penalties against us, which could result in negative publicity, increase our operating costs, subject us to claims or other remedies and may harm our business.
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If we are found liable for content that we distribute through our players, our business would be harmed.
As a distributor of content, we face potential liability for negligence, copyright, patent or trademark infringement, public performance royalties or other claims based on the nature and content of materials that we distribute. The Digital Millennium Copyright Act, or the DMCA, is intended, in part, to limit the liability of eligible service providers for caching, hosting or linking to, user content that includes materials that infringe copyrights or other rights. We rely on the protections provided by the DMCA in conducting our business. However, the DMCA and similar statutes and doctrines that we may rely on in the future is subject to uncertain judicial interpretation and regulatory and legislative amendments. Moreover, the DMCA only provides protection primarily in the United States. If the rules around these statutes and doctrines change, if international jurisdictions refuse to apply similar protections or if a court were to disagree with our application of those rules to our business, we could incur liability and our business could be harmed. If we become liable for these types of claims as a result of the content that is streamed over our platform, then our business may suffer. Litigation to defend these claims could be costly and the expenses and damages arising from any liability could harm our business. Our insurance may not be adequate to cover these types of claims or any liability that may be imposed on us.
In addition, we may be adversely impacted if copyright holders assert claims, or commence litigation, alleging copyright infringement against the developers of channels that are distributed on our platform. While our platform policies prohibit streaming content on our platform without distribution rights from the copyright holder, and we maintain processes and systems for the reporting and removal of infringing content, in certain instances our platform has been misused by unaffiliated third parties to unlawfully distribute copyrighted content. For example, we are involved in litigation in Mexico that was commenced by a large Mexican pay TV and Internet access provider. This case principally targeted entities that are alleged to sell unlicensed content to consumers using our platform, among other means. At the commencement of this case, a court issued a temporary ban on the importation and sale of Roku devices in Mexico, which remains in effect. In the three months ended June 30, 2017, we recorded a charge of $1.0 million for a write-down of inventory on hand and on order and a charge of $0.7 million for sales incentives to sell inventory in other sales channels, each due to the Mexico sales ban. Our involvement in this litigation, or similar legal matters in the future, could cause us to incur significant legal expenses and other costs, and be disruptive to our business.
Our devices are highly technical and may contain undetected hardware errors or software bugs, which could manifest themselves in ways that could harm our reputation and our business.
Our devices and those of our licensees are highly technical and have contained and may in the future contain undetected software bugs or hardware errors. These bugs and errors can manifest themselves in any number of ways in our devices or our platform, including through diminished performance, security vulnerabilities, data quality in logs or interpretation of data, malfunctions or even permanently disabled devices. Some errors in our devices may only be discovered after a device has been shipped and used by users, and may in some cases only be detected under certain circumstances or after extended use. We update our software on a regular basis and, despite our quality assurance processes, we could introduce bugs in the process of updating our software. The introduction of a serious software bug, could result in devices becoming permanently disabled. We offer a limited one year warranty in the United States and any such defects discovered in our devices after commercial release could result in loss of revenue or delay in revenue recognition, loss of customer goodwill and users and increased service costs, any of which could harm our business, operating results and financial condition. We could also face claims for product or information liability, tort or breach of warranty. In addition, our device contracts with users contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert managements attention and adversely affect the markets perception of Roku and our devices. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business could be harmed.
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Components used in our devices may fail as a result of manufacturing, design or other defects over which we have no control and render our devices permanently inoperable.
We rely on third-party component suppliers to provide certain functionalities needed for the operation and use of our devices. Any errors or defects in such third-party technology could result in errors in our devices that could harm our business. If these components have a manufacturing, design or other defect, they can cause our devices to fail and render them permanently inoperable. For example, the typical means by which our users connect their home networks to our devices is by way of a Wi-Fi access point in the home network router. If the Wi-Fi receiver in our device fails, then our device cannot detect a home networks Wi-Fi access point, and our device will not be able to display or deliver any content to the TV screen. As a result, we may have to replace these devices at our sole cost and expense. Should we have a widespread problem of this kind, our reputation in the market could be adversely affected and our replacement of these devices would harm our business.
If we are unable to obtain necessary or desirable third-party technology licenses, our ability to develop new devices or platform enhancements may be impaired.
We utilize commercially available off-the-shelf technology in the development of our devices and platform. As we continue to introduce new features or improvements to our devices and the Roku platform, we may be required to license additional technologies from third parties. These third-party licenses may be unavailable to us on commercially reasonable terms, if at all. If we are unable to obtain necessary third-party licenses, we may be required to obtain substitute technologies with lower quality or performance standards, or at a greater cost, any of which could harm the competitiveness of our devices, platform and our business.
Our use of open source software could impose limitations on our ability to commercialize our devices and our TV streaming platform.
We incorporate open source software in our TV streaming platform. 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. Although we monitor our use of open source software, the terms of many open source software licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to sell our devices. In such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to seek licenses from third parties in order to continue offering our devices, to re-engineer our devices or to discontinue the sale of our devices in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could harm our business.
The quality of our customer support is important to our users and licensees, and if we fail to provide adequate levels of customer support we could lose users and licensees, which would harm our business.
Our users and licensees depend on our customer support organization to resolve any issues relating to devices. A high level of support is critical for the successful marketing and sale of our devices. We currently outsource our customer support operation to a third-party customer support organization. If we do not effectively train, update and manage our third-party customer support organization who assists our users in using our devices, and if that support organization does not succeed in helping them quickly resolve any issues or provide effective ongoing support, it could adversely affect our ability to sell our devices to users and harm our reputation with potential new users and our licensees.
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We will need to improve our operational and financial systems to support our expected growth, increasingly complex business arrangements, and rules governing revenue and expense recognition and any inability to do so could adversely affect our billing services and financial reporting.
We have increasingly complex business arrangements with our content publishers and licensees, and the rules that govern revenue and expense recognition in our business are increasingly complex. To manage the expected growth of our operations and increasing complexity, we will need to improve our operational and financial systems, procedures and controls and continue to increase systems automation to reduce reliance on manual operations. Any inability to do so will negatively affect our billing services and financial reporting. Our current and planned systems, procedures and controls may not be adequate to support our complex arrangements and the rules governing revenue and expense recognition for our future operations and expected growth. Delays or problems associated with any improvement or expansion of our operational and financial systems and controls could adversely affect our relationships with our users, content publishers or licensees; cause harm to our reputation and brand; and could also result in errors in our financial and other reporting.
If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock may be adversely affected.
As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with the fiscal year ending December 31, 2018. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the Securities and Exchange Commission, or SEC, following the later of the date we are deemed to be an accelerated filer or a large accelerated filer, each as defined in the Securities Exchange Act of 1934, as amended, or the date we are no longer an emerging growth company, as defined in the JOBS Act. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing the internal control over financial reporting required to comply with this obligation, which process will be time-consuming, costly and complicated. If we identify material weaknesses in our internal control over financial reporting, are unable to comply with the requirements of Section 404 in a timely manner, are unable to assert that our internal control over financial reporting is 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, 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 adversely affected. In addition, we could become subject to investigations by the stock exchange on which our Class A common stock is listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
We may pursue acquisitions, which involve a number of risks, and if we are unable to address and resolve these risks successfully, such acquisitions could harm our business.
We may in the future acquire businesses, products or technologies to expand our offerings and capabilities, user base and business. We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions; however, we have no experience completing or integrating acquisitions. Any acquisition could be material to our financial condition and results of operations and any anticipated benefits from an acquisition may never materialize. In addition, the process of integrating acquired businesses, products or technologies may create unforeseen operating difficulties and expenditures. Acquisitions in international markets would involve additional risks, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. We
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may not be able to address these risks successfully, or at all, without incurring significant costs, delays or other operational problems and if we were unable to address such risks successfully our business could be harmed.
We have a credit facility that provides our lender 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.
We entered into an amended and restated loan and security agreement with Silicon Valley Bank in November 2014, which was amended in May 2015 and June 2017, providing for a $30.0 million revolving line of credit. In June 2017, we entered into a subordinated loan and security agreement with Silicon Valley Bank, which provides for a term loan borrowing of up to $40.0 million with a minimum of $25.0 million to be initially drawn at the close of the agreement and a $5.0 million sublimit for letters of credit. Our loan agreements with Silicon Valley Bank contain a number of restrictive covenants, and the terms may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry, or take future actions. Pursuant to these agreements, we granted Silicon Valley Bank a security interest in substantially all of our assets. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesSilicon Valley Bank Loan and Security Agreements.
If we fail to comply with the covenants or payments specified in our credit facility, Silicon Valley Bank could declare an event of default, which would give it the right to terminate its commitment to provide additional loans and declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, Silicon Valley Bank would have the right to proceed against the assets we provided as collateral pursuant to the credit facility. If the debt under this credit facility was accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay this debt, which would harm our business and financial condition.
If we fail to comply with the laws and regulations relating to the collection of sales tax and payment of income taxes in the various states in which we do business, we could be exposed to unexpected costs, expenses, penalties and fees as a result of our noncompliance, which could harm our business.
By engaging in business activities in the United States, we become subject to various state laws and regulations, including requirements to collect sales tax from our sales within those states, and the payment of income taxes on revenue generated from activities in those states. The laws and regulations governing the collection of sales tax for sales on our website and payment of income taxes are numerous, complex, and vary from state to state. A successful assertion by one or more states that we were required to collect sales or other taxes or to pay income taxes where we did not could result in substantial tax liabilities, fees and expenses, including substantial interest and penalty charges, which could harm our business.
We may require additional capital to meet our financial obligations and support planned business growth, and this capital might not be available on acceptable terms or at all.
We intend to continue to make significant investments to support planned business growth and may require additional funds to respond to business challenges, including the need to develop new devices and enhance the Roku platform, maintain adequate levels of inventory to support our retail partners demand requirements, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our then existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure 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 were to violate the restrictive covenants, we could incur penalties, increased expenses and an acceleration of the payment terms of our outstanding debt, which could in turn harm our business.
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We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.
Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other natural disaster could cause damage to our facilities and computer systems, which could require us to curtail or cease operations.
Our principal offices and a network operations center are located in the San Francisco Bay Area, an area known for earthquakes, and are thus vulnerable to damage. We are also vulnerable to damage from other types of disasters, including power loss, fire, floods, communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities could be impaired.
Risks Related to this Offering and Ownership of Our Class A Common Stock
The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our executive officers, employees and directors and their affiliates, and limiting 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 initial public offering, has one vote per share. Stockholders who hold shares of Class B common stock, including our executive officers, employees and directors and their affiliates, will together hold approximately 98.1% of the voting power of our outstanding capital stock following this offering, and our President and Chief Executive Officer, Anthony Wood, will hold approximately 27.3% of our outstanding common stock, but will control approximately 32.1% of the voting power of our outstanding common stock, following this offering, and therefore will have significant influence over our management and affairs and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of Roku or our assets, for the foreseeable future. If Mr. Woods employment with us is terminated, he will continue to have the same influence over matters requiring stockholder approval.
In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock holdings represent less than 50% of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent as little as 10% of the combined voting power of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit your ability to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A common stock could be adversely affected.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Mr. Wood retains a significant portion of his holdings of Class B common stock for an extended period of time, he could, in the future, control a majority of the combined voting power of our Class A and Class B common stock. As a board member, Mr. Wood owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Wood is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally.
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There has been no prior market for our Class A common stock. An active market may not develop or be sustainable and investors may not be able to resell their shares at or above the initial public offering price.
There has been no public market for our 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 or liquid market in our Class A common stock may not develop after this offering or, if it does develop, it may not be sustainable.
Our stock price may be volatile, and you may be unable to sell your shares of Class A common stock at or above the initial public offering price, if at all.
The initial public offering price for the shares of our Class A common stock will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our Class A common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
| actual or anticipated fluctuations in our financial condition and operating results; |
| changes in projected operational and financial results; |
| loss by us of key content publishers; |
| changes in laws or regulations applicable to our devices or platform; |
| the commencement or conclusion of legal proceedings that involve us; |
| actual or anticipated changes in our growth rate relative to our competitors; |
| announcements of new products or services by us or our competitors; |
| announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments; |
| additions or departures of key personnel; |
| issuance of new or updated research or reports by securities analysts; |
| the use by investors or analysts of third-party data regarding our business that may not reflect our financial performance; |
| fluctuations in the valuation of companies perceived by investors to be comparable to us; |
| sales of our Class A common stock; |
| share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; |
| the expiration of contractual lock-up agreements; and |
| general economic and market conditions. |
Furthermore, the stock markets frequently experience extreme price and volume fluctuations that affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, elections, interest rate changes or international currency fluctuations, may negatively impact the market price of our Class A common stock. If the market price of our Class A common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class
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action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our managements attention from other business concerns, which could harm our business.
We will have broad discretion in the use of proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return.
We will have broad discretion over the use of proceeds from this offering. Investors may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. Our failure to apply the net proceeds of this offering effectively could impair our ability to pursue our growth strategy or could require us to raise additional capital.
Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.
The initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A and Class B common stock outstanding immediately following the closing of this offering. Therefore, if you purchase shares of our Class A common stock in this offering at an assumed initial public offering price of $13.00 per share, the midpoint of the range set forth on the cover page of this prospectus, you will experience immediate dilution of $11.74 per share, the difference between the price per share you pay for our Class A common stock and its pro forma net tangible book value per share as of June 30, 2017, after giving effect to the issuance of shares of our Class A common stock in this offering. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of Class B common stock. In addition, we have issued options and warrants to acquire our Class B common stock at prices significantly below the initial public offering price. To the extent outstanding options and warrants are ultimately exercised, there will be further dilution to investors purchasing our Class A common stock in this offering. In addition, if the underwriters exercise their option to purchase additional shares or if we issue additional equity securities, you will experience additional dilution.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
We may issue additional securities following the closing of this offering. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell Class A common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our Class A common stock.
If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.
Equity research analysts do not currently provide research coverage of our Class A common stock, and we cannot assure you that any equity research analysts will adequately provide research coverage of our Class A common stock after the closing of this offering. A lack of adequate research coverage may adversely affect the liquidity and market price of our Class A common stock. To the extent we obtain equity research analyst coverage, we will not have any control of the analysts or the content and opinions included in their reports. The price of our Class A common stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts cease coverage of our company, or fail to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
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Substantial future sales of shares of our Class A common stock could cause the market price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A common stock in the public market following the closing of this offering, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Class A common stock.
Based on shares outstanding as of June 30, 2017, upon the closing of this offering, we will have outstanding a total of 15,668,000 shares of Class A common stock and 79,080,495 shares of Class B common stock, assuming no exercise of the underwriters option to purchase additional shares and no exercise of outstanding options or warrants, after giving effect to the conversion of all outstanding shares of our preferred stock into shares of Class B common stock immediately upon the closing of this offering and after giving effect to the conversion of 6,668,000 shares of Class B common stock into Class A common stock upon the sale of such shares by the selling stockholders. Of these shares, only the shares of Class A common stock sold in this offering will be freely tradable, without restriction, in the public market immediately after the offering. All of our executive officers and directors and the holders of substantially all the shares of our capital stock are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock during the period ending on, and including, the 180th day after the date of this prospectus, subject to specified exceptions. Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. may, in their sole discretion and without prior notice, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements. After the lock-up agreements expire, all 79,080,495 shares of Class B common stock outstanding as of June 30, 2017 will become eligible for sale, of which 67,262,802 shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements.
In addition, as of June 30, 2017, there were 24,559,747 shares of Class B common stock subject to outstanding options. We intend to register all of the shares of Class A common stock issuable upon conversion of the shares of Class B common stock issuable upon exercise of outstanding options, and upon exercise of settlement of any options or other equity incentives we may grant in the future, for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, subject to the lock-up agreements described above. The shares of Class A common stock issuable upon conversion of these shares will become eligible for sale in the public market to the extent such options or warrants are exercised, subject to the lock-up agreements described above and compliance with applicable securities laws.
Holders of 76,402,104 shares of our Class B common stock issuable upon the conversion of outstanding shares of preferred stock and shares of preferred stock issuable upon the exercise of outstanding warrants have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file on our behalf or for other stockholders. See Shares Eligible for Future Sale and Underwriters.
We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, which may harm our business.
As a public company listed in the United States, we will incur significant additional legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and the Nasdaq Global Select Market, or Nasdaq, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources
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to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of managements time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts, we fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.
We are an emerging growth company, and we intend to comply only with reduced disclosure requirements applicable to emerging growth companies. As a result, our Class A common stock could be less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act 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 not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, 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 shareholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of this offering, (b) in which we have total annual gross revenue of over $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on these exemptions. If some investors find our Class A common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.
We do not intend to pay dividends in the foreseeable future.
We have never declared or paid any cash dividends on our Class A or Class B common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings to grow our business and for general corporate purposes. Moreover, our outstanding loan and security agreements contain prohibitions on the payment of cash dividends on our capital stock. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us, and the market price of our Class A common stock may be lower as a result.
There are provisions in our certificate of incorporation and bylaws, as they will be in effect following this offering, that may make it difficult for a third-party to acquire, or attempt to acquire, control of Roku, even if a change in control was considered favorable by our stockholders.
Our charter documents will also contain other provisions that could have an anti-takeover effect, such as:
| establishing a classified board of directors so that not all members of our board of directors are elected at one time; |
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| permitting the board of directors to establish the number of directors and fill any vacancies and newly created directorships; |
| providing that directors may only be removed for cause; |
| prohibiting cumulative voting for directors; |
| requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws; |
| authorizing the issuance of blank check preferred stock that our board of directors could use to implement a stockholder rights plan; |
| eliminating the ability of stockholders to call special meetings of stockholders; |
| prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; and |
| reflecting our two classes of common stock as described above. |
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to find either choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by words such as anticipate, believe, continue, could, design, estimate, expect, intend, may, plan, potentially, predict, project, should, will or the negative of these terms or other similar expressions.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled Risk Factors and elsewhere in this prospectus, regarding, among other things:
| our financial performance, including our revenue, cost of revenue, operating expenses and our ability to attain and sustain profitability; |
| our ability to attract and retain users and increase hours streamed; |
| our ability to attract and retain advertisers; |
| our ability to attract and retain additional TV brands and service operators to license our platform; |
| our ability to license popular content on our platform, including the renewals of our existing agreements with content publishers; |
| changes in consumer viewing habits or the growth of TV streaming; |
| the growth of our relevant markets, including the growth in advertising spend on TV streaming platforms, and our ability to successfully grow our business in those markets; |
| our ability to adapt to changing market conditions and technological developments, including with respect to developing integrations with our platform partners; |
| our ability to develop and launch new streaming devices and provide ancillary services and support; |
| our ability to compete effectively with existing competitors and new market entrants; |
| our ability to successfully manage domestic and international expansion; |
| our ability to attract and retain qualified employees and key personnel; |
| security breaches and system failures; |
| our ability to maintain, protect and enhance our intellectual property; and |
| our ability to stay in compliance with laws and regulations that currently apply or may become applicable to our business both in the United States and internationally. |
These risks are not exhaustive. Other sections of this prospectus may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors 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 from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur.
46
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus or to conform these statements to actual results or to changes in our expectations.
In addition, statements that we believe and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this prospectus and the documents that we reference in this prospectus and have filed 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 achievements may be different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
47
Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, including the independent industry publications set forth below, as well as reports that we commissioned, and is subject to a number of assumptions and limitations. Although we are responsible for all of the disclosures contained in this prospectus and we believe the information from the industry publications and other third-party sources included in this prospectus is reliable, such information is inherently imprecise. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled Risk Factors. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
Certain information in the text of this prospectus is contained in independent industry publications. The sources of these independent publications are provided below:
| Activate, Think AgainTech and Media Outlook 2016 , dated October 20, 2015. |
| Activate, Think AgainTech and Media Outlook 2017 , dated October 25, 2016. |
| comScore, State of OTT , dated April 2017. |
| eMarketer, US Ad SpendingThe eMarketer Forecast for 2017 , dated March 2017. |
| eMarketer, US Non-Pay TV Subscription Households, by Type, 2016-2021 , dated July 11, 2017. |
| Kagan, Global Set-Top Box Forecast , dated October 25, 2016. |
| Nielsen, The Nielsen Total Audience Report Q4 2016 , dated April 2017. |
| Nielsen, NPOWER, Rating Analysis Time Period Report , dated December 2016. |
| Ovum, World Television Information Service Forecasting Tool , dated January 24, 2017. |
| Sandvine, 2016 Global Internet PhenomenaLatin America and North America , as revised June 21, 2016. |
In addition, we have commissioned the following report:
| Kantar Millward Brown, Roku Streaming Leadership Study Q1 2017 , dated March 2017. |
The content of the foregoing sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein. Nielsen data reflects estimates of market conditions based on samples, and is prepared primarily as a marketing research tool for the media industry and others in the media industry. References to Nielsen should not be considered as Nielsens opinion as to the value of any security or the advisability of investing in the Company.
48
We estimate that the net proceeds to us from our sale of 9,000,000 shares of Class A common stock in this offering will be approximately $104.8 million at an assumed initial public offering price of $13.00 per share, the midpoint of the price range shown on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of Class A common stock in this offering by the selling stockholders. If the underwriters exercise their option to purchase additional shares of Class A common stock in full, we estimate that the net proceeds to us will be approximately $121.1 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share would increase or decrease, respectively, our net proceeds 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 underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 in the number of shares we are offering would increase or decrease, respectively, the net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, by $12.1 million, assuming the assumed initial public offering price stays the same.
The principal purposes of this offering are to increase our capitalization and financial flexibility and create a public market for our Class A common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital, research and development, sales and marketing activities and capital expenditures. We may also use a portion of the net proceeds from this offering for the acquisition of, or investment in, technologies or businesses that complement our business, although we have no commitments or agreements to enter into any such acquisitions or investments. We will have broad discretion over the uses of the net proceeds from this offering. Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market funds, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.
We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. The terms of our outstanding loan and security agreements also restrict our ability to pay dividends. Any future determination related to our dividend policy will be made at the discretion of our board of directors.
49
The following table sets forth our cash and capitalization as of June 30, 2017 on:
| an actual basis; |
| a pro forma basis, to reflect: |
| the conversion of all 80,844,138 outstanding shares of preferred stock into an equal number of shares of Class B common stock immediately upon the closing of this offering; |
| the reclassification of all 4,904,357 outstanding shares of common stock into an equal number of shares of our Class B common stock and the authorization of our Class A common stock; |
| the reclassification of the preferred stock warrant liability to additional paid-in capital upon the conversion of warrants to purchase shares of our convertible preferred stock into warrants to purchase shares of our Class B common stock immediately upon the closing of this offering; and |
| the filing and effectiveness of our amended and restated certificate of incorporation; |
| a pro forma as adjusted basis, to give further effect to: |
| the sale by us of 9,000,000 shares of Class A common stock in this offering at an assumed initial public offering price of $13.00 per share, the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and |
| the conversion of 6,668,000 shares of Class B common stock into an equivalent number of shares of Class A common stock upon the sale of such shares by the selling stockholders. |
You should read this information together with our audited consolidated financial statements and related notes appearing elsewhere in this prospectus and the information set forth in the sections titled Selected Consolidated Financial and Other Data and Managements Discussion and Analysis of Financial Condition and Results of Operations.
50
As of June 30, 2017 | ||||||||||||
Actual | Pro Forma |
Pro Forma
As Adjusted (1) |
||||||||||
(unaudited) | ||||||||||||
(in thousands, except share and per share data) | ||||||||||||
Cash |
$ | 70,169 | $ | 70,169 | $ | 174,969 | ||||||
|
|
|
|
|
|
|||||||
Long-term debt, less current portion |
$ | 22,811 | $ | 22,811 | $ | 22,811 | ||||||
Preferred stock warrant liability |
14,673 | | | |||||||||
Convertible preferred stock, $0.0001 par value per share, 84,368,163 shares authorized, 80,844,138 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted |
213,180 | | | |||||||||
Stockholders (deficit) equity: |
||||||||||||
Preferred stock, $0.0001 par value per share, no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted |
| | | |||||||||
Common stock, $0.0001 par value per share, 150,000,000 shares authorized, 4,904,357 shares issued and outstanding, actual; no shares authorized, shares issued and outstanding, pro forma and pro forma as adjusted |
| | 2 | |||||||||
Class A common stock, $0.0001 par value per share, no shares authorized, issued and outstanding, actual; 1,000,000,000 shares authorized, no shares issued and outstanding, pro forma; 1,000,000,000 shares authorized, 15,668,000 shares issued and outstanding, pro forma as adjusted |
| | | |||||||||
Class B common stock, $0.0001 par value per share, no shares authorized, issued and outstanding, actual; 150,000,000 shares authorized, 85,748,495 shares issued and outstanding, pro forma; 150,000,000 shares authorized, 79,080,495 shares issued and outstanding, pro forma as adjusted |
| 8 | 8 | |||||||||
Additional paid-in capital |
30,694 | 258,539 | 363,337 | |||||||||
Accumulated deficit |
(244,044 | ) | (244,044 | ) | (244,044 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stockholders (deficit) equity |
(213,350 | ) | 14,503 | 119,303 | ||||||||
|
|
|
|
|
|
|||||||
Total capitalization |
$ | 37,314 | $ | 37,314 | $ | 142,114 | ||||||
|
|
|
|
|
|
(1) | Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash, additional paid-in capital, total stockholders (deficit) equity and total capitalization 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, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 in the number of shares we are offering would increase or decrease, respectively, the amount of cash, total stockholders (deficit) equity and total capitalization by $12.1 million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. |
The outstanding share information in the table above is based on no shares of our Class A common stock and 85,748,495 shares of our Class B common stock (including preferred stock on an as-converted basis and reclassified as common stock) outstanding as of June 30, 2017, and excludes:
| 24,559,747 shares of Class B common stock issuable upon the exercise of outstanding stock options as of June 30, 2017 with a weighted-average exercise price of $3.88 per share and 3,219,857 shares of Class B common stock issuable upon the exercise of outstanding stock options which were granted in August 2017 with an exercise price of $8.82 per share; |
| 2,225,966 shares of Class B common stock issuable upon the exercise of warrants outstanding as of June 30, 2017 with a weighted-average exercise price of $2.70 per share, which are expected to remain outstanding after the closing of this offering; |
| 357,283 shares of our Class B common stock issued in July 2017 upon the automatic net exercise of a warrant to purchase 375,000 shares of our Class B common stock outstanding as of June 30, 2017; |
51
| 4,256,161 additional shares of Class B common stock reserved for future issuance under our 2008 Equity Incentive Plan as of June 30, 2017 (without giving effect to options granted in August 2017), which shares will cease to be available for issuance at the time our 2017 Equity Incentive Plan becomes effective in connection with this offering; |
| 12,000,000 shares of Class A common stock reserved for future issuance under our 2017 Equity Incentive Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as (i) any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan and (ii) upon the expiration or termination prior to exercise of any shares of Class B common stock issuable upon the exercise of stock options outstanding under our 2008 Equity Incentive Plan, an equal number of shares of Class A common stock, such number of shares not to exceed 28,000,000; |
| 3,000,000 shares of Class A common stock reserved for future issuance under our 2017 Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement for this offering; and |
| 108,332 shares of Class B common stock issued in September 2017 in connection with an acquisition. |
52
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 pro forma as adjusted net tangible book value per share of our common stock immediately after the closing of this offering.
Our pro forma net tangible book value of our common stock as of June 30, 2017 was $14.5 million, or $0.17 per share, based on the total number of shares of our common stock outstanding as of June 30, 2017. Pro forma net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of outstanding shares of Class A and Class B common stock, after giving effect to the conversion of all outstanding shares of preferred stock into 80,844,138 shares of Class B common stock immediately upon the closing of this offering.
After giving effect to (i) the conversion of our outstanding preferred stock into Class B common stock immediately upon the closing of this offering, (ii) the reclassification of our common stock into an equal number of shares of our Class B common stock and the authorization of our Class A common stock and (iii) the receipt of the net proceeds from our sale of 9,000,000 shares of Class A common stock in this offering at an assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2017, would have been $119.3 million, or $1.26 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $1.09 per share to our existing stockholders and immediate dilution of $11.74 per share to investors purchasing Class A common stock in this offering.
The following table illustrates this dilution on a per share basis to new investors:
Assumed initial public offering price per share |
$ | 13.00 | ||||||
Pro forma net tangible book value per share as of June 30, 2017 |
$ | 0.17 | ||||||
Increase in pro forma net tangible book value per share attributable to new investors in this offering |
1.09 | |||||||
|
|
|||||||
Pro forma as adjusted net tangible book value per share after this offering |
1.26 | |||||||
|
|
|||||||
Dilution in net tangible book value per share to new investors in this offering |
$ | 11.74 | ||||||
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $0.09 per share and the dilution to new investors by $0.91 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 underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of Class A common stock offered by us would increase (decrease) the pro forma as adjusted net tangible book value by $0.11 and $(0.11), respectively, per share and the dilution to new investors by ($0.11) and $0.11, respectively, per share, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares of Class A common stock in full, the pro forma as adjusted net tangible book value per share after giving effect to this offering would be $1.41 per share, representing an immediate increase to existing stockholders of $1.24 per share, and immediate dilution to new investors in this offering of $11.59 per share.
The following table summarizes, as of June 30, 2017, on the pro forma as adjusted basis described above:
| the total number of shares of Class B common stock purchased from us by our existing stockholders and Class A common stock by new investors purchasing shares in this offering; |
53
| the total consideration paid to us by our existing stockholders and by new investors purchasing Class A common stock in this offering, assuming an initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering; and |
| the average price per share paid by existing stockholders and by new investors purchasing shares in this offering. |
Shares Purchased | Total Consideration |
Average Price
Per Share |
||||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders |
85,748,495 | 91 | % | $ | 218,659,126 | 65 | % | $ | 2.55 | |||||||||||
New investors |
9,000,000 | 9 | 117,000,000 | 35 | % | 13.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
94,748,495 | 100 | % | $ | 335,659,126 | 100 | % | |||||||||||||
|
|
|
|
|
|
|
|
The total number of shares of our common stock reflected in the discussion and tables above is based on no shares of our Class A common stock and 85,748,495 shares of our Class B common stock (including preferred stock on an as-converted basis and reclassified common stock) outstanding as of June 30, 2017, and excludes:
| 24,559,747 shares of Class B common stock issuable upon the exercise of outstanding stock options as of June 30, 2017 with a weighted-average exercise price of $3.88 per share and 3,219,857 shares of Class B common stock issuable upon the exercise of outstanding stock options which were granted in August 2017 with an exercise price of $8.82 per share; |
| 2,225,966 shares of Class B common stock issuable upon the exercise of warrants outstanding as of June 30, 2017 with a weighted-average exercise price of $2.70 per share, which are expected to remain outstanding after the closing of this offering; |
| 357,283 shares of our Class B common stock issued in July 2017 upon the automatic net exercise of a warrant to purchase 375,000 shares of our Class B common stock outstanding as of June 30, 2017; |
| 4,256,161 additional shares of Class B common stock reserved for future issuance under our 2008 Equity Incentive Plan as of June 30, 2017 (without giving effect to options granted in August 2017), which shares will cease to be available for issuance at the time our 2017 Equity Incentive Plan becomes effective in connection with this offering; |
| 12,000,000 shares of Class A common stock reserved for future issuance under our 2017 Equity Incentive Plan, which will become effective upon the execution of the underwriting agreement for this offering, as well as (i) any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan and (ii) upon the expiration or termination prior to exercise of any shares of Class B common stock issuable upon the exercise of stock options outstanding under our 2008 Equity Incentive Plan, an equal number of shares of Class A common stock, such number of shares not to exceed 28,000,000; |
| 3,000,000 shares of Class A common stock reserved for future issuance under our 2017 Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this plan, which will become effective upon the execution of the underwriting agreement for this offering; and |
| 108,332 shares of Class B common stock issued in September 2017 in connection with an acquisition. |
A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share would increase (decrease) total consideration paid to us by new investors by $9.0 million and increase (decrease) the total consideration paid to us by new investors by 8% assuming the number of shares offered by us, as set forth on
54
the cover page of this prospectus, remains the same and without deducting underwriting discounts and commissions and estimated expenses payable by us.
Sales by selling stockholders in this offering will cause the number of shares held by existing stockholders to be reduced to 79,080,495 shares, or 83% of the total number of shares of our common stock outstanding following the completion of this offering, and will increase the number of shares held by new investors to 15,668,000 shares, or 17% of the total number of shares outstanding following the completion of this offering.
After giving effect to the sale of shares in this offering by us and the selling stockholders, if the underwriters exercise in full their option to purchase additional shares from us and the selling stockholders, the number of shares held by existing stockholders will be reduced to 78,080,295 shares, or 81% of the total number of shares of our common stock outstanding following the completion of this offering, and will increase the number of shares held by new investors to 18,018,200 shares, or 19% of the total number of shares outstanding following the completion of this offering.
To the extent that any outstanding options are exercised, new options are issued under our stock-based compensation plans or we issue additional shares of common stock in the future, including upon the exercise of outstanding warrants, there will be further dilution to investors participating in this offering. If all outstanding warrants and options under our 2008 Equity Incentive Plan as of June 30, 2017 were exercised, then our existing stockholders, including the holders of these warrants and options, would own 87% and new investors would own 13% of the total number of shares of Class A and Class B common stock outstanding upon the closing of this offering.
55
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
You should read the selected consolidated financial and other data together with the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated financial data included in this section are not intended to replace the consolidated financial statements and related notes included elsewhere in this prospectus.
We derived the consolidated statements of operations data for the fiscal years ended December 26, 2015 and December 31, 2016 and consolidated balance sheet data as of December 26, 2015 and December 31, 2016 from our audited financial statements included elsewhere in this prospectus. We derived the consolidated statements of operations data for the six months ended July 2, 2016 and June 30, 2017 and the consolidated balance sheet data as of June 30, 2017 from our unaudited consolidated interim financial statements and related notes included elsewhere in this prospectus. Our unaudited consolidated interim financial statements were prepared on the same basis as our audited consolidated financial statements and include, in our opinion, all adjustments, consisting of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those financial statements. Historical results are not necessarily indicative of the results that may be expected in the future and results for the six months ended June 30, 2017 are not necessarily indicative of results to be expected for the full fiscal year.
Prior to 2017, our fiscal year was the 52- or 53-week period that ends on the last Saturday of December. Our fiscal years 2015 and 2016 ended on December 26, 2015 and December 31, 2016, respectively. In 2017, we changed our fiscal year-end to match the calendar year-end. Fiscal year 2015 spanned 52 weeks and fiscal year 2016 spanned 53 weeks. The two fiscal quarters ending July 2, 2016 and June 30, 2017 spanned 27 weeks and 26 weeks, respectively, and references to the six months ended July 2, 2016 refer to the two fiscal quarters ended July 2, 2016, unless otherwise indicated.
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, |
December 31,
|
July 2, | June 30, | |||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||||||
Net revenue: |
||||||||||||||||
Player |
$ | 269,977 | $ | 293,929 | $ | 119,116 | $ | 117,329 | ||||||||
Platform |
49,880 | 104,720 | 43,140 | 82,391 | ||||||||||||
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|
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|
|||||||||
Total net revenue |
319,857 | 398,649 | 162,256 | 199,720 | ||||||||||||
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Cost of revenue: |
||||||||||||||||
Player (1) |
221,416 | 249,821 | 99,375 | 103,122 | ||||||||||||
Platform (1) |
8,663 | 27,783 | 12,549 | 20,121 | ||||||||||||
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|
|||||||||
Total cost of revenue |
230,079 | 277,604 | 111,924 | 123,243 | ||||||||||||
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Gross profit: |
||||||||||||||||
Player |
48,561 | 44,108 | 19,741 | 14,207 | ||||||||||||
Platform |
41,217 | 76,937 | 30,591 | 62,270 | ||||||||||||
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Total gross profit |
89,778 | 121,045 | 50,332 | 76,477 | ||||||||||||
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|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development (1) |
50,469 | 76,177 | 38,471 | 48,118 | ||||||||||||
Sales and marketing (1) |
45,153 | 52,888 | 26,245 | 28,722 | ||||||||||||
General and administrative (1) |
31,708 | 35,341 | 18,255 | 20,855 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total operating expenses |
127,330 | 164,406 | 82,971 | 97,695 | ||||||||||||
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|
56
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, | December 31, | July 2, | June 30, | |||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Loss from operations |
$ | (37,552 | ) | $ | (43,361 | ) | $ | (32,639 | ) | $ | (21,218 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense), net: |
||||||||||||||||
Interest expense |
(696 | ) | 146 | (131 | ) | (471 | ) | |||||||||
Change in fair value of preferred stock warrant liability |
(1,768 | ) | 888 | (394 | ) | (2,651 | ) | |||||||||
Other income (expense), net |
(448 | ) | (220 | ) | (25 | ) | 211 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(40,464 | ) | (42,547 | ) | (33,189 | ) | (24,129 | ) | ||||||||
Income tax expense |
147 | 211 | 53 | 86 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to common stockholders |
$ | (40,611 | ) | $ | (42,758 | ) | $ | (33,242 | ) | $ | (24,215 | ) | ||||
|
|
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|
|
|
|
|
|||||||||
Net loss per share attributable to common stockholdersbasic and diluted |
$ | (10.08 | ) | $ | (9.01 | ) | $ | (7.08 | ) | $ | (4.98 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average shares used in computing net loss per share attributable to common stockholdersbasic and diluted |
4,030,579 | 4,745,943 | 4,696,170 | 4,866,028 | ||||||||||||
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|
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|
|||||||||
Pro forma net loss per share attributable to common stockholders-basic and diluted (unaudited) (2) |
$ | (0.51 | ) | $ | (0.25 | ) | ||||||||||
|
|
|
|
|||||||||||||
Pro forma weighted-average shares used in computing pro forma net loss per share attributable to common stockholders-basic and diluted (unaudited) (2) |
85,590,081 | 85,710,166 | ||||||||||||||
|
|
|
|
|||||||||||||
Other Financial and Operational Data (unaudited): |
||||||||||||||||
Adjusted EBITDA (in thousands) (3) |
$ | (29,713 | ) | $ | (29,853 | ) | $ | (25,784 | ) | $ | (14,045 | ) | ||||
Hours Streamed (in millions) (4) |
5,498 | 9,351 | 4,172 | 6,742 | ||||||||||||
Active Accounts (in thousands) (5) |
9,179 | 13,383 | 10,552 | 15,116 | ||||||||||||
ARPU for the preceding four fiscal quarters (in dollars) (6) |
$ | 6.48 | $ | 9.28 | $ | 8.32 | $ | 11.22 |
(1) | Stock-based compensation was allocated as follows: |
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, | December 31, |
July 2, |
June 30, |
|||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Cost of player revenue |
$ | 90 | $ | 136 | $ | 58 | $ | 74 | ||||||||
Cost of platform revenue |
54 | 224 | 102 | 40 | ||||||||||||
Research and development |
1,685 | 2,766 | 1,273 | 1,881 | ||||||||||||
Sales and marketing |
1,678 | 2,292 | 1,157 | 1,291 | ||||||||||||
General and administrative |
1,777 | 2,788 | 1,415 | 1,307 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation |
$ | 5,284 | $ | 8,206 | $ | 4,005 | $ | 4,593 | ||||||||
|
|
|
|
|
|
|
|
(2) | See Note 11 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of basic and diluted net loss per common share and pro forma net loss per common share. |
(3) |
We define Adjusted EBITDA as net loss, plus: other (income) expense, net, stock-based compensation, depreciation and amortization, and income tax expense. See the section titled Non-GAAP Financial Measures below for a reconciliation between Adjusted EBITDA and net loss, the most directly comparable |
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generally accepted accounting principle, or GAAP, financial measure and a discussion about the limitations of Adjusted EBITDA. |
(4) | We define hours streamed as the aggregate amount of time users streamed content from channels on our platform in a given period including both channels installed from our channel stores and non-certified channels. Non-certified channels are channels that are accessed by users utilizing a code provided to the user by the content publisher, and are not found in the Roku Channel Store. In each of the periods presented hours streamed from non-certified channels comprised less than 8% of total hours streamed. Hours streamed are reported on a calendar basis. |
(5) | We define active accounts as the number of distinct user accounts that have streamed any content on our platform in the last 30 days of the period. Active accounts are reported on a calendar basis. |
(6) | We define average revenue per user as our platform revenue during the preceding four fiscal quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four fiscal quarters. |
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
Consolidated Balance Sheet Data: |
||||||||||||
Cash |
$ | 75,748 | $ | 34,562 | $ | 70,169 | ||||||
Total assets |
176,511 | 179,078 | 184,996 | |||||||||
Preferred stock warrant liability |
10,878 | 9,990 | 14,673 | |||||||||
Long-term debt, including current portion |
15,000 | 15,000 | 22,811 | |||||||||
Total liabilities |
123,067 | 159,722 | 185,166 | |||||||||
Convertible preferred stock |
213,180 | 213,180 | 213,180 | |||||||||
Total stockholders (deficit) equity |
(159,736 | ) | (193,824 | ) | (213,350 | ) |
Non-GAAP Financial Measures
Adjusted EBITDA
To provide investors with additional information about our financial results, we disclose within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We have provided below a reconciliation between Adjusted EBITDA and net income (loss), the most directly comparable GAAP financial measure.
We have included Adjusted EBITDA in this prospectus because it is a key measure we use to evaluate our operating performance, generate future operating plans and make strategic decisions for the allocation of capital. 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. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared in accordance with GAAP.
Some limitations of Adjusted EBITDA are:
| Adjusted EBITDA does not include other (income) expense, net, which primarily includes changes in fair value of warrants to purchase convertible preferred stock and interest expense; |
| Adjusted EBITDA does not include the impact of stock-based compensation; |
| Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash used for capital expenditures for such replacements or for new capital expenditures; |
| Adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us; and |
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| Other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure. |
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our financial results presented in accordance with GAAP. The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the periods indicated:
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(in thousands) |
||||||||||||||||
Reconciliation of Net Loss to Adjusted EBITDA: |
||||||||||||||||
Net loss |
$ | (40,611 | ) | $ | (42,758 | ) | $ | (33,242 | ) | $ | (24,215 | ) | ||||
Other (income) expense, net |
2,912 | (814 | ) | 550 | 2,911 | |||||||||||
Stock-based compensation |
5,284 | 8,206 | 4,005 | 4,593 | ||||||||||||
Depreciation and amortization |
2,555 | 5,302 | 2,850 | 2,580 | ||||||||||||
Income tax expense |
147 | 211 | 53 | 86 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | (29,713 | ) | $ | (29,853 | ) | $ | (25,784 | ) | $ | (14,045 | ) | ||||
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the related notes included elsewhere in this prospectus. In addition to historical consolidated financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Risk Factors and elsewhere in this prospectus.
Prior to 2017, our fiscal year was the 52- or 53-week period that ends on the last Saturday of December. Our fiscal years 2015 and 2016 ended on December 26, 2015 and December 31, 2016, respectively. In 2017, we changed our fiscal year-end to match the calendar year-end. Fiscal year 2015 spanned 52 weeks and fiscal year 2016 spanned 53 weeks. The two fiscal quarters ending July 2, 2016 and June 30, 2017 spanned 27 weeks and 26 weeks, respectively, and references to the six months ended July 2, 2016 refer to the two fiscal quarters ended July 2, 2016, unless otherwise indicated.
Overview
We pioneered streaming to the TV. Roku connects users to the streaming content they love, enables content publishers to build and monetize large audiences, and provides advertisers with unique capabilities to engage consumers. We do this at scale today. As of June 30, 2017, we had 15.1 million active accounts. By comparison, the fourth largest multichannel video programming distributor in the United States had approximately 13.3 million subscribers as of June 30, 2017. Our users streamed more than 6.7 billion hours on the Roku platform in the six months ended June 30, 2017, 62% growth from the six months ended June 30, 2016. TV streamings disruptive content distribution model is shifting billions of dollars of economic value. Roku is capitalizing on this large economic opportunity as a leading TV streaming platform for users, content publishers and advertisers.
Consumers win with TV streamingthey get a better user experience, more entertainment options and more control over what they spend on content. When users want to enjoy streaming entertainment, they start at the Roku home screen where we put users first by helping them find the content they want to watch. From our home screen, users can easily search, discover and access over 500,000 movies and TV episodes in the United States, as well as live sports, music, news and more. Users can also compare the price of content from various channels available on our platform and choose from ad-supported, subscription, and transactional video on-demand content. Consumers can personalize their content selection with cable TV replacement offerings and streaming services that suit their budget and needs.
Roku operates the number one TV streaming platform in the United States as measured by total hours streamed, according to a survey conducted in the first quarter of 2017 by Kantar Millward Brown that we commissioned. Content publishers and advertisers win with Roku because our large and growing user base simplifies their access to the fragmented and complex over the top, or OTT, market and we provide them with direct to consumer engagement and monetization opportunities. We provide our content publishers with access to the most engaged OTT audience, as measured by average hours streamed and the ability to monetize their content with advertising, subscription or transactional business models. Advertisers on our platform can reach our desirable OTT audience with ads that are more relevant, interactive and measurable than advertising delivered on traditional linear TV. Our growth in active accounts and hours streamed attracts more content publishers and advertisers to our TV streaming platform, creating a better user experience, which in turn attracts more users. As our platform improves for users, content publishers and advertisers, we grow average revenue per user, or ARPU.
While we currently generate a majority of our revenue from sales of our streaming players, our business model is to grow gross profit by increasing the number of active accounts and growing ARPU, which we believe
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represents the inherent value of our business model. We grow new accounts through three primary channels: we sell streaming players, we partner with TV brands through our Roku TV licensing program, and we have licensing relationships with service operators. The fastest growing source of new accounts comes from our licensing partner relationships which accounted for 42% of new accounts in 2016, up from 26% in 2015. We believe we have a significant opportunity to grow platform revenue and as we further monetize TV streaming hours we will increase ARPU. ARPU, which we define as our platform revenue during the preceding four fiscal quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four fiscal quarters, was $11.22 per active user in the period ended June 30, 2017 and $9.28 per active user in 2016, up 43% from $6.48 in 2015. Our success in growing ARPU will depend on our ability to increasingly generate platform revenue from content publishers and advertisers as we increase the number of active accounts.
We have achieved significant growth. In the six months ended June 30, 2017, we generated revenue of $199.7 million, up 23% from $162.3 million in the six months ended July 2, 2016. We generate player revenue from the sale of streaming players and platform revenue from advertising, content distribution, billing and licensing activities on our platform. We earn revenue as users engage on our platform and we intend to continue to grow platform revenue by further monetizing our TV streaming platform. In the six months ended June 30, 2017, player revenue represented 59% of total revenue and declined 2%, and platform revenue represented 41% of total revenue and grew 91% from the six months ended July 2, 2016.
In the six months ended June 30, 2017, we generated gross profit of $76.5 million, up 52% from $50.3 million in the six months ended July 2, 2016. In the six months ended June 30, 2017, player gross profit represented 19% of total gross profit and declined 28%, and platform gross profit represented 81% of total gross profit and grew 104%. We are strategically decreasing our streaming player average selling prices, or ASP, to expand our active accounts, which will also reduce our player gross margin. As a result, our player revenue may not increase as rapidly as it has historically or at all, and, unless we are able to adequately increase our platform revenue and grow our active accounts, we may be unable to grow gross profit and our business will be harmed. We expect to continue to make tradeoffs away from player gross profit in favor of platform gross profit to grow active accounts more rapidly and increase monetization. In the six months ended June 30, 2017 our net loss was $(24.2) million and our Adjusted EBITDA was $(14.0) million. In fiscal 2016 our net loss was $(42.8) million and our Adjusted EBITDA was $(29.9) million. See the section titled Non-GAAP Financial Measures below for a reconciliation between Adjusted EBITDA and net loss, the most directly comparable generally accepted accounting principle, or GAAP, financial measure and a discussion about the limitations of Adjusted EBITDA.
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Key Performance Metrics
We use the following key performance metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. Our key performance metrics are gross profit, active accounts, hours streamed and average revenue per user.
Gross Profit
We measure the performance of our business using gross profit, and we are focused on increasing gross profit. We currently generate positive gross profit on player revenue, however, the majority of our gross profit is generated from platform revenue. We believe gross profit is the primary metric to measure the performance of our business, because we have two revenue segments with different margin profiles, and we aim to maximize our high margin platform revenue from our active accounts as they stream content on our platform.
Gross Profit
(in millions)
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Active Accounts
We define active accounts as the number of distinct user accounts that have streamed content on our platform in the last 30 days of the period. The number of active accounts does not correspond to the number of unique individuals who actively utilize our platform or the number of devices associated with an account. For example, a single account may be used by more than one individual, such as a family, and one account may use multiple devices. We believe that the number of active accounts is a relevant measure to gauge the size of our user base and the opportunity to increase our platform revenue and gross profit.
Active Accounts
(in millions)
63
Hours Streamed
We define hours streamed as the aggregate amount of time users streamed content on our platform in a given period. We report hours streamed on a calendar basis. We believe the usage of our platform is an effective measure of user engagement and that the growth in the number of hours of content streamed across our platform reflects our success in addressing the growing user demand for TV streaming. However, our revenues from content providers are not tied to the hours streamed on their streaming channels, and the number of hours streamed does not correlate to revenue earned from such content providers or ARPU on a period-by-period basis. Additionally, increasing user engagement on our streaming platform increases our gross profit because we earn platform revenue by delivering advertising as well as generating revenue shares from subscription and transactional video on-demand partners as users engage with the Roku platform.
Quarterly Hours Streamed
(in billions)
64
Average Revenue per User
We define ARPU, as our platform revenue during the preceding four fiscal quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four fiscal quarters. We measure progress in our platform business using ARPU because it helps us understand the rate at which we are monetizing our active account base.
Average Revenue per User
Factors Affecting Our Performance
Rate of TV streaming and advertising shift to OTT
Consumers have significantly shifted their TV viewing behavior, and we believe all TV content will be available through streaming. Therefore, we also believe this presents a large market opportunity for streaming TV advertising. This is a critical component of our business model because our platform and player revenue, as well as our overall expense structure, is dependent on this shift. In addition, the number of hours streamed on our platform is a critical element of our business because hours determine our advertising inventory and sell through.
User acquisition strategy
Consumers become our users through three primary channels: Roku players, Roku TVs, or through a service operator we have a licensing relationship with. We monetize our user base through platform revenue. We do not optimize gross profit from the sale of our players, but we currently earn a positive gross profit on sales of our players. This is similar to a negative user acquisition cost. Player revenue and player gross profit may decrease over time as we strategically aim to acquire new customers through low cost player solutions.
Ability to grow and retain streaming hours
Growth in platform revenue, gross profit and ARPU will depend on growth in streaming hours. Since 2013, average quarterly streaming hours per user cohort have steadily increased over time and each subsequent cohort started engaging with our platform at a higher streaming hour base. For example, the average quarterly streaming hours per user for our 2013 cohort was initially 138 hours for the second quarter of 2013 and grew 11% annually through the fourth quarter of 2016. The average quarterly streaming hours per user for subsequent cohorts were initially 164 and 188 hours for the second quarter of 2014 and 2015, respectively, and increased annually at a similar annual rate through the fourth quarter of 2016. We have experienced high streaming hour retention, as
65
measured by total hours streamed, per cohort per year. We measure streaming hour retention for our 15 quarterly active account cohorts, dating back to the first quarter of 2013. In the three months ended June 30, 2017, the average streaming hour retention across all 15 cohorts was 96% compared to the three months ended March 31, 2017.
Ability to monetize users and streaming hours
Our business model depends on our ability to monetize user engagement with our platform. Content publishers distribute streaming content through subscription video on demand, or SVOD, advertising video on demand, or AVOD, and transactional video on demand, or TVOD models. Some content publishers utilize a combination of models. The majority of our streaming hours to date have been SVOD hours, in line with the current OTT market, where we can earn revenue from subscription revenue share or from display ads on our home screen or screen saver, but we do not monetize hours streamed. The fastest growing content monetization is AVOD, where we can monetize hours with video ads delivered to users as they stream content. In the six months ended June 30, 2017, hours streamed that included advertising grew to 2.9 billion, 76% growth from the six months ended June 30, 2016. We believe Roku is an important platform for advertising dollars that will be redeployed from traditional TV. Our ability to leverage our data to provide users with relevant ads and measure the effectiveness of these advertisements on our platform is also a key factor to an increased wallet share of advertising budgets spent on our platform. We evaluate the effectiveness of our AVOD offerings using a wide variety of metrics, including exposure (e.g., reach, frequency and video completion rates); demographics (e.g., what types of users we believe were exposed, including age, gender and income); top-funnel brand impact (e.g., aided/unaided recall, brand perception and purchase intent); and bottom-funnel brand impact (e.g., website visitation, store visitation and actual purchase). We conduct this evaluation through a combination of internal data and data collected through partnerships with outside research firms, all leveraging our knowledge of individual users and the fact that we serve ads on a 1:1 basis. When promoting content, such as through audience development, our typical metrics are ad impressions and clicks, channel downloads, visits, subscription trials, time spent in the channel and retention. While we have experienced, and expect to continue to experience, growth in our advertising revenue as we have expanded our user base and streaming hours, our efforts to monetize our platform through AVOD content are still developing and our revenue from AVOD offerings may not grow as we expect. This means of monetization will require us to continue to attract advertising dollars to our platform as well as deliver AVOD content that appeals to users.
Continued investment in growth
We believe that our future performance will depend on the success of the investments we have made, and will continue to make, to improve the value for users, content publishers and advertisers on our platform. We must regularly update and enrich the Roku platform to meet evolving consumer behavior and deliver a superior user experience. Further, it is important that we remain a frictionless platform for content delivery and invest to provide content publishers with best-in-class publishing tools and actionable audience insights. We must continue to innovate and invest in our advertising capabilities and technology so that we attract and encourage incremental advertising spend on our platform.
Competition
The market for streaming media is continuing to grow and evolve. We face substantial competition from large technology and consumer electronics companies, including Amazon, Apple and Google. These competitors have increased consumer awareness of TV streaming and contributed to the growth of the overall market, but their resources and brand recognition pose significant competitive challenges. Our success in capitalizing on the expanding opportunities in the streaming market will depend on our ability to continue to deliver high quality devices at competitive prices, in the face of this competition.
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Seasonality
We generate significantly higher levels of revenue and gross profit in the fourth quarter of the year. While both platform and player revenue experience seasonality, player revenue has historically been more seasonal than platform revenue, driven by the holiday shopping season. Fourth quarter revenue comprised 40% and 37% of our fiscal 2015 and 2016 total net revenue, respectively, and fourth quarter gross profit comprised 39% and 37% of our fiscal 2015 and 2016 gross profit, respectively.
Components of Results of Operations
Player Revenue
We generate player revenue from the sale of streaming players through consumer retail distribution channels, including major brick and mortar retailers, such as Best Buy and Walmart, and online retailers, primarily Amazon.com. In our international markets, we sell our players through wholesale distributors which, in turn, sell to retailers. We currently distribute our players in Canada, the United Kingdom, the Republic of Ireland and France. We generate most of our player revenue in the United States.
Platform Revenue
We generate platform revenue from advertising sales, subscription and transaction revenue share, sales of branded channel buttons on remote controls and licensing arrangements with TV brands and service operators. We generate most of our platform revenue in the United States. Our first-party video ad inventory includes native display ads on our home screen and screen saver, as well as ad inventory made available to us through our content publisher agreements. To satisfy existing demand, we can sell video advertising that we purchase from content publishers to supplement our first-party video ad inventory, and to a lesser extent, third-party video advertising on a revenue share basis from content publishers in our Roku Direct Publisher program.
Cost of Revenue
Cost of Player Revenue
Cost of player revenue is comprised of player manufacturing costs payable to third-party contract manufacturers, technology licenses or royalty fees, inbound and outbound freight, duty and logistics costs, third-party packaging and assembly costs, warranty costs, write-down for excess and obsolete inventory, allocated overhead costs related to facilities and customer support, and salary, benefit and stock-based compensation costs for operations personnel.
Cost of Platform Revenue
Cost of platform revenue consists of advertising inventory acquisition costs, payment processing fees, third-party cloud service fees and allocated personnel-related costs, including salaries, benefits and stock-based compensation for Roku personnel that support platform services, including advertising and billing operations, customer service, and our TV brands and our service operator licensees. We anticipate that cost of platform revenue will increase in absolute dollars.
Operating and Other Expenses
Research and Development
Research and development expenses consist primarily of personnel-related costs, including employee salaries, benefits and stock-based compensation for our engineers and other employees engaged in the development of our products including new technologies and features and functionality. In addition, research and development expenses include allocated facilities and overhead costs. We believe continued investment is important to attaining our strategic objectives and expect research and development expenses to increase in absolute dollars for the foreseeable future.
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Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related costs, including salaries, benefits, commissions and stock-based compensation expense for our employees engaged in sales and sales support, data science and analytics, business development, product management, marketing, communications, and partner and customer support functions. Sales and marketing expenses also include costs for marketing and public relations, channel merchandising, including point of purchase and in-store displays, trade shows and other events, professional services, travel and allocated facilities and other overhead. We expect our sales and marketing expenses to increase as we continue to grow our business.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative personnel. We expect our general and administrative expenses to increase following the completion of this offering due to the anticipated growth of our business and related infrastructure as well as accounting, legal, insurance, investor relations and other costs associated with becoming a public company.
Other Income (Expense), Net
Our other income (expense), net consists primarily of changes in the fair value of our convertible preferred stock warrant liability, interest expense on our debt, and foreign currency remeasurement and transaction gains and losses. As the underlying shares of our convertible preferred stock warrants are contingently redeemable, we account for these warrants as a liability at fair value and re-measure the value at each balance sheet date. Any change in the fair value is recognized as other income (expense), net in our consolidated statement of operations, until the earlier of the exercise of the warrants, or the completion of a deemed liquidation event, including an initial public offering. At that time, the convertible preferred stock warrant liability will be reclassified to stockholders equity.
Income Tax Expense
Our income tax expense consists primarily of income taxes in certain foreign jurisdictions where we conduct business and state minimum income taxes in the United States. We have a valuation allowance for deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development. We expect to maintain this valuation allowance for the foreseeable future.
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Results of Operations
The following table sets forth our results of operations for the periods presented.
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, |
December 31, |
July 2, |
June 30, |
|||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||||||
Net revenue: |
||||||||||||||||
Player |
$ | 269,977 | $ | 293,929 | $ | 119,116 | $ | 117,329 | ||||||||
Platform |
49,880 | 104,720 | 43,140 | 82,391 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net revenue |
319,857 | 398,649 | 162,256 | 199,720 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of revenue: |
||||||||||||||||
Player (1) |
221,416 | 249,821 | 99,375 | 103,122 | ||||||||||||
Platform (1) |
8,663 | 27,783 | 12,549 | 20,121 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Total cost of revenue |
230,079 | 277,604 | 111,924 | 123,243 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Gross profit: |
||||||||||||||||
Player |
48,561 | 44,108 | 19,741 | 14,207 | ||||||||||||
Platform |
41,217 | 76,937 | 30,591 | 62,270 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross profit |
89,778 | 121,045 | 50,332 | 76,477 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development (1) |
50,469 | 76,177 | 38,471 | 48,118 | ||||||||||||
Sales and marketing (1) |
45,153 | 52,888 | 26,245 | 28,722 | ||||||||||||
General and administrative (1) |
31,708 | 35,341 | 18,255 | 20,855 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
127,330 | 164,406 | 82,971 | 97,695 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(37,552 | ) | (43,361 | ) | (32,639 | ) | (21,218 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense), net: |
||||||||||||||||
Interest expense |
(696 | ) | 146 | (131 | ) | (471 | ) | |||||||||
Change in fair value of preferred stock warrant liability |
(1,768 | ) | 888 | (394 | ) | (2,651 | ) | |||||||||
Other income (expense), net |
(448 | ) | (220 | ) | (25 | ) | 211 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss before income taxes |
(40,464 | ) | (42,547 | ) | (33,189 | ) | (24,129 | ) | ||||||||
Income tax expense |
147 | 211 | 53 | 86 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to common stockholders |
$ | (40,611 | ) | $ | (42,758 | ) | $ | (33,242 | ) | $ | (24,215 | ) | ||||
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|
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|
(1) | Includes stock-based compensation as follows: |
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, |
December 31, |
July 2, |
June 30, |
|||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Cost of player revenue |
$ | 90 | $ | 136 | $ | 58 | $ | 74 | ||||||||
Cost of platform revenue |
54 | 224 | 102 | 40 | ||||||||||||
Research and development |
1,685 | 2,766 | 1,273 | 1,881 | ||||||||||||
Sales and marketing |
1,678 | 2,292 | 1,157 | 1,291 | ||||||||||||
General and administrative |
1,777 | 2,788 | 1,415 | 1,307 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total stock-based compensation |
$ | 5,284 | $ | 8,206 | $ | 4,005 | $ | 4,593 | ||||||||
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|
|
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|
|
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The following table sets forth our results of operations as a percentage of net revenue:
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, |
December 31, |
July 2, |
June 30, |
|||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
Net revenue: |
||||||||||||||||
Player |
84 | % | 74 | % | 73 | % | 59 | % | ||||||||
Platform |
16 | 26 | 27 | 41 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net revenue |
100 | 100 | 100 | 100 | ||||||||||||
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|
|||||||||
Cost of revenue: |
||||||||||||||||
Player |
69 | 63 | 61 | 52 | ||||||||||||
Platform |
3 | 7 | 8 | 10 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost of revenue |
72 | 70 | 69 | 62 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit: |
||||||||||||||||
Player |
15 | 11 | 12 | 7 | ||||||||||||
Platform |
13 | 19 | 19 | 31 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross profit |
28 | 30 | 31 | 38 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development |
16 | 19 | 24 | 24 | ||||||||||||
Sales and marketing |
14 | 13 | 16 | 14 | ||||||||||||
General and administrative |
10 | 9 | 11 | 11 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
40 | 41 | 51 | 49 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(12 | ) | (11 | ) | (20 | ) | (11 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense), net: |
||||||||||||||||
Interest expense |
| | 0 | 0 | ||||||||||||
Change in fair value of convertible preferred stock warrants |
(1 | ) | | 0 | (1 | ) | ||||||||||
Other income (expense), net |
| | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss before income taxes |
(13 | ) | (11 | ) | (20 | ) | (12 | ) | ||||||||
Income tax expense |
| | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to common stockholders |
(13 | )% | (11 | )% | (20 | )% | (12 | )% | ||||||||
|
|
|
|
|
|
|
|
Comparison of Six Months Ended July 2, 2016 and June 30, 2017
Net Revenue
Six Months Ended | ||||||||||||||||
July 2, | June 30, | |||||||||||||||
2016 | 2017 | Change $ | Change % | |||||||||||||
(dollars in thousands) |
||||||||||||||||
Player, net |
$ | 119,116 | $ | 117,329 | ($ | 1,787 | ) | (2 | )% | |||||||
Platform |
43,140 | 82,391 | 39,251 | 91 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total net revenue |
$ | 162,256 | $ | 199,720 | $ | 37,464 | 23 | % | ||||||||
|
|
|
|
|
|
Player
Player revenue decreased 2% from $119.1 million in the six months ended July 2, 2016 to $117.3 million in the six months ended June 30, 2017. A 37% increase in the volume of players sold was offset by a 29% decrease
70
in average selling prices, driven primarily by sales of our lower priced Roku Express which was introduced in the third quarter of 2016, and by an increase in sales incentives, including $0.7 million in sales incentives to sell inventory in other sales channels due to the Mexico sales ban.
Platform
Platform revenue increased 91% from $43.1 million in the six months ended July 2, 2016 to $82.4 million in the six months ended June 30, 2017. The increase was primarily due to higher advertising and subscription and transaction revenue share of $38.4 million, as we expanded our advertising sales operations and increased our advertising inventory, and from an increase in the number of paid subscriptions. In addition, fees earned from license arrangements with TV brands increased by $1.5 million while fees earned from arrangements with service operators decreased by $0.7 million.
Cost of Revenue
Six Months Ended | Change $ | Change % | ||||||||||||||
July 2, | June 30, | |||||||||||||||
2016 | 2017 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of revenue: |
||||||||||||||||
Player |
$ | 99,375 | $ | 103,122 | $ | 3,747 | 4 | % | ||||||||
Platform |
12,549 | 20,121 | 7,572 | 60 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total cost of revenue |
$ | 111,924 | $ | 123,243 | $ | 11,319 | 10 | % | ||||||||
|
|
|
|
|
|
|||||||||||
Gross profit: |
||||||||||||||||
Player |
$ | 19,741 | $ | 14,207 | ($ | 5,534 | ) | (28 | )% | |||||||
Platform |
30,591 | 62,270 | 31,679 | 104 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Gross Profit |
$ | 50,332 | $ | 76,477 | $ | 26,145 | 52 | % | ||||||||
|
|
|
|
|
|
Player
Cost of player revenue increased 4% from $99.4 million in the six months ended July 2, 2016 to $103.1 million in the six months ended June 30, 2017. Cost of player revenue increased on an absolute dollar basis primarily due to a 37% increase in the number of players sold. In addition, we incurred a charge of $1.0 million for the write-down of inventory on hand and on order due to the Mexico sales ban. The increase in cost of player revenue was partially offset by a reduction in direct manufacturing costs for most of our players.
Gross profit on player sales decreased 28% from $19.7 million in the six months ended July 2, 2016 to $14.2 million in the six months ended June 30, 2017. The decrease was primarily due to higher sales volumes of lower priced players, such as the Roku Express, and by an increase in sales incentives.
Platform
Cost of platform revenue increased 60% from $12.5 million in the six months ended July 2, 2016 to $20.1 million in the six months ended June 30, 2017. This increase was driven by higher inventory acquisition costs and credit card processing fees totaling $4.5 million and a $2.1 million increase in allocated overhead primarily in service operator support and advertising operations driven by the growth of our platform business.
Gross profit on platform revenue increased 104% from $30.6 million in the six months ended July 2, 2016 to $62.3 million in the six months ended June 30, 2017, primarily driven by strong growth in advertising demand.
71
Operating Expenses
Six Months Ended | Change $ | Change % | ||||||||||||||
July 2, | June 30, | |||||||||||||||
2016 | 2017 | |||||||||||||||
Research and development |
$ | 38,471 | $ | 48,118 | $ | 9,647 | 25 | % | ||||||||
Sales and marketing |
26,245 | 28,722 | 2,477 | 9 | ||||||||||||
General and administrative |
18,255 | 20,855 | 2,600 | 14 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expenses |
$ | 82,971 | $ | 97,695 | $ | 14,724 | 18 | % | ||||||||
|
|
|
|
|
|
Research and Development
Research and development expenses increased 25% from $38.5 million in the six months ended July 2, 2016 to $48.1 million in the six months ended June 30, 2017. The increase was primarily due to higher personnel-related costs of $10.8 million as a result of increased headcount for engineering and platform development. The increase in personnel-related costs was partially offset by lower facilities expenses of $2.1 million. In the six months ended July 2, 2016, we incurred $2.7 million in allocated lease exit costs associated with the move of our corporate headquarters.
Sales and Marketing
Sales and marketing expenses increased 9% from $26.2 million in the six months ended July 2, 2016 to $28.7 million in the six months ended June 30, 2017. The increase was primarily due to higher personnel-related costs of $3.9 million as a result of increased headcount in connection with the growth of our advertising sales organization and data science team. The increase was partially offset by lower retail marketing costs of $1.0 million and lower facilities expenses of $0.5 million, primarily related to allocated lease exit costs associated with the move of our corporate headquarters, in the six months ended July 2, 2016.
General and Administrative
General and administrative expenses increased 14% from $18.3 million in the six months ended July 2, 2016 to $20.9 million in the six months ended June 30, 2017. The increase was primarily due to higher personnel-related costs of $1.7 million as a result of increased headcount in finance and human resources and other professional service expenses of $0.7 million.
Other Income (Expense), Net
Six Months Ended | Change $ | |||||||||||
July 2, | June 30, | |||||||||||
2016 | 2017 | |||||||||||
(in thousands) | ||||||||||||
Interest expense |
$ | (131 | ) | $ | (471 | ) | $ | (340 | ) | |||
Change in fair value of convertible preferred stock warrants |
(394 | ) | (2,651 | ) | (2,257 | ) | ||||||
Other income (expense), net |
(25 | ) | 211 | 236 | ||||||||
|
|
|
|
|
|
|||||||
Total other income (expense), net |
$ | (550 | ) | $ | (2,911 | ) | $ | (2,361 | ) | |||
|
|
|
|
|
|
Other income (expense), net, increased from $0.6 million in the six months ended July 2, 2016 to $2.9 million in the six months ended June 30, 2017. The increase was primarily due to an increase in the fair value of warrants to purchase convertible preferred stock.
72
Income Tax Expense
Six Months Ended | Change $ | |||||||||||
July 2, | June 30, | |||||||||||
2016 | 2017 | |||||||||||
(dollars in thousands) | ||||||||||||
Income tax expense |
$ | 53 | $ | 86 | $ | 33 |
Income tax expense is comprised of foreign income taxes and state minimum income taxes in the United States.
Comparison of Fiscal Years Ended December 26, 2015 and December 31, 2016
Net Revenue
Fiscal Year Ended | Change $ | Change % | ||||||||||||||
December 26, |
December 31, |
|||||||||||||||
2015 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Player |
$ | 269,977 | $ | 293,929 | $ | 23,952 | 9 | % | ||||||||
Platform |
49,880 | 104,720 | 54,840 | 110 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total net revenue |
$ | 319,857 | $ | 398,649 | $ | 78,792 | 25 | % | ||||||||
|
|
|
|
|
|
Player
Player revenue increased 9% from $270.0 million in fiscal 2015 to $293.9 million in fiscal 2016. The increase was driven primarily by an 18% increase in the volume of players sold, offset by a 10% decrease in average selling prices driven primarily by sales of our lower priced players.
Platform
Platform revenue increased 110% from $49.9 million in fiscal 2015 to $104.7 million in fiscal 2016. The increase was primarily due to higher advertising and subscription revenue share of $48.9 million, as we expanded our advertising sales operations and an increased revenue share from an increase of subscriptions through our platform. In addition, we generated an additional $4.6 million in fees earned from license arrangements with service operators.
Cost of Revenue
Fiscal Year Ended | Change $ | Change % | ||||||||||||||
December 26, |
December 31, |
|||||||||||||||
2015 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of revenue: |
||||||||||||||||
Player |
$ | 221,416 | $ | 249,821 | $ | 28,405 | 13% | |||||||||
Platform |
8,663 | 27,783 | 19,120 | 221 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total cost of revenue |
$ | 230,079 | $ | 277,604 | $ | 47,525 | 21% | |||||||||
|
|
|
|
|
|
|||||||||||
Gross profit: |
||||||||||||||||
Player |
$ | 48,561 | $ | 44,108 | $ | (4,453 | ) | (9)% | ||||||||
Platform |
41,217 | 76,937 | 35,720 | 87 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total gross profit |
$ | 89,778 | $ | 121,045 | $ | 31,267 | 35% | |||||||||
|
|
|
|
|
|
73
Player
Cost of player revenue increased 13% from $221.4 million in fiscal 2015 to $249.8 million in fiscal 2016. Cost of player revenue increased on an absolute dollar basis primarily due to the 18% increase in the volume of players sold and, to a lesser extent, to increased provisions for inventory reserves and excess component liabilities, resulting from product transitions and to increased royalty costs arising from the execution of a patent and technology license agreement with a patent owner that included a release of potential claims for past liabilities. The increase in cost of player revenue was partially offset by a reduction in direct manufacturing costs for most players.
Gross profit on player sales decreased 9% from $48.6 million in fiscal 2015 to $44.1 million in fiscal 2016. The decrease was primarily due to higher volume mix of lower margin players in addition to the items noted above.
Platform
Cost of platform revenue increased 221% from $8.7 million in fiscal 2015 to $27.8 million fiscal 2016. The increase was primarily due to higher costs incurred to acquire advertising inventory, an increase in credit card processing and other fees related to the growth of our platform billing services, and higher allocated overhead primarily in advertising operations, customer support, service operator support and third-party cloud service fees.
Gross profit on platform revenue increased 87% from $41.2 million in fiscal 2015 to $76.9 million in fiscal 2016.
Operating Expenses
Fiscal Year Ended | Change $ | Change % | ||||||||||||||
December 26, |
December 31, |
|||||||||||||||
2015 | 2016 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||
Research and development |
$ | 50,469 | $ | 76,177 | $ | 25,708 | 51 | % | ||||||||
Sales and marketing |
45,153 | 52,888 | 7,735 | 17 | ||||||||||||
General and administrative |
31,708 | 35,341 | 3,633 | 11 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expenses |
$ | 127,330 | $ | 164,406 | $ | 37,076 | 29 | % | ||||||||
|
|
|
|
|
|
Research and Development
Research and development expenses increased 51% from $50.5 million in fiscal 2015 to $76.2 million in fiscal 2016. The increase was primarily due to higher personnel-related costs of $19.3 million as a result of the hiring of additional engineering and platform development personnel, higher facility expenses of $5.3 million from our expanded engineering facilities in the United States, United Kingdom and China, and higher consulting expenses of $1.1 million.
Sales and Marketing
Sales and marketing expenses increased 17% from $45.2 million in fiscal 2015 to $52.9 million in fiscal 2016. The increase was primarily due to higher personnel-related costs of $8.5 million due to an increase in headcount in connection with the expansion of our platform business and marketing, as well as $2.4 million of higher facilities expenses. These increases were partially offset by a decrease in product marketing spending.
General and Administrative
General and administrative expenses increased 11% from $31.7 million in fiscal 2015 to $35.3 million in fiscal 2016. The increase was primarily due to higher personnel-related costs of $5.3 million as a result of
74
increased headcount in finance, legal and human resources, in addition to other professional and outside service expenses of $1.3 million. These increases were largely incurred to support the growth in our business. These increases were partially offset by the recovery of a bad debt originally written off in fiscal 2015.
Other Income (Expense), Net
Fiscal Year Ended | Change $ | |||||||||||
December 26, | December 31, | |||||||||||
2015 | 2016 | |||||||||||
(in thousands) | ||||||||||||
Interest expense |
$ | (696 | ) | $ | 146 | $ | 842 | |||||
Change in fair value of convertible preferred stock warrants |
(1,768 | ) | 888 | 2,656 | ||||||||
Other income, net |
(448 | ) | (220 | ) | 228 | |||||||
|
|
|
|
|
|
|||||||
Total other income (expense), net |
$ | (2,912 | ) | $ | 814 | $ | 3,726 | |||||
|
|
|
|
|
|
Other income (expense), net decreased from a $2.9 million net charge in fiscal 2015 to a $0.8 million net credit in fiscal 2016. The decrease was primarily due to lower expenses related to changes in fair value of warrants to purchase convertible preferred stock and a decrease in interest expense due to lower balances on borrowings under our credit facilities.
Income Tax Expense
Fiscal Year Ended | Change $ | |||||||||||
December 26, | December 31, | |||||||||||
2015 | 2016 | |||||||||||
(dollars in thousands) | ||||||||||||
Income tax expense |
$ | 147 | $ | 211 | $ | 64 |
The increase in income tax expense in fiscal 2016 was primarily due to foreign income taxes and higher state minimum income taxes in the United States.
75
Unaudited Quarterly Results of Operations Data
The following tables set forth our unaudited quarterly consolidated statements of operations data in dollars and as a percentage of revenue, as well as other financial and operational data, for each of the ten quarters ended June 30, 2017. The fiscal quarter ended April 2, 2016 spanned 14 weeks and all other quarters spanned 13 weeks. We have prepared the quarterly data on a basis consistent with the audited consolidated financial statements included in this prospectus. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of this data. This information should be read in conjunction with the audited financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results for any future period.
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
Mar 28,
2015 |
Jun 27,
2015 |
Sep 26,
2015 |
Dec 26,
2015 |
Apr 2,
2016 |
Jul 2,
2016 |
Oct 1,
2016 |
Dec 31,
2016 |
Mar 31,
2017 |
Jun 30,
2017 |
|||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||||||||||||||||||||||||||||||
Net revenue: |
||||||||||||||||||||||||||||||||||||||||
Player |
$ | 54,869 | $ | 52,937 | $ | 55,863 | $ | 106,308 | $ | 58,901 | $ | 60,215 | $ | 64,789 | $ | 110,024 | $ | 63,678 | $ | 53,651 | ||||||||||||||||||||
Platform |
8,787 | 10,233 | 10,732 | 20,128 | 19,546 | 23,594 | 24,264 | 37,316 | 36,415 | 45,976 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total net revenue |
63,656 | 63,170 | 66,595 | 126,436 | 78,447 | 83,809 | 89,053 | 147,340 | 100,093 | 99,627 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||||||||||||||||||
Player (1) |
44,866 | 42,000 | 47,260 | 87,290 | 47,904 | 51,471 | 56,156 | 94,290 | 52,910 | 50,212 | ||||||||||||||||||||||||||||||
Platform (1) |
1,141 | 1,351 | 1,874 | 4,297 | 5,287 | 7,262 | 6,847 | 8,387 | 8,343 | 11,778 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total cost of revenue |
46,007 | 43,351 | 49,134 | 91,587 | 53,191 | 58,733 | 63,003 | 102,677 | 61,253 | 61,990 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Gross profit: |
||||||||||||||||||||||||||||||||||||||||
Player |
10,003 | 10,937 | 8,603 | 19,018 | 10,997 | 8,744 | 8,633 | 15,734 | 10,768 | 3,439 | ||||||||||||||||||||||||||||||
Platform |
7,646 | 8,882 | 8,858 | 15,831 | 14,259 | 16,332 | 17,417 | 28,929 | 28,072 | 34,198 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total gross profit |
17,649 | 19,819 | 17,461 | 34,849 | 25,256 | 25,076 | 26,050 | 44,663 | 38,840 | 37,637 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||
Research and development (1) |
10,877 | 11,691 | 13,493 | 14,408 | 20,059 | 18,412 | 18,229 | 19,477 | 22,342 | 25,776 | ||||||||||||||||||||||||||||||
Sales and marketing (1) |
9,778 | 10,516 | 11,842 | 13,017 | 14,284 | 11,961 | 12,844 | 13,799 | 14,055 | 14,667 | ||||||||||||||||||||||||||||||
General and administrative (1) |
6,921 | 6,386 | 8,097 | 10,304 | 9,883 | 8,372 | 9,078 | 8,008 | 10,278 | 10,577 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total operating expenses |
27,576 | 28,593 | 33,432 | 37,729 | 44,226 | 38,745 | 40,151 | 41,284 | 46,675 | 51,020 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Income (loss) from operations |
(9,927 | ) | (8,774 | ) | (15,971 | ) | (2,880 | ) | (18,970 | ) | (13,669 | ) | (14,101 | ) | 3,379 | (7,835 | ) | (13,383 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Other income (expense), net: |
||||||||||||||||||||||||||||||||||||||||
Interest expense |
(202 | ) | (173 | ) | (139 | ) | (182 | ) | (99 | ) | (32 | ) | (32 | ) | 309 | (167 | ) | (304 | ) | |||||||||||||||||||||
Change in fair value of convertible preferred stock warrants |
(447 | ) | (50 | ) | (1,261 | ) | (10 | ) | | (394 | ) | 1,481 | (199 | ) | (735 | ) | (1,916 | ) | ||||||||||||||||||||||
Other income (expense), net |
(237 | ) | 229 | (261 | ) | (179 | ) | (40 | ) | 15 | (41 | ) | (154 | ) | 83 | 128 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total other income (expense), net |
(886 | ) | 6 | (1,661 | ) | (371 | ) | (139 | ) | (411 | ) | 1,408 | (44 | ) | (819 | ) | (2,092 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) before income taxes |
(10,813 | ) | (8,768 | ) | (17,632 | ) | (3,251 | ) | (19,109 | ) | (14,080 | ) | (12,693 | ) | 3,335 | (8,654 | ) | (15,475 | ) | |||||||||||||||||||||
Income tax expense |
43 | 36 | 35 | 33 | 24 | 29 | 50 | 108 | 48 | 38 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) attributable to common stockholders |
$ | (10,856 | ) | $ | (8,804 | ) | $ | (17,667 | ) | $ | (3,284 | ) | $ | (19,133 | ) | $ | (14,109 | ) | $ | (12,743 | ) | $ | 3,227 | $ | (8,702 | ) | $ | (15,513 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Other Financial and Operational Data (unaudited): |
||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA (in thousands) (2) |
$ | (8,458 | ) | $ | (6,888 | ) | $ | (13,791 | ) | $ | (576 | ) | $ | (14,868 | ) | $ | (10,916 | ) | $ | (10,739 | ) | $ | 6,670 | $ | (4,413 | ) | $ | (9,632 | ) | |||||||||||
Hours streamed (in millions) (3) |
1,208 | 1,265 | 1,414 | 1,611 | 1,997 | 2,175 | 2,396 | 2,783 | 3,263 | 3,479 | ||||||||||||||||||||||||||||||
Active accounts (in thousands) (4) |
6,838 | 7,230 | 7,633 | 9,179 | 10,006 | 10,552 | 11,278 | 13,383 | 14,208 | 15,116 | ||||||||||||||||||||||||||||||
ARPU for the preceding four fiscal quarters (in dollars) (5) |
$ | 5.40 | $ | 5.73 | $ | 6.11 | $ | 6.48 | $ | 7.20 | $ | 8.32 | $ | 9.26 | $ | 9.28 | $ | 10.04 | $ | 11.22 |
76
(1) | Includes stock based compensation as follows: |
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
Mar 28,
2015 |
Jun 27,
2015 |
Sep 26,
2015 |
Dec 26,
2015 |
Apr 2,
2016 |
Jul 2,
2016 |
Oct 1,
2016 |
Dec 31,
2016 |
Mar 31,
2017 |
Jun 30,
2017 |
|||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||
Cost of player revenue |
$ | 27 | $ | 27 | $ | 10 | $ | 26 | $ | 36 | $ | 22 | $ | 30 | $ | 48 | $ | 36 | $ | 38 | ||||||||||||||||||||
Cost of platform revenue |
8 | 9 | 8 | 29 | 49 | 53 | 63 | 59 | 21 | 19 | ||||||||||||||||||||||||||||||
Research and development |
296 | 425 | 491 | 473 | 625 | 648 | 651 | 842 | 888 | 993 | ||||||||||||||||||||||||||||||
Sales and marketing |
247 | 441 | 515 | 475 | 583 | 574 | 580 | 555 | 601 | 690 | ||||||||||||||||||||||||||||||
General and administrative |
312 | 354 | 530 | 581 | 725 | 690 | 687 | 686 | 629 | 678 | ||||||||||||||||||||||||||||||
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Total stock-based compensation |
$ | 890 | $ | 1,256 | $ | 1,554 | $ | 1,584 | $ | 2,018 | $ | 1,987 | $ | 2,011 | $ | 2,190 | $ | 2,175 | $ | 2,418 | ||||||||||||||||||||
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(2) | We define Adjusted EBITDA as net income (loss), plus: other (income) expense, net, stock-based compensation, depreciation and amortization, and income tax expense. See Adjusted EBITDA in the section titled Selected Consolidated Financial and Other Data for more information. |
(3) | We define hours streamed as the aggregate amount of time users streamed content from channels on our platform in a given period including both channels installed from our channel stores and non-certified channels. Non-certified channels are channels that are accessed by users utilizing a code provided to the user by the content publisher and are not found in the Roku Channel Store. In each of the periods presented, hours streamed from non-certified channels comprised less than 8% of total hours streamed. Hours streamed are reported on a calendar basis. |
(4) | We define active accounts as the number of distinct user accounts that have streamed any content on our platform in the last 30 days of the period. Active accounts are reported on a calendar basis. |
(5) | We define average revenue per user as our platform revenue during the preceding four fiscal quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four fiscal quarters. |
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
Mar 28,
2015 |
Jun 27,
2015 |
Sep 26,
2015 |
Dec 26,
2015 |
Apr 2,
2016 |
Jul 2,
2016 |
Oct 1,
2016 |
Dec 31,
2016 |
Mar 31,
2017 |
Jun 30,
2017 |
|||||||||||||||||||||||||||||||
(percentage values) | ||||||||||||||||||||||||||||||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||||||||||||||||||||||||||||||
Net revenue: |
||||||||||||||||||||||||||||||||||||||||
Player |
86 | % | 84 | % | 84 | % | 84 | % | 75 | % | 72 | % | 73 | % | 75 | % | 64 | % | 54 | % | ||||||||||||||||||||
Platform |
14 | 16 | 16 | 16 | 25 | 28 | 27 | 25 | 36 | 46 | ||||||||||||||||||||||||||||||
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Total net revenue |
100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||||||||||||||
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Cost of revenue: |
||||||||||||||||||||||||||||||||||||||||
Player |
70 | 66 | 71 | 69 | 61 | 61 | 63 | 64 | 53 | 50 | ||||||||||||||||||||||||||||||
Platform |
2 | 2 | 3 | 3 | 7 | 9 | 8 | 6 | 8 | 12 | ||||||||||||||||||||||||||||||
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Total cost of revenue |
72 | 68 | 74 | 72 | 68 | 70 | 71 | 70 | 61 | 62 | ||||||||||||||||||||||||||||||
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Gross profit: |
||||||||||||||||||||||||||||||||||||||||
Player |
16 | 18 | 13 | 15 | 14 | 11 | 10 | 11 | 11 | 4 | ||||||||||||||||||||||||||||||
Platform |
12 | 14 | 13 | 13 | 18 | 19 | 19 | 19 | 28 | 34 | ||||||||||||||||||||||||||||||
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Total gross profit |
28 | 32 | 26 | 28 | 32 | 30 | 29 | 30 | 39 | 38 | ||||||||||||||||||||||||||||||
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Operating expenses: |
||||||||||||||||||||||||||||||||||||||||
Research and development |
17 | 19 | 20 | 11 | 26 | 22 | 20 | 13 | 22 | 26 | ||||||||||||||||||||||||||||||
Sales and marketing |
15 | 17 | 18 | 10 | 18 | 14 | 14 | 9 | 14 | 15 | ||||||||||||||||||||||||||||||
General and administrative |
11 | 10 | 12 | 8 | 13 | 10 | 10 | 5 | 10 | 11 | ||||||||||||||||||||||||||||||
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Total operating expenses |
43 | 46 | 50 | 29 | 57 | 46 | 44 | 27 | 46 | 52 | ||||||||||||||||||||||||||||||
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Income (loss) from operations |
(15 | ) | (14 | ) | (24 | ) | (1 | ) | (25 | ) | (16 | ) | (15 | ) | 3 | (7 | ) | (14 | ) | |||||||||||||||||||||
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77
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
Mar 28,
2015 |
Jun 27,
2015 |
Sep 26,
2015 |
Dec 26,
2015 |
Apr 2,
2016 |
Jul 2,
2016 |
Oct 1,
2016 |
Dec 31,
2016 |
Mar 31,
2017 |
Jun 30,
2017 |
|||||||||||||||||||||||||||||||
(percentage values) | ||||||||||||||||||||||||||||||||||||||||
Other income (expense), net: |
||||||||||||||||||||||||||||||||||||||||
Interest expense |
| | | | | | | | | 0 | ||||||||||||||||||||||||||||||
Change in fair value of preferred stock warrant liability |
(1 | ) | | (2 | ) | | | | 2 | | (1 | ) | (2 | ) | ||||||||||||||||||||||||||
Other income (expense), net |
| | | | | | | | | |||||||||||||||||||||||||||||||
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|||||||||||||||||||||
Total other income (expense), net |
(1 | ) | | (2 | ) | | | | 2 | | (1 | ) | (2 | ) | ||||||||||||||||||||||||||
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Net income (loss) before income taxes |
(16 | ) | (14 | ) | (26 | ) | (1 | ) | (25 | ) | (16 | ) | (13 | ) | 3 | (8 | ) | (16 | ) | |||||||||||||||||||||
Income tax expense |
| | | | | | | | | |||||||||||||||||||||||||||||||
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Net income (loss) attributable to common stockholders |
(16 | )% | (14 | )% | (26 | )% | (1 | )% | (25 | )% | (16 | )% | (13 | )% | 3 | % | (8 | )% | (16 | )% | ||||||||||||||||||||
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Quarterly Trends and Seasonality
Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors including the seasonality of our business, advertising spend by marketers and the economic cycles that influence consumer retail purchasing cycles. Our business is affected by the behavior of consumers, advertisers, economic conditions, competitive pressures and our operational decisions and related timelines, which includes the release of new products, 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.
Revenue
Generally, both player and platform revenue are highest in the fourth quarter of our fiscal year, which coincides with the winter holiday shopping and advertising season. We believe that this seasonality will continue to have a strong impact on our quarterly revenue. This includes retail sales of our players as well as advertising and user transactions on our billing platform. We also experience higher revenue in quarters in which we introduce new retail players such as the Roku 4 in the fourth quarter of fiscal 2015 and the Roku Express in the third quarter of fiscal 2016. Platform revenue growth has been driven by advertising through the development of new advertising products and delivery and measurement capabilities.
Cost of Revenue
Cost of revenue also follows a seasonal trend with the highest levels of cost in the fourth quarter of our fiscal year which coincides with the winter holiday shopping and advertising season. Mix affects both the player and platform segments in the form of the unit mix of players sold and the mix of advertising inventory available to us versus what we need to acquire from third parties.
Gross profit margin increased from the second quarter of fiscal 2015 to the second quarter of fiscal 2016 and to the second quarter of fiscal 2017 primarily due to a higher mix of platform revenue that carries a significantly higher gross margin.
Operating Expenses
Operating expense increased for the quarterly periods presented primarily due to increased personnel related expenses and corporate infrastructure costs to support our growth. As a percentage of revenue, operating expenses are lowest in the fourth quarter due to seasonally high revenue. Higher operating expenses in the first quarter of fiscal 2016 were the result of expenses related to the move to our new headquarters in Los Gatos, California.
78
Non-GAAP Financial Measures
The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP:
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
Mar 28,
2015 |
Jun 27,
2015 |
Sep 26,
2015 |
Dec 26,
2015 |
Apr 2,
2016 |
Jul 2,
2016 |
Oct 1,
2016 |
Dec 31,
2016 |
Mar 31,
2017 |
Jun 30,
2017 |
|||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||
Reconciliation of Net Loss to Adjusted EBITDA: |
||||||||||||||||||||||||||||||||||||||||
Net income (loss) |
$ | (10,856 | ) | $ | (8,804 | ) | $ | (17,667 | ) | $ | (3,284 | ) | $ | (19,133 | ) | $ | (14,109 | ) | $ | (12,743 | ) | $ | 3,227 | $ | (8,702 | ) | $ | (15,513 | ) | |||||||||||
Other (income) expense, net |
886 | (6 | ) | 1,661 | 371 | 139 | 411 | (1,408 | ) | 44 | 819 | 2,092 | ||||||||||||||||||||||||||||
Stock-based compensation |
890 | 1,256 | 1,554 | 1,584 | 2,018 | 1,987 | 2,011 | 2,190 | 2,175 | 2,418 | ||||||||||||||||||||||||||||||
Depreciation and amortization |
579 | 630 | 626 | 720 | 2,084 | 766 | 1,351 | 1,101 | 1,247 | 1,333 | ||||||||||||||||||||||||||||||
Income tax expense |
43 | 36 | 35 | 33 | 24 | 29 | 50 | 108 | 48 | 38 | ||||||||||||||||||||||||||||||
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Adjusted EBITDA (1) |
$ | (8,458 | ) | $ | (6,888 | ) | $ | (13,791 | ) | $ | (576 | ) | $ | (14,868 | ) | $ | (10,916 | ) | $ | (10,739 | ) | $ | 6,670 | $ | (4,413 | ) | $ | (9,632 | ) | |||||||||||
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(1) | We define Adjusted EBITDA as net income (loss), plus: other (income) expense, net, stock-based compensation, depreciation and amortization, and income tax expense. See Adjusted EBITDA in the section titled Selected Consolidated Financial and Other Data for more information. |
Liquidity and Capital Resources
To date, we have financed our operations primarily through cash generated from operations, private sales of equity and debt securities and borrowings under our credit facilities. As of June 30, 2017, we had cash of $70.2 million. We believe that our existing cash together with cash proceeds from our operations and amounts available under our credit facilities will be sufficient to meet our anticipated cash needs for at least the next twelve months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new players and platform features, the continuing market acceptance of our players, advertising platform and other platform services, as well as overall economic conditions. If we raise additional funds through future issuances of equity or convertible debt securities, our then existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure 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. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected. Other than as noted below, there are no known material subsequent events that could have a material impact on our cash or liquidity.
As of June 30, 2017, less than 1% of our cash was held outside the United States. These amounts were primarily held in the United Kingdom and are utilized to fund our foreign operations. The amount of unremitted earnings related to our foreign subsidiaries is not material.
79
Silicon Valley Bank Loan and Security Agreements
In November 2014, we and Silicon Valley Bank entered into a loan and security agreement, or the 2014 Loan Agreement. The 2014 Loan Agreement provides for a $30.0 million revolving line of credit with a $5.0 million sublimit for letters of credit, and the availability of borrowings is subject to borrowing base limitations. The 2014 Loan Agreement provides for a lien on all of our assets, including intellectual property.
In May 2015, we entered into a first amendment to the 2014 Loan Agreement extending the revolving line to June 30, 2017. Advances carry a floating per annum interest rate equal to the prime rate or the prime rate plus 2.5% if the adjusted quick ratio (calculated as the sum of cash maintained with Silicon Valley Bank or its affiliates and net billed account receivable balances, divided by current liabilities plus all outstanding obligations to Silicon Valley Bank under the revolving line, less deferred revenue) is less than or equal to 1.0.
In June 2017, we entered into a second amendment to the 2014 Loan Agreement extending its termination date to June 30, 2019. Advances carry a floating per annum interest rate equal to, at our option, (1) the prime rate or (2) LIBOR plus 2.75%, or the prime rate plus 1% depending on certain ratios. The extension further changed the financial covenant to maintain a current ratio (calculated as current assets, divided by current liabilities less deferred revenue), greater than or equal to 1.25.
As of June 30, 2017, there were no borrowings under the line of credit and letters of credit in the amount of $1.5 million were outstanding. The interest rate on the line of credit was 4.25% as of June 30, 2017.
In June 2017, we entered into a subordinated loan and security agreement, or the 2017 Agreement, with Silicon Valley Bank. The 2017 Agreement provides for a term loan borrowing of up to $40.0 million with a minimum of $25.0 million to be initially drawn. The remaining amount of the debt is available for 24 months from the date of the 2017 Agreement and can be drawn in no less than $5.0 million increments. Advances under the term loan incur a facility fee equal to 1% of the drawn borrowings, in addition to interest payments at an interest rate equal to, at our option, (1) the prime rate plus 3.5% or (2) LIBOR plus 6.5%, subject to a 1% LIBOR floor. Additionally, the borrowings incur payment in kind interest fees equal to 2.5%, accruing to the unpaid borrowings balance, compounded monthly. Payment in kind interest may be settled in cash, at our election, during the term or at maturity. We are also obligated to pay final payment fees ranging from 1% to 4% of the borrowings depending on the timing of the payment. The maturity date of the 2017 Agreement is October 9, 2020. The 2017 Agreement provides for a lien on all of our assets, including intellectual property. As of June 30, 2017, $22.8 million under the 2017 Agreement was outstanding.
In connection with the 2017 Agreement we issued 408,648 warrants to purchase shares of Series H convertible preferred stock, with an exercise price of $9.17340, the price per share in our Series H financing in November 2015. The warrants are exercisable up to ten years from the date of issuance.
Our credit facilities contain customary representations and warranties and customary affirmative and negative covenants applicable to us and our subsidiaries, including, among other things, restrictions on changes in business, management, ownership or business locations, indebtedness, encumbrances, investments, mergers or acquisitions, dispositions, maintenance of collateral accounts, prepayment of other indebtedness, distributions and transactions with affiliates. The credit facilities contain customary events of default subject in certain cases to grace periods and notice requirements, including (a) failure to pay principal, interest and other obligations when due, (b) material misrepresentations, (c) breach of covenants, conditions or agreements in the credit facilities, (d) default under material indebtedness, (e) certain bankruptcy events, (f) failure to pay judgments for the payment of money in an aggregate amount in excess of $0.5 million, (g) a material adverse change; (h) attachment, levy or restraint on business, (i) default with respect to subordinated debt, (j) cross default under our credit facilities, and (k) governments approvals being revoked.
We were in compliance with all covenants under the loan and security agreements as of December 31, 2016 and June 30, 2017.
80
Cash Flows
The following table summarizes our cash flows for the periods presented:
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 26, | December 31, | July 2, | June 30, | |||||||||||||
2015 | 2016 | 2016 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Consolidated Statements of Cash Flows Data: |
||||||||||||||||
Cash flows provided by (used in) operating activities |
$ | (32,604 | ) | $ | (32,463 | ) | $ | (17,433 | ) | $ | 30,213 | |||||
Cash flows (used in) investing activities |
(5,205 | ) | (8,567 | ) | (5,882 | ) | (4,500 | ) | ||||||||
Cash flows provided by (used in) financing activities |
58,547 | (156 | ) | (14,798 | ) | 9,894 |
Operating Activities
During the six months ended June 30, 2017, operating activities provided $30.2 million in cash as a result of a net loss of $24.2 million, adjusted by non-cash charges of $10.5 million and an increase of $44.0 million from our net operating assets and liabilities. The non-cash charges of $10.5 million were primarily comprised of $4.6 million of stock-based compensation expense, a $2.7 million fair value remeasurement charge related to preferred stock warrant liability and $2.6 million of depreciation and amortization expense. The increase from our net operating assets and liabilities was primarily the result of a $22.8 million decrease in accounts receivable due to the collection of holiday season accounts, a $15.1 million increase in deferred revenue driven by a $9.8 million pre-payment from a service operator, a $16.5 million decrease in inventories, and a $3.6 million increase in other long-term liabilities, primarily the result of entering into a multi-year licensing agreement. The increase in our net operating assets and liabilities was partially offset by a $4.9 million increase in prepaid expenses and other current assets and other noncurrent assets, and a $6.5 million decrease in accounts payable and accrued liabilities due to the timing of payments.
During the six months ended July 2, 2016, operating activities used $17.4 million in cash as a result of a net loss of $33.2 million, adjusted by non-cash charges of $11.6 million and an increase of $4.2 million from our net operating assets and liabilities. The non-cash charges of $11.6 million were primarily comprised of a $3.8 million loss provision related to the exit from our prior headquarters facilities, $4.0 million of stock-based compensation expenses and $2.9 million of depreciation and amortization expense. The increase from our net operating assets and liabilities was primarily the result of a $9.3 million decrease in accounts receivable due to the collection of holiday sales, a $3.6 million increase in deferred revenue as a result of the growth in our business, and a $1.6 million decrease in prepaid expenses and other current assets and other noncurrent assets. The increase in our net operating assets and liabilities was partially offset by a $7.3 million decrease in accounts payable and accrued liabilities due to the timing of payments and a $3.4 million increase in inventory.
During fiscal 2016, operating activities used $32.5 million in cash as a result of a net loss of $42.8 million, adjusted by non-cash charges of $17.8 million and a decrease of $7.5 million from our net operating assets and liabilities. The non-cash charges of $17.8 million were primarily comprised of $8.2 million of stock-based compensation expenses, $5.3 million of depreciation and amortization expense and a $3.8 million loss provision related to the exit from our prior headquarter facilities. The decrease from our net operating assets and liabilities was primarily the result of a $13.3 million increase in inventory for anticipated sales of players, a $26.4 million increase in accounts receivable as a result of increases in sales of our players and platform arrangements and a $2.9 million increase in deferred cost of revenue. The decrease in our net operating assets and liabilities was partially offset by a $15.0 million increase in accounts payable and accrued liabilities due to the timing of payments and a $19.8 million increase in deferred revenue as a result of the growth in our business.
During fiscal 2015, operating activities used $32.6 million in cash as a result of a net loss of $40.6 million, adjusted by non-cash charges of $12.4 million and a decrease of $4.4 million from our net operating assets and liabilities. The non-cash charges of $12.4 million were primarily comprised of $5.3 million of stock-based
81
compensation expenses, a $1.8 million fair value remeasurement charge related to preferred stock warrant liability, $2.6 million of depreciation and amortization expense and a $1.6 million write-off of deferred initial public offering costs. The decrease from our net operating assets and liabilities was primarily the result of a $3.8 million increase in inventory for anticipated sales of players, a $14.1 million increase in accounts receivable as a result of increases in sales of our players and platform arrangements, a $3.0 million increase in deferred cost of revenue and a $1.9 million increase in prepaid assets due to the growth in our business. The decrease in our net operating assets and liabilities was partially offset by a $7.5 million increase in accounts payable and accrued liabilities due to the timing of payments, an $8.3 million increase in deferred revenue as a result of the growth in our business and a $1.4 million increase in non-current liabilities primarily due to the deferred rent on our new headquarter lease.
Investing Activities
During the six months ended July 2, 2016 and June 30, 2017, investing activities used $5.9 million and $4.5 million in cash, respectively, primarily on capital expenditures to purchase property and equipment and leasehold improvements primarily related to expanding our facilities.
During fiscal 2015 and 2016, investing activities used $5.2 million and $8.6 million in cash, respectively, primarily on capital expenditures to purchase property and equipment and leasehold improvements related to expanding our facilities.
Financing Activities
During the six months ended July 2, 2016, financing activities used $14.8 million in cash, driven primarily from a $15.0 million paydown on the line of credit.
During the six months ended June 30, 2017, financing activities provided $9.9 million in cash, driven primarily from $24.7 million in net proceeds on term debt, offset by a $15.0 million paydown on the line of credit.
During fiscal 2016, financing activities used $0.2 million in cash from $0.4 million in proceeds from stock option exercises, less $0.6 million in initial public offering costs paid during the period.
During fiscal 2015, financing activities provided $58.5 million in cash, resulting primarily from $45.5 million in proceeds from issuance of Series H convertible preferred stock, $15.0 million in borrowings on the line of credit, offset in part by $2.6 million in principal payments on term debt and $1.1 million in initial public offering costs paid during the period.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements in fiscal 2015, 2016 or the six months ended June 30, 2017.
82
Contractual Obligations
Our future minimum payments under our non-cancelable contractual obligations were as follows as of December 31, 2016:
Payments Due by Period | ||||||||||||||||||||
Total |
Less Than
1 Year |
1 3
Years |
3 5
Years |
More Than
5 Years |
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(in thousands) | ||||||||||||||||||||
Purchase commitments (1) |
$ | 64,347 | $ | 64,347 | $ | | $ | | $ | | ||||||||||
Operating lease obligations (2) |
35,824 | 8,138 | 27,664 | 22 | | |||||||||||||||
Debt (3) |
15,000 | 15,000 | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 115,171 | $ | 87,485 | $ | 27,664 | $ | 22 | $ | | ||||||||||
|
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(1) | Represents commitments to purchase finished good inventory from third-party contract manufacturers. |
(2) | Represents future minimum lease payments under non-cancelable operating leases. |
(3) | Represents future principal payments under our loan and security agreements. |
We utilize outsourcing partners to manufacture, assemble and test our products. These outsourcing partners acquire components and build product based on demand information supplied by us. Consistent with industry practice, we acquire product through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. If there are unexpected changes to anticipated demand for our products or in the sales mix of our products, some of the firm, non-cancelable, and unconditional purchase commitments may result in our being committed to purchase excess inventory. As of June 30, 2017, we had manufacturing purchase obligations of $45.0 million.
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Fluctuation Risk
Our exposure to interest rate risk primarily relates to the interest income generated by cash held at Silicon Valley Bank, which is relatively insensitive to interest rate changes. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition.
Our borrowings under our credit facility with Silicon Valley Bank are at variable interest rates. However, a hypothetical 100-basis point change in interest rates would not have a material impact on our borrowings or results of operations.
Foreign Currency Exchange Rate Risk
Most of our sales are currently within the United States and we have minimal foreign currency risk related to our revenue. In addition, most of our operating expenses are denominated in the U.S. dollar, resulting in minimal foreign currency risks. The volatility of exchange rates depends on many factors that we cannot accurately forecast. In the future, if our international sales increase or more of our expenses are denominated in currencies other than the U.S. dollar, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. At this time we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities could have on our results of operations.
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Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
The critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our financial statements are described below.
Revenue Recognition
Overview
We derive revenue primarily from sales of our players and platform services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.
We have multiple-element arrangements. In such arrangements, we combine arrangement deliverables into units of accounting and allocate the total arrangement consideration to the different units of accounting based on a relative selling price hierarchy. To determine the relative selling price of each element, we use vendor-specific objective evidence, or VSOE, if available, third party evidence, or TPE, if VSOE is not available, or best estimated selling price, or BESP, if neither VSOE nor TPE are available. The objective of BESP is to determine the price at which we would transact a sale if the product or service were available on a standalone basis. We establish BESP considering multiple factors including, but not limited to, historical prices of products sold on a stand-alone basis, cost and gross margin objectives, competitive pricing practices and customer and market specific considerations. Revenue is recognized for each unit of accounting in accordance with our revenue recognition policy, provided that all revenue recognition criteria have been met.
Players
We sell the majority of our players through consumer retail distribution channels, including major brick and mortar and online retailers and through our website. For sales through consumer retail distribution channels, revenue recognition occurs when title and risk of loss have transferred to the customer which usually occurs upon shipment to the customers or receipt of the products by the customer depending on shipping terms. We established allowances for expected product returns and these allowances are recorded as a direct reduction to revenue. Return allowances are based on our historical experience. Certain payments to retailers and distributors such as market development funds, store promotions and price protection are recorded as a reduction of revenue. We reduce revenue at the later of the date at which the related player revenue is recognized or the date on which the program is offered. On occasion, these allowances cannot be reasonably and reliably estimated. Player revenue is then recognized at the time the players sell through to the end customer.
Our player sales include two units of accounting: hardware, which includes embedded software, and unspecified upgrades or enhancements on a when-and-if-available basis. We have determined that our hardware and the embedded software are considered a single unit of accounting, because the hardware and software individually do not have standalone value and are not sold separately. We initially record the relative selling price of the unspecified upgrades or enhancements on a when-and-if-available basis as deferred revenue, and then recognize the deferred revenue into revenue ratably on a straight-line basis over the estimated economic life of the associated players.
Shipping charges billed to customers are included in player revenue and the related shipping costs are included in cost of player revenue. Revenue is recorded net of taxes collected or accrued. Sales taxes are recorded as current liabilities until remitted to the relevant government authority.
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Platform
We earn platform revenue from fees received from advertisers and content publishers and from licensing our technology and proprietary operating system to service operators and TV brands. Platform revenue primarily includes fees earned or derived from the sale of digital advertising, revenue sharing with content publishers for new or recurring user subscriptions activated through our platform and revenue share from user purchases of content publishers media through our platform. We also earn revenue from the sale of branded channel buttons on remote controls. Licensing revenue from service operators are mostly generated from unit activation or flat fees and ongoing maintenance fees. Licensing revenue from TV brands are generated on a flat fee basis or from per unit licensing fees earned.
Digital advertising includes video and display ads that are served on our TV streaming platform. Digital advertising revenue primarily consists of video and display advertising commonly sold on a cost per thousand impression basis. Advertising revenue arrangements are evidenced by a fully executed insertion order. Revenue is recognized in the period the impressions and promotional media are delivered. There is significant judgment in accounting for advertising arrangements related to whether we should report revenue based on the gross amount that we charge the advertiser or net of acquisition costs paid to content publishers. To determine if we should report revenue on a gross or net basis, we assess whether we are acting as the principal or agent in the transaction. If we are acting as the principal, we record revenue on a gross basis. If we are acting as the agent, we record revenue on a net basis. We evaluate all of the indicators in the guidance to make this determination. While no one indicator is determinative, we place the most weight on the analysis of whether we are the primary obligor. We mostly report advertising revenue on a gross basis predominantly because we are the primary obligor responsible for fulfilling the advertisement delivery and maintaining the relationship with the advertiser, including the acceptability of the services delivered. We also establish pricing with the advertiser and have discretion in supplier selection given we can choose where to place the advertisement on available inventory across our platform.
Fees derived from our revenue share from new or recurring user subscriptions activated on our platform and from purchases of content publishers media are recognized as transacted at the net amount retained by us, generally equal to a fixed percentage of the price charged by the content publisher or a contractual flat fee. When the content publisher is responsible for user billing, we recognize revenue from our share of the fees on an as reported basis, in arrears, on a monthly or quarterly basis.
We also earn fees through the sale of branded channel buttons on remote controls. These branded buttons provide one-touch, direct access to the providers content on our platform. We typically receive a fixed fee per button unit, and revenue is recognized as remote controls are shipped by us or reported as shipped by TV brands.
Revenue earned from service operators and TV brands in the licensing of our technology and proprietary operating system are accounted for under software revenue recognition guidance. We have been unable to establish VSOE for any component of these licensing arrangements and therefore these arrangements are accounted for as a single unit of accounting and all revenue related to the licensing arrangements is recognized over the term of the relationship. Arrangements with service operators are generally comprised of a license for the technology and proprietary operating system, unspecified upgrades or enhancements, hosting of a branded channel store, and engineering and support services. Arrangements with TV brands commonly include a license to the technology and proprietary operating system over a specified term including updates and upgrades.
Valuation of Inventory
We value inventory at the lower of cost or market with cost determined on a first-in, first-out basis. We base write-downs of inventories upon current facts and circumstances. We perform a detailed assessment of excess and obsolete inventory at each balance sheet date, which includes a review of, among other factors, demand requirements and market conditions. Based on this analysis, we record adjustments, when appropriate, to reflect
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inventory of finished products, materials on hand and purchase commitments at lower of cost or market which is based on net realizable value. We establish a reserve for players or materials which are not forecasted to be consumed. Although we try to ensure the accuracy of our forecasts of player demand and pricing assumptions, any significant unanticipated changes in demand, pricing or technological developments would significantly impact the value of our inventory and our reported operating results. If we find that our supply estimates exceed our inventory demands, our inventory will be written-down and charged to cost of revenue at the time of such a determination. Conversely, if assumptions or circumstances beyond our control change and we subsequently sell devices that have previously been written-down, our gross margin in the period of sale will be favorably impacted. We recorded inventory provisions of $1.9 million, $5.0 million, $2.3 million and $3.2 million in fiscal 2015 and 2016 and the six months ended July 2, 2016 and June 30, 2017, respectively. The inventory provisions recorded are net of the reversals of provisions for sales of previously written-down inventory for each period presented.
Allowances for Returns, Sales Incentives and Doubtful Accounts
Accounts receivable are stated at invoice value less estimated allowances for returns, customer incentives and doubtful accounts.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates and expected dividends, which are estimated as follows:
| Fair Value of Our Common Stock . Because our stock is not publicly traded, we must estimate the fair value of our common stock, as discussed in Valuation of Common Stock below. |
| Expected Term. The expected term of our options is estimated using the simplified method permitted under guidance of the Securities and Exchange Commission. |
| Volatility. As we do not have a trading history for our common stock, the expected volatility of our stock price is derived from the average historical volatility for industry peers that we consider to be comparable to us, over a period equivalent to the expected term of our stock option grants. |
| Risk-free Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term for each of our option awards. |
| Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero. |
If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.
For stock options issued to non-employees, including consultants, we record an expense equal to the fair value of the options calculated using the Black-Scholes model over the service performance period. The fair value of options granted to non-employees is remeasured throughout the vesting period, and the resulting value is recognized as an expense over the period in which the services are received.
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Valuation of Common Stock
In the absence of a public trading market, the fair value of our common stock was determined by our board of directors, with input from management. Our board of directors intended all options granted to have an exercise price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . The assumptions we use in the valuation models were based on future expectations combined with management judgment, and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:
| the prices, rights, preferences and privileges of our preferred stock relative to the common stock; |
| our operating and financial performance; |
| current business conditions and projections; |
| the hiring of key personnel; |
| our history and the introduction of new devices and TV streaming platform features; |
| our stage of development; |
| the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering or sale of our company, given prevailing market conditions; |
| any adjustment necessary to recognize a lack of marketability of the common stock underlying the granted options; |
| the market performance of comparable publicly-traded companies; and |
| the U.S. and global capital market conditions. |
Based upon the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover of this prospectus, the aggregate intrinsic value of options outstanding as of June 30, 2017 was $224 million, of which $148 million related to vested options and $76 million related to unvested options.
As of June 30, 2017, we had $23.6 million of unrecognized stock compensation expense related to unvested stock options that we expect to recognize over a weighted-average period of approximately 2.6 years. Subsequent to June 30, 2017, we granted additional options to purchase 3,219,857 shares of Class B common stock and expect to recognize total stock-based compensation expense related to such grants of approximately $13.0 million over four years. In future periods, our stock-based compensation expense is expected to increase as a result of our existing unrecognized stock-based compensation and as we issue additional stock awards to continue to attract and retain employees and independent directors.
After the closing of this offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on Nasdaq on the date of grant.
Preferred Stock Warrant Liability
We account for freestanding warrants to purchase shares of our convertible preferred stock as a liability as the underlying shares of convertible preferred stock are contingently redeemable and, therefore, may obligate us to transfer assets at some point in the future. The warrants are recorded at fair value upon issuance and are subject to remeasurement at each balance sheet date. Any change in fair value is recognized in the statements of operations in other income (expense), net. We will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise or expiration of the warrants, the completion of a deemed liquidation event or the conversion of convertible preferred stock into Class B common stock. Upon conversion, the convertible preferred stock warrant liability will be reclassified to equity.
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Deferred Tax Assets
We account for income taxes using an asset and liability approach. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized through future operations.
We utilize a two-step approach to evaluate tax positions. Recognition, step one, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not, or MLTN, to be sustained upon examination. The MLTN threshold is met when the likelihood of occurrence is greater than 50%. Measurement, step two, is addressed only if step one is satisfied. In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is MLTN to be realized upon ultimate settlement with tax authorities. If a position does not meet the MLTN threshold for recognition in step one, no benefit is recorded until the first subsequent period in with the MLTN threshold is met, the issue is resolved with the tax authority, or the statute of limitations expires. Positions previously recognized are derecognized when we subsequently determine that the position is no longer MLTN to be sustained.
Provision for Income Taxes
We account for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed.
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. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. We have established a full valuation allowance to offset domestic net deferred tax assets due to the uncertainty of realizing future tax benefits from our net operating loss carry-forwards and other deferred tax assets. Our valuation allowance is attributable to the uncertainty of realizing future tax benefits from U.S. net operating losses and other deferred tax assets.
As of December 31, 2016, we had U.S. federal net operating loss carryforwards of $129.8 million, which expire beginning in 2028. As of December 31, 2016, we had federal research and development tax credits of $9.1 million, which expire beginning in 2028 and state research and development tax credits of $7.6 million, which carry forward indefinitely.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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Recent Accounting Pronouncements
In July 2017, the Financial Accounting Standards Board, or FASB, issued new guidance to address the complexity of the accounting for certain financial instruments with down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings. Under this guidance, when determining the classification of certain financial instruments as liabilities or equity, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entitys own stock. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. We are evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.
In August 2016, the FASB issued new guidance which addresses classification of certain cash receipts and cash payments related to the statement of cash flows. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, with early adoption permitted. We are evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.
In February 2016, the FASB issued new guidance related to new accounting and reporting guidelines for leasing arrangements. The guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. The new standard is to be applied using a modified retrospective approach. We are evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.
In January 2016, the FASB issued new guidance related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, with early adoption permitted. We are evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.
In May 2014, the FASB issued new guidance related to the recognition and reporting of revenue that establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In August 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017. In 2016, the FASB issued amendments on this guidance with the same effective date and transition guidance. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. We plan to adopt the new revenue standard in the first quarter of 2018.
To date, we have established an implementation team and are in the process of evaluating the impact of the new standard on our accounting policies, processes, and system requirements. Furthermore, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard.
We are continuing to evaluate adoption methods and the potential impact that the implementation of this standard will have on the condensed consolidated financial statements, but have not yet determined whether the effect will be material. However, we believe this new standard will impact our accounting for revenue arrangements in the following areas:
| revenue from the licensing of our technology and proprietary operating system to service operators and TV brands, which will be recognized earlier and could result in greater variability in revenue recognition; |
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| estimation of variable consideration for content publisher arrangements with revenue share from user subscriptions and media purchases through its platform and the sale of branded channel buttons on its remote controls; and |
| required disclosures. |
We expect revenue recognition related to players to remain relatively unchanged under the new guidance and are in the process of evaluating the impact on our player arrangements.
In November 2015, the FASB issued new guidance which simplifies the presentation of deferred income taxes. This guidance requires that deferred tax assets and liabilities be classified as noncurrent in the consolidated balance sheets. We early adopted the guidance effective December 26, 2015 on a prospective basis. The adoption of this guidance had no impact on the consolidated statements of operations.
In April 2015, the FASB issued new guidance related to simplifying the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. This will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. We adopted this guidance effective December 27, 2015. The adoption of this guidance had no impact on the consolidated financial statements.
In March 2016, the FASB issued new guidance related to accounting for stock-based payment award transactions. The guidance is designed to simplify several aspects of accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. We adopted this guidance effective January 1, 2017. As part of this adoption, we will recognize forfeitures as they occur to determine the amount of compensation cost to be recognized in each period. The adoption of this guidance had no impact on the consolidated financial statements.
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Overview
We pioneered streaming to the TV. Roku connects users to the streaming content they love, enables content publishers to build and monetize large audiences and provides advertisers with unique capabilities to engage consumers. We do this at scale today. As of June 30, 2017, we had 15.1 million active accounts. By comparison, the fourth largest multichannel video programming distributor in the United States had approximately 13.3 million subscribers as of June 30, 2017. Our users streamed more than 6.7 billion hours on the Roku platform in the six months ended June 30, 2017, 62% growth from the six months ended June 30, 2016. TV streamings disruptive content distribution model is shifting billions of dollars of economic value. Roku is capitalizing on this large economic opportunity for a leading TV streaming platform for users, content publishers and advertisers.
Consumers win with TV streamingthey get a better user experience, more entertainment options and more control over what they spend on content. When users want to enjoy streaming entertainment, they start at the Roku home screen where we put users first by helping them find the content they want to watch. From our home screen, users can easily search, discover and access over 500,000 movies and TV episodes in the United States, as well as live sports, music, news and more. Users can also compare the price of content from various channels available on our platform and choose from ad-supported, subscription, and transactional video on-demand content. The Roku platform delivers a significant expansion in consumer choice. Consumers can personalize their content selection with cable TV replacement offerings and other streaming services that suit their budget and needs. Ad-supported channels available on the Roku platform include CBS News, Crackle, The CW and Vice; subscription channels include HBO Now, Hulu and Netflix, as well as traditional pay TV replacement services like DirecTV Now, Sling TV and Sony PlayStation Vue; and transactional channels include Amazon Video, Google Play and Vudu. Consumers are increasingly streaming ad-supported content. In the six months ended June 30, 2017, hours streamed on the Roku platform that included advertising grew to 2.9 billion, up 76% from the six months ended June 30, 2016, searching for free content was the top reason users visited our website other than to manage their Roku accounts.
Roku operates the number one TV streaming platform in the United States as measured by total hours streamed, according to a survey conducted in the first quarter of 2017 by Kantar Millward Brown that we commissioned. Content publishers and advertisers win with Roku because our large and growing user base simplifies their access to the fragmented and complex over the top, or OTT, market and we provide them with direct to consumer engagement and monetization opportunities. We provide our content publishers with access to the most engaged OTT audience, as measured by average hours streamed, and the ability to monetize their content with advertising, subscription or transactional business models. Furthermore, as a pure play, neutral TV streaming platform, we are better able to serve content publishers compared to other platforms that have diversified business operations and competitive content offerings. Advertisers on our platform can reach our desirable OTT audience with ads that are more relevant, interactive and measurable than advertising delivered on traditional linear TV. As traditional TV audiences shrink, OTT audiences have become increasingly important to advertisers who must continue to reach large audiences. Our growth in active accounts and hours streamed has attracted more content publishers and advertisers to our TV streaming platform creating a better user experience, which in turn attracts more users.
We have achieved significant growth. In the six months ended June 30, 2017, we generated revenue of $199.7 million, up 23% from $162.3 million in the six months ended July 2, 2016. In fiscal 2016, we generated revenue of $398.6 million, up 25% from $319.9 million in fiscal 2015. We generate player revenue from the sale of streaming players and platform revenue primarily from advertising and subscription revenue share on our platform. We earn platform revenue as users engage with content on our platform and we intend to continue to grow platform revenue by monetizing our TV streaming platform. In the six months ended June 30, 2017, player revenue represented 59% of total revenue and declined 2%, and platform revenue represented 41% of total
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revenue and grew 91% from the six months ended July 2, 2016. In fiscal 2016, player revenue represented 74% of total revenue and grew 9%, and platform revenue represented 26% of total revenue and grew 110% from fiscal 2015.
While we currently generate a majority of our revenue from sales of our streaming players, our business model is to grow gross profit by increasing the number of active accounts and growing average revenue per user, or ARPU, which we believe represents the inherent value of our business model. In the six months ended June 30, 2017, we generated gross profit of $76.5 million, up 52% from $50.3 million in the six months ended July 2, 2016. In fiscal 2016, we generated gross profit of $121.0 million, up 35% from $89.8 million in fiscal 2015. In the six months ended June 30, 2017, player gross profit represented 19% of total gross profit and declined 28%, and platform gross profit represented 81% of total gross profit and grew 104% from the six months ended July 2, 2016. In fiscal 2016, player gross profit represented 36% of total gross profit and declined 9%, and platform gross profit represented 64% of total gross profit and grew 87% from fiscal 2015. ARPU, which we define as our platform revenue during the preceding four fiscal quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four fiscal quarters, was $11.22 per active user in the period ended June 30, 2017 and $9.28 per active user in 2016, up 43% from $6.48 in 2015.
In the six months ended June 30, 2017, our net loss was $(24.2) million and our Adjusted EBITDA was $(14.0) million. In fiscal 2016 our net loss was $(42.8) million and our Adjusted EBITDA was $(29.9) million.
Our Market Opportunity
We believe all TV content will be available through streaming. The rapid adoption of TV streaming has disrupted the traditional linear TV distribution model, creating new options for consumers and new economic opportunities for content publishers and advertisers. OTT viewing has become mainstream in the United States. According to an April 2017 comScore report, 51 million U.S. homes have used OTT, and OTT has a 54% reach among homes with WiFi. Although traditional live TV still represents the majority of hours viewed by consumers, it declined year-over-year from 2015 to 2016 among adults by 1.5% on a Nielsens ratings basis, while streaming hours continue to grow both on an absolute basis, as well as on a percentage of total hours viewed basis. According to Activate, a high-tech, media and consumer retail consultancy firm in New York, it is projected that the average daily video consumption will increase to over 7 hours in 2018, 34% of which is attributed to digital video content, from 6.5 hours in 2013, 18% of which was attributed to digital video content. Further, the number of traditional pay TV subscribers continues to decline as consumers increasingly favor a streaming experience. As stated in a July 2017 eMarketer report, there were 25 million U.S. cord-cutter and cord-never households in 2016. We believe these consumer trends are creating significant opportunities for the TV streaming market.
When ad-supported TV is streamed, it creates an opportunity for content publishers and advertisers to use advanced digital advertising capabilities, such as one-to-one personalized delivery. We believe this presents a large market opportunity for streaming advertising to the TV. Consumers have watched TV content on an ad-supported basis since the 1940s. According to a March 2017 eMarketer report, the traditional TV advertising spend is large and continues to grow. In 2016, traditional TV advertising spend in the United States totaled $71 billion, and is expected to grow to approximately $80 billion in 2021. Simultaneously, total OTT revenue worldwide is expected to reach $60 billion by 2022, from $32 billion in 2016, with the greatest share of revenue in the United States, according to Ovum. While the majority of OTT revenue in the United States in 2016 was generated on a subscription or transactional basis according to Ovum, we believe there is a large opportunity for growth in the OTT advertising market given the long-standing consumer model of choosing ad-supported content, in addition to paid content.
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How Our TV Streaming Platform Provides Value to Users, Content Publishers and Advertisers
Users
Our user base and user engagement have grown rapidly. In 2016, we added 4.2 million active accounts, and average hours streamed per active account grew 9.5 hours per month as compared to 2015.
Key benefits we offer users include:
| Simple intuitive interface. Our user interface is easy to navigate and makes the search and discovery of relevant content a seamless part of the user experience. Our powerful cross-channel search capabilities make it easy to find TV episodes and movies across a wide variety of channels. Our optimized user interface is fast and responsive, giving our users access to their desired content with only a few clicks. We update our software several times a year to improve the TV streaming experience. |
| Choice, control and value. From the Roku home page users can choose content on ad-supported, subscription, or transactional basis, and users are able to decide what content they want to purchase. We have also developed a companion application for the iOS and Android operating systems that allows our users to control their streaming players and explore content to view on our platform. We do not currently monetize this application. We use simple and intuitive navigation to quickly bring users to the content they desire and compare price among available channels to select what they watch, and our search results do not favor any content publisher. |
| Access to exceptional streamed content. Consumers are attracted to great content, and we believe that we offer unmatched breadth and depth of TV streaming content when compared to any other OTT platform. |
Content Publishers
We provide a robust platform for content publishers to build and monetize OTT audiences. We offer over 5,000 streaming channels on our platform in the United States and over 3,000 internationally.
Key benefits we offer content publishers include:
| Direct-to-consumer distribution. Through our platform, content publishers can directly reach large and relevant audiences, including consumers who no longer use traditional linear TV services. We are an increasingly valuable partner to content publishers who deliver content exclusively via streaming, as well as traditional TV content publishers programmers and distributors. |
| Ease of publishing and monetization. We make it easy for content publishers to launch streaming offerings on the Roku platform and build their audience through our open publishing platform. For example, with Roku Direct Publisher, content publishers can launch a channel and add content to our platform without writing a single line of code. Our solution also allows content publishers to partner with Roku to sell advertising and to designate Roku to monetize their content using our advertising sales or billing services. This program is essential for small and medium-sized ad-supported publishers on our platform, given the cost and difficulty of building and scaling their own direct advertising sales teams as well as large content publishers that have historically licensed their content to distributers but may choose going forward to publish direct to consumers and monetize via advertising. |
| Unmatched opportunity to drive tune in . We enable content publishers to drive tune in, or increase the audience for their content, through a range of advertising capabilities on our platform. Content publishers are featured prominently throughout a users experience on the Roku platform, such as, channel promotions during the new user setup process and through ads in our user interface, including on the Roku home screen. In addition, Hulu and Sling TV have driven subscriptions by offering incentives such as a free Roku player in exchange for a signing up for their service. We employ a wide variety of data-driven capabilities to help content publishers broaden their user base, drive engagement and retain existing users. |
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In September 2017, we launched The Roku Channel, an ad-supported streaming channel on the Roku platform designed to give our users free access to a collection of top films and other content. The Roku Channel is expected to have, on average, approximately half the advertising per programming hour as compared to traditional ad-supported linear TV. We plan to license content for The Roku Channel from leading studios, which, at launch included Lionsgate, Metro-Goldwyn-Mayer (MGM), Sony Pictures Entertainment and Warner Brothers. The Roku Channel is also intended to help existing channel publishers drive additional viewership of their content on the Roku platform by making their content available on The Roku Channel.
In addition, developers can also create non-certified streaming channels, which are channels that can only be installed on a Roku device by using a dedicated access code provided to users by the channels developer, and therefore are not found in the Roku Channel Store. Non-certified channels are used, for example, by channel developers for testing their channels prior to general release, by companies to present training programs to their employees, or by content providers as a means of limiting access to content that is not intended for a general audience. We do not include non-certified channels in our channel count, but we do include content streamed on non-certified channels in our total hours streamed. In each of the fiscal years ended December 26, 2015 and December 31, 2016, and the six months ended July 2, 2016 and June 30, 2017, hours streamed from non-certified channels comprised less than 8% of total hours streamed.
Advertisers
Our TV streaming platform provides a differentiated advertising opportunity. We serve advertisers across multiple industry verticals and in 2016, we worked with seven of the ten largest advertisers in the United States as ranked by Ad Age. Some of the key benefits we offer advertisers include:
| Access to a hard to reach audience. With audiences consuming more TV via OTT, cord-cutters and cord-nevers are on the rise, and traditional linear TV ratings are in decline, advertisers are increasingly focused on OTT platforms to reach the population of consumers who are watching less traditional linear TV. We aggregate this audience on our platform for advertisers. We also help advertisers access the hard to reach young adult demographic. Among adults aged 18-34, Roku delivers 10.2% incremental reach over linear TV, which is the additional audience (relative to TV alone) that is exclusively reachable on the Roku platform according to a June 2017 study that we commissioned. |
| Best of TV and digital advertising delivery. Video advertising on our platform offers the best of both traditional TV and advanced digital advertising. We offer the large format sight, sound and motion of traditional TV advertising and the relevance, interactivity and measurability of digital advertisingall within the context of what the user is watching. Our advertising capabilities offer many relevance and measurement advantages when compared to traditional TV advertising, because ads are delivered in real-time based on user insights. For example, we allow advertisers to deliver ads based on traditional TV demographics such as gender, age and location, as well as behavioral attributes such as a sports fan or likelihood to click on movie promotion. Increasingly, we are using machine learning algorithms to enhance the relevancy of these ads while also being more effective with our ad inventory. Through our own measurement tools and third parties like Nielsen and comScore, we provide advertisers the capability to measure and increase ROI. |
| Large scale. Our platform offers advertisers access to the most engaged OTT audience, as measured by average hours streamed, and we believe it connects to the largest number of ad-supported TV streaming channels. Advertisers benefit because they can reach a large audience across a variety of video genres and audience attributes. We have 15.1 million active accounts streaming an average of approximately three hours per day and accessing thousands of channels as of the second quarter of 2017. Given our significant scale, the age, gender and geographic demographics of our U.S. user base approximate those of the overall U.S. population, which we believe makes us attractive to a wide variety of advertisers. As our scale grows, we are increasingly entering into annual commitments with brands, agencies and agency holding companies. These deals provide pricing and capability advantages to advertisers, while providing higher revenue and predictability for Roku. |
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Competitive Strengths
Our TV streaming platform is industry-leading due to our competitive strengths which include:
| Large and engaged user base . Millions of users come to the Roku home screen to stream billions of hours of content per year. According to an analysis of Nielsen data from their national panel, Roku players accounted for approximately 48% of TV-connected digital streaming device usage (as compared among the top four brands) in the U.S. for the month of December 2016. Most of our users have a credit card on file with Roku, enabling them to seamlessly subscribe to and purchase content through the Roku platform. Roku provides a best-in-class user experience by removing the complexity and driving the proliferation of OTT TV streaming. Roku is a strong and well-regarded brand in the TV streaming industry. As we grow our large and engaged user base, we become an increasingly important partner for our content publishers and advertiser partners. As we attract more partners, our user experience improves, attracting more users to our platform in a virtuous cycle. |
| Roku OS purpose built for TV streaming. Our proprietary Roku OS integrates our streaming software, hardware API, user interface, advertising stack, billing services, and data insight tools, and is purpose built to manage TV streaming. The Roku OS includes the core user interface, search and discovery innovation that makes the Roku user experience best in class. It includes the integrated functionality for content publishers to add channels to our platform and monetize their content. Our advertising technology stack is built directly into the Roku OS. We will continue to invest significantly in the Roku OS, and we believe it is difficult to replicate. |
| Powerful data analytics engine . Users have a direct relationship with Roku, and we are their TV streaming home screen. This provides us with detailed insights about our users and their behavior on our platform, such as what channels they watch. We collect and process 18 terabytes of uncompressed data per day, and we are able to develop actionable insights from the data on our platform to improve user experience, as well as enable our content publishers and advertisers to drive more value by leveraging our data platform. |
| Neutral OTT platform. We are a neutral OTT platform, making us an attractive partner. We do not focus on competing with content publishers on our platform, but instead, look to partner with publishers to build their audiences and maximize our mutual success on the platform. As a result, unlike other TV streaming platforms, we have not developed any original programming and do not have our own subscription service or TVOD store. In addition, we do not compete directly with our retailers or our TV brand partners. We also endeavor to build trust with our users by providing unbiased search results and recommendations. |
| Ability to power TV streaming at low cost. The Roku OS is designed for exceptional performance using relatively low cost hardware. This approach enables us to drive account growth by offering Roku players at great value to consumers. We also believe we will be able to continue to drive active account growth from our TV brand partnerships. The low bill of materials required to run the Roku OS enables our TV brand license partners to build smart TVs using our operating system that are more competitively priced. For example, TCL was the 19 th largest seller of U.S. smart TVs measured by number of units sold in 2014, prior to licensing the Roku OS and was the fourth largest seller for the first half of 2017. The market share of smart TVs powered by the Roku OS in the United States and Canada has grown from 1% as of the end of 2014 to approximately one in five smart TVs in the first half of 2017. There were over 21 million smart TVs sold in the United States in 2016, according to Ovum. As smart TVs take over most of the overall TV installed base over time, we believe we can provide the operating system for a very large portion of TVs based on our unique solution for TV brands. |
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Ability to rapidly deploy IP-based solutions. There were over 918 million pay TV subscribers worldwide in 2016, according to Ovum. According to Kagan, a media research group within S&P Global Market Intelligence, it is estimated that 273 million cable boxes were shipped worldwide in 2016. Given the technology benefits of delivering content via internet instead of cable or satellite, |
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many service operators are adding Internet protocol based, or IP-based, solutions for their customers. Roku enables service operators to rapidly deploy an IP-based solution to deliver content to their subscribers. For example, Sky and Telstra participate in our Roku Powered licensing program to offer their subscribers co-branded or white label versions of our players. Under this program, content may be made available through custom user interfaces and curated channel stores that we create and operate for our service operator partners. |
Growth Strategy
We are capitalizing on the large economic opportunity for a leading TV streaming platform for users, content publishers and advertisers. Our key growth strategies include:
| Grow active accounts. We intend to increase user adoption of the Roku platform by continuing to improve our user experience, to increase the depth and breadth of our content offering, and to enhance our TV streaming platform. We plan to continue to attract more users with a highly compelling TV streaming value proposition that allows users to access the largest collection of channels, pay only for the channels that they want, utilize the best search and discovery tools, and navigate a simple and easy to use user interface. We also plan to increase active accounts by continuing to expand our retail presence and grow our Roku OS licensing program for TV brands and service operators. Further, we believe international expansion represents a large opportunity to grow our active accounts. We plan to continue to invest in our international strategy over time and become a global business in the long term. |
| Grow hours streamed. We intend to increase user engagement and hours streamed by offering more content that is easier to find and discover on our platform. By increasing the available content on our platform and making it easily accessible, we have diversified the type of content streamed. When we launched the first Netflix player in 2008, Netflix accounted for 100% of our streaming hours. In the six months ended June 30, 2017, Netflix accounted for approximately one-third of all hours streamed on the Roku platform, which is line with Netflixs approximately 35% share of traffic on North America fixed networks, according to a Sandvine report published in 2016. To improve content discovery, we introduced More Ways to Watch on Roku TVs. This feature uses automatic content recognition technology to suggest relevant content options to users. |
| Grow ARPU. We expect to continue to grow ARPU by growing hours streamed and our monetization capabilities. Advertising-based content is our fastest growing segment, and we are increasing the monetization of these hours by expanding our advertising capabilities both on and off the Roku platform. We intend to continue to leverage our data and analytics to deliver relevant advertising and improve the ability of our advertisers to optimize their campaigns and measure their results. We also plan to continue to expand our direct sales teams to increase the number of advertisers who use our services. |
Technology
We believe that the core technology supporting the Roku OS is a critical competitive advantage and therefore we continue to make substantial investments in our research and development efforts to enhance our platform for users, content publishers and advertisers. We have invested in delivering broad search and discovery capabilities for our users in order to organize and manage the vast amounts of content and pricing information on our platform. Our cloud-based search and discovery features for users are powered by state-of-the-art servers and databases that are purpose-built and support large scale audiences. We have also introduced user experience technology such as private listening and voice search for certain streaming devices.
For content publishers, we offer our open Channel Developer Program to create streaming channels. The Channel Developer Program is based on our Software Development Kit, or SDK, and proprietary implementation of the Brightscript scripting language, which is optimized to provide robust performance and a consistent user
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experience on any device with the Roku platform. Channel Developers may also take advantage of our feed-based Roku Direct Publisher program, which does not require content publishers to write a single line of code to publish a channel on our platform.
For advertisers, the Roku Ad Framework, or RAF, technology is integrated into the Roku OS. RAF provides a variety of critical and advanced advertising capabilities, including IAB VAST ad processing, interactive rich media features, demographic measurement, device IDs, user privacy controls and compatibility with all major video ad servers, SSPs and DSPs.
Our proprietary systems leverage our feature extraction, information retrieval and matching systems to provide the most relevant ads. The Roku OS also includes our core data platform that manages and analyzes 27 billion technical and user events and 18 terabytes of uncompressed data that is processed through our platform each day. We use leading big data analytic technologies to identify rich insights to improve user, content publisher and advertiser value from Roku.
Our Products
Advertising
Our advertising products enable advertisers to serve relevant ads to our users and measure return on investment. We collect a variety of information on the Roku streaming platform, including user registration data, as well as anonymized information like audience engagement with channels on our platform, use of features like search and interactions with advertisements. We gather this information and then create user segments, develop look-a-like audience and predictive models, and activate segments for use in a variety of business operations including recommendations for users and analytics for content publishers and advertisers. Our platform also provides a mechanism to match and ingest third party data sets from our advertisers and data vendors who may have demographic or other attributes that would enhance our analytics, products or advertising efforts.
We continue to refine measurement capabilities on our advertising platform. We partner with Nielsen and comScore to measure ad exposure and viewer demographics. We offer engagement analytics such as impressions, click-through rates and video completion rates. We also work with a wide variety of third-party measurement companies to measure the branding impact of the ads we serve. We have also recently established relationships with third party providers that focus on transactional or point of sale data, which enables our advertisers to compare the effectiveness of Roku ads.
Our primary advertising products include:
| Video ads. Our ad-supported content publishers use video ads to monetize our audiences and we also use video ads to monetize our platform. Video ads are sold as 15-second or 30-second spots inserted before a program starts or during a program break, within channels on the Roku platform where we have video inventory access. One of the ways we secure video ad insertion rights from content publishers is via our distribution deals with those publishers. In addition, many publishers also authorize us to fill their own unsold inventory. For many small and medium publishers on our platform, Roku sells all or a majority of the ads on their channels. Except for a minority of video ads that are passed unmodified in a traditional linear broadcast, all video ads are selected and delivered to a user in real-time, as the user is engaging on our platform. Digital advertisers have raised concerns about brand safety, viewability and fraud after certain issues arose between various video ad networks and major online video distributors. OTT is an attractive alternative. On the Roku platform, our video ads play full screen, are not skippable in most channels and are delivered into a curated channel list. |
| Interactive video ads. We offer advertisers the ability to make their TV advertising interactive with customized clickable overlays that invite viewers to engage more intimately with brands, by watching additional videos, obtaining offer details, getting a coupon code via text or finding the nearest retailer to buy a product. |
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| Audience development promotions. We utilize a variety of ad placements, particularly native display ads, on the Roku home screen and screen saver, to promote content publishers and their services to our users. We help them to drive channel downloads and traffic to their channels, and to drive subscriptions or movie and TV show consumption. Given our strategic role as a users TV streaming home screen, we are increasingly able to predict a users likelihood of taking action in response to an ad we serve. We also sell branded buttons on our remote controls which are reserved for content publishers who are more prominently placed on the remote to drive incremental usage and reduce friction by allowing the user to launch straight to the channel. |
| Brand sponsorships. We support a variety of promotional opportunities for advertisers, such as sponsored themes to take over our home screen and content sponsorships to give users the opportunity to experience a free movie or show (e.g. Family movie night brought to you by ). We also sell branded buttons on remote controls. These are reserved for content publishers who are interested in more prominent placement on the remote to drive incremental usage and reduce friction by skipping straight to the channel. |
Roku TVs
Roku TVs are manufactured and sold by our TV brand licensees, integrate our Roku Operating System, or Roku OS, and leverage our smart TV hardware reference design. Current licensee brands include Element, Hisense, Hitachi, Insignia, RCA, Sharp and TCL. Roku TVs are available in sizes ranging from 24 to 65 at leading retailers in the United States and Canada. In 2017 we expect over 150 models to be available to consumers in North America, up from 100 in 2016, featuring a wide range of prices as well as picture and display capabilities. Consumers are able to choose from very affordable HD and 4K UHD models to TVs with picture quality boosted by 4K, Dolby Vision HDR and local dimming. We believe that approximately one in five smart TVs sold in the United States and Canada in the first half of 2017 were Roku TVs.
Streaming Players
We offer a line of streaming players for sale under the Roku brand in the United States, Canada, the United Kingdom, France and the Republic of Ireland, that allow users to access our TV streaming platform. All players run on the Roku OS, and stream content via built-in Ethernet or Wi-Fi capability, depending on the
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model. Our current product line for the U.S. market includes several models at a range of manufacturers suggested retail prices to meet the needs of different users starting at $29.99.
Sales and Marketing
We drive growth in our TV streaming platform by building relationships with content publishers, advertisers, TV brands and service operators. We have dedicated business development teams that develop and maintain relationships, to promote and build awareness of the features and advantages of Roku. Our data science team supports our sales and marketing efforts by analyzing data on our platform to increase effectiveness for our content publishers and advertisers as well as for our consumer marketing campaigns. We enter into distribution agreements with our content publishers and license their content through our dedicated content relationship management team. We sell advertising with two direct sales teams, one focused on content publishers, the other focused on traditional advertisers. Our relationship with content publishers is typically client-direct. We secure direct access to publishers video ad inventory as part of our distribution agreements and serve as an additional channel for content publishers to monetize their audience. These sales efforts are differentiated and complementary to that of our publishers. Whereas our publishers typically sell on a cross-platform basis and feature their brand and content in their sale, we focus on delivering a large OTT audience across many channels at once. We work with the major ad agencies and holding companies including Dentsu, Havas, Horizon, IPG, Publicis and WPP. We also offer smaller content publishers a self-serve platform to buy promotions, and are increasingly incorporating programmatic capabilities into our advertising sales. We work with TV brands to assist in all phases of the development of Roku TVs, including development, planning, manufacturing and marketing, and similarly work with service operators on the planning and development of their Roku Powered players.
We grow our users by providing consumers with low cost, widely available players and TVs and we promote them using a wide range of marketing techniques. For example, in 2016 we introduced the first TV streaming player with a price below $30, the Roku Express. The Roku Express has been our most popular player, measured by units sold, since its introduction. Our players and TVs are available at over 25,000 retail locations in the United States, Canada, France, the Republic of Ireland and the United Kingdom. The majority of Roku players and TVs are sold in the United States through traditional brick and mortar retailers, such as Best Buy, Costco, Target and Walmart, including their online sales platforms, and online retailers such as Amazon.com. We also sell players in the United States directly through our website. In addition, in some cases, we sell our streaming players to service operators or channel partners who bundle such players with services that they sell to their customers. We also sell products internationally through distributors and to retailers such as Currys in the United Kingdom and FNAC in France. In 2015 and 2016, Amazon.com, Best Buy and Walmart each accounted for more than 10% of our total revenue and are expected to each account for more than 10% of our total revenue in fiscal 2017. These three retailers collectively accounted for 54% and 49% of our total revenue in fiscal 2015 and 2016, respectively. These retailers also sell products offered by our competitors. We support retailers with an experienced sales management team, and work closely with these retailers to assist with in-store marketing and product mix forecasting, leading us to be a category captain in many major retail locations.
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Research and Development
Our research and development model relies upon a combination of in-house staff and offshore design and manufacturing partners to cost-effectively improve and enhance our platform, and to develop new players, TVs, partner licenses, features and functionality. We work closely with content publishers, advertisers, TV brands and service operators to understand their current and future needs. We have designed a product development process that captures and integrates their feedback. In addition, we solicit user feedback in the development of new features and enhancements to the Roku platform.
As of June 30, 2017, we had 395 employees in our research and development organization. Our research and development expenses were $50.5 million and $76.2 million in 2015 and 2016, respectively, and $48.1 million in the six months ended June 30, 2017. We intend to continue to significantly invest in research and development to bring new devices to market and expand our platform and capabilities.
Manufacturing
We outsource the manufacturing of our players to contract manufacturers, using our design specifications. All of our players are manufactured by Foxconn and Lite-On at their respective facilities in the Peoples Republic of China. Our contracts with Foxconn and Lite-On do not obligate these manufacturers to supply devices to us in any specific quantity or at any specific price. Our manufacturing partners procure components and assemble our devices to demand forecasts we establish based upon historical trends and analysis from our sales and product management functions. Foxconn and Lite-On currently ship players to our third-party warehouses in California and England and then we ship players directly to our customers and through retailers and distributors.
Competition
The market for streaming media continues to grow rapidly and evolve. There is substantial competition in the TV streaming market for users, advertisers, and content publishers from large technology and consumer electronics companies, including Amazon, Apple and Google. The presence of these competitors in the market has increased consumer awareness of streaming and contributed to the growth of the overall market, but their resources and brand recognition pose significant competitive challenges. We expect competition to intensify in the future as more companies enter this market, the distribution of TV content through online channels continues to converge, and consumer demand increases for Internet delivery of video content.
We face competition in selling our players as we participate in the growth of the streaming market, as our competitors develop new products, develop advances in streaming technology, improve their brand awareness and improve their service offerings. For example, over the past year, competitors have released new streaming players, at prices that are competitive with or lower than our prices. In the smart TV market, our Roku TV partners compete with other brands of smart TVs from leading consumer electronics companies, such as LG, Samsung and VIZIO, and we compete for OS licensing opportunities against both in-house software developed by smart TV makers as well as software that is available for license from Google and Amazon. The primary competition that we face in our Roku Powered licensing program is from in-house software development by service operators, such as Comcast and Cablevision, who seek to integrate streaming media with their existing pay TV offerings through set-top boxes that they provide to their customers. We also compete for OS licensing opportunities for service operators against software that is available for license from Google.
We compete to attract and retain users based on a variety of factors. These factors include our content offerings, in particular, the breadth of our content library, the features of our TV streaming platform services, such as its convenience and ease of use; the relevance and usefulness of the advertising provided to users; our brand awareness in the market; and the price of our products and services. We also compete for user engagement. Many users maintain simultaneous relationships with multiple online video content publishers and shift time and
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money spent between them. For example, users may both subscribe to Netflix to view a movie or last seasons episodes of a current TV show and also subscribe to cable with video-on-demand of current TV shows. We believe that we compete favorably on these elements of user choice and user engagement.
The competition for advertisers depends, in part, on our ability to attract and retain users. Providing advertisers with a large online audience is critical to advertisers utilizing our TV streaming platform. Further, in the streaming video market, advertisers are focused on effective advertising and return on investment. As a result, we also compete for advertisers based on the effectiveness of advertising on our platform as compared to the numerous other platforms for advertising online, including mobile. Moreover, advertisers continue to advertise offline and so we face competition from traditional media platforms, such as TV and radio. We must maintain a sufficient supply of ad inventory to meet the growing demand for OTT advertising on our TV streaming platform. Our business model depends on our ability to grow inventory for our platform. We grow ad inventory by adding content publishers to our platform with ad-supported channels that we monetize via changes to our user interface. The amount, quality and cost of inventory available to us can change at any time.
Lastly, we compete to attract and retain content publishers based on our user and advertiser base, our ability to generate revenue for our content publishers and the terms of our license agreements. Our ability to license content from content publishers depends in part on the breadth of our user and advertiser base. Content publishers seek online platforms that allow them to reach an extensive and engaged audience and to monetize their content by sharing in advertising revenue. In that regard, content publishers also are focused on the terms on which they license their content to such platforms, in particular pricing and promotion.
Government Regulation
Our devices and platform are subject to numerous domestic and foreign laws and regulations covering a wide variety of subject matters. These laws and regulations include general business regulations and laws, as well as regulations and laws specific to providers of Internet-delivered streaming services and devices. New laws and regulations in these areas may have an adverse effect on our business. The costs of compliance with these laws and regulations are high and are likely to increase in the future. If we fail to comply with these laws we may be subject to significant liabilities and other penalties.
In particular, our business is subject to foreign and domestic laws and regulations applicable to companies conducting business using the Internet. Both domestic and international jurisdictions vary widely as to how, or whether, existing laws governing areas such as personal privacy and data security, consumer protection, payment processing or sales and other taxes and intellectual property apply to the Internet and e-commerce, and these laws are continually evolving. Moreover, the laws governing these areas, as well as those governing electronic contracts and Internet content and access restrictions, among other areas, are rapidly evolving. The laws in these areas are unsettled and future developments are unpredictable. Laws that lead to more stringent regulation of companies engaging in businesses using the Internet may have a negative impact on our business.
We are also subject to both general and e-commerce specific privacy laws and regulations that may require us to provide users with our policies on sharing information with third parties and advance notice of any changes to these policies. Related laws may govern the manner in which we store or transfer sensitive information or impose obligations on us in the event of a security breach or inadvertent disclosure of such information. International jurisdictions impose different, and sometimes more stringent, consumer and privacy protections. Such consumer privacy laws are constantly changing and may become more diverse and restrictive over time, challenging our ability to fully comply with these laws in all jurisdictions. Privacy laws also may limit the ability of advertisers to fully utilize our platform, which could have a negative impact on our business.
Tax regulations in domestic and international jurisdictions where we do not currently collect state or local taxes may subject us to the obligation to collect and remit such taxes, to additional taxes or to requirements intended to assist jurisdictions with their tax collection efforts. New legislation or regulation, the application of
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laws from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the Internet and e-commerce generally could result in significant additional taxes on our business. Further, we could be subject to fines or other payments for any past failures to comply with these requirements. The continued growth and demand for e-commerce is likely to result in more laws and regulations that impose additional compliance burdens on e-commerce companies, and any such developments could harm our business.
In addition, the Internet is a vital component of our business and also is subject to a variety of laws and regulations in jurisdictions throughout the world. We expect to rely on the historical openness and accessibility of the Internet to conduct our business, and government regulations that impede or fail to preserve the open Internet could harm our business. To the extent regulatory agencies adopt rules that allow network operators to restrict the flow of content over the Internet, such operators may seek to extract fees from us or our content publishers to deliver our traffic or may otherwise engage in blocking, throttling or other discriminatory practices with respect to our traffic, which could adversely impact our business.
Our content publishers also are subject to a wide range of government regulations that may vary by jurisdiction. Because our business depends on the availability of third-party content delivered over the Internet, increased regulation of our content publishers or changes in laws or regulations governing Internet retransmission of third-party content could increase our expenses and adversely affect our business and the attractiveness of our platform.
Intellectual Property
Our success depends in part upon our ability to protect our intellectual property. We rely on a combination of trade secrets, copyrights, trademarks, patents and domain names to protect our intellectual property. Our trademarks, including Roku and the Roku logo and design, are an important part of our branding and the value of our business. As of June 30, 2017, we owned 33 issued United States patents (8 of which are design patents) that are scheduled to expire between 2031 and 2035, with respect to utility patents, and between 2021 and 2032, with respect to design patents. We continue to file patent applications and as of June 30, 2017, we had 56 U.S. patent applications and 24 international patent applications (21 of which are Patent Cooperation Treaty (PCT) applications) pending.
The claims for which we have sought patent protection apply to both our devices and software. Our patent and patent applications generally apply to the features and functions of our Roku OS and the applications associated with our platform.
We also incorporate generally available third-party software, including open source software, in our Roku OS and our platform, pursuant to licenses with such third parties. The termination of these software licenses would require redesign of parts of the Roku OS and our platform, which could delay or impair our ability to offer our devices and platform.
We enter into confidentiality agreements with employees, consultants and business partners, and generally control access and use of our proprietary and other confidential information through the use of internal and external controls. These steps may not be adequate, however, and may not be effective to protect our intellectual property in the United States or other international markets in which we do business. Third parties may infringe or misappropriate our intellectual property rights or may challenge our issued patents. If we fail to adequately protect our intellectual property rights, our competitors could offer similar products and services which would harm our business.
Employees
As of June 30, 2017, we had 696 full-time employees, of which 395 were in research and development, 165 were in sales and marketing, and 136 were in general and administrative and operations. None of our employees are represented by a labor union with respect to his or her employment. We have not experienced any work stoppages and we consider our relations with our employees to be good.
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Facilities
Our corporate headquarters are located in Los Gatos, California, where we lease approximately 130,000 square feet of commercial space under a lease that expires in 2020. We use this space for sales, research and development and administrative purposes. We also hold a lease for approximately 78,000 square feet of commercial office space in Saratoga, California through 2020. We have sublet a portion of this space and we intend to sublet the remainder prior to lease expiration. In addition, we maintain offices in Austin, Texas; Cambridge, United Kingdom; Los Angeles, California; Chicago, Illinois; Shanghai, China; and New York, New York.
We believe that our facilities are suitable to meet our current needs. We intend to expand our existing facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. However, we expect to incur additional expenses in connection with such new or expanded facilities.
Legal Proceedings
We are currently involved in, and may in the future be involved in, legal proceedings, claims, and investigations in the ordinary course of our business, including claims for infringing patents, copyrights or other intellectual property rights related to our platform and products, or the content distributed through our platform by us or third-party channel developers. Although the results of these proceedings, claims, and investigations cannot be predicted with certainty, we do not believe that the final outcome of any matters that we are currently involved in are reasonably likely to have a material adverse effect on our business, financial condition, or results of operations. Regardless of final outcomes, however, any such proceedings, claims, and investigations may nonetheless impose a significant burden on management and employees and may come with costly defense costs or unfavorable preliminary and interim rulings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to our executive officers and directors as of June 30, 2017.
Name |
Age |
Position |
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Executive Officers |
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Anthony Wood |
51 |
President, Chief Executive Officer and Chairman |
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Steve Louden |
45 |
Chief Financial Officer |
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Stephen Kay |
56 |
Senior Vice President, General Counsel and Secretary |
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Scott Rosenberg |
43 |
General Manager and Senior Vice President of Advertising |
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Steve Shannon |
53 |
General Manager and Senior Vice President of Content & Services |
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Chas Smith |
57 |
General Manager and Senior Vice President of Roku TV & Players |
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Non-Employee Directors |
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Ravi Ahuja (2)(3) |
46 |
Director |
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Shawn Carolan (2) |
43 |
Director |
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Jeffrey Hastings (1) |
53 |
Director |
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Alan Henricks (1) |
66 |
Director |
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Neil Hunt (2) |
55 |
Director |
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Daniel Leff (1) |
48 |
Director |
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Ray Rothrock (2)(3) |
62 |
Director |
(1) | Member of the Audit Committee. |
(2) | Member of the Compensation Committee. |
(3) | Member of the Nominating and Corporate Governance Committee. |
Executive Officers
Anthony Wood is our founder and has served as our Chief Executive Officer since October 2002, our Chairman since February 2008 and our President since July 2011. Mr. Wood also served as our President from October 2002 to February 2010, our Chief Financial Officer from October 2002 to July 2010 and our Secretary from February 2008 to February 2011. From April 2007 to January 2008, Mr. Wood served as Vice President of Internet TV at Netflix, Inc., an online streaming media subscription service. From September 2010 to present, Mr. Wood has served as chairman of the board of directors of BrightSign LLC, a digital sign controller company, which had been a division of Roku prior to August 2010. From September 1997 to August 2001, Mr. Wood served in various capacities at ReplayTV, Inc., a digital video recorder company he founded, including as its President and Chief Executive Officer, Chairman of the Board and President of Products. From March 1996 to September 1997, Mr. Wood served as Vice President of Internet Authoring at Macromedia, Inc., a software company. From June 1995 to March 1996, Mr. Wood served as Chief Executive Officer of iband, Inc., an Internet software company. Mr. Wood holds a B.S. in Electrical Engineering from Texas A&M University. Mr. Wood was selected to serve on our board of directors due to the perspective and experience he brings as our founder, President and Chief Executive Officer and his extensive experience in the software, hardware and online entertainment industries.
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Steve Louden has served as our Chief Financial Officer since June 2015. From May 2009 to June 2015, Mr. Louden served in various capacities at Expedia, Inc., an Internet travel company, including as its Vice President, Corporate Finance and most recently serving as its Treasurer. Prior to joining Expedia, Mr. Louden has also previously held finance, strategy and planning roles at Washington Mutual, Inc., McKinsey & Company and the Walt Disney Company, and began his career as a financial analyst with Merrill Lynch and Co., Inc. Mr. Louden holds a B.A. in Economics and Mathematics from Claremont McKenna College and an M.B.A. from Harvard Business School.
Stephen Kay has served as our Senior Vice President and General Counsel since January 2014 and our Secretary since February 2014. From June 2009 to December 2013, Mr. Kay was a Partner at Hogan Lovells LLP, an international law firm, and he served as the Managing Partner of such law firms Los Angeles office from January 2011 to December 2013. From January 2003 to May 2008, Mr. Kay served as Executive Vice President and General Counsel at Gemstar-TV Guide International, Inc., a media and technology company. From January 1995 to December 2002, Mr. Kay was a Partner at Hogan & Hartson LLP, an international law firm. Mr. Kay holds a B.A. in History from the University of California, Berkeley and a J.D. from Boston University School of Law.
Scott Rosenberg has served as our General Manager since May 2017 and Senior Vice President of Advertising since March 2017. From November 2012 until February 2017, he served as our Vice President of Advertising. Before joining Roku, Mr. Rosenberg co-founded and served as CEO of Umami Co, a companion TV mobile application company. From January 2007 to April 2010, Mr. Rosenberg served as Vice President of Advanced Advertising at Rovi Corporation, where he led advertising sales. From July 2005 to January 2007, Mr. Rosenberg served as Director of Product Management at BlackArrow, Inc., a TV ad serving technology company. Earlier in his career, Mr. Rosenberg held product and engineering roles focused on advertising and video technologies at Replay TV, Analog Devices and Intel Corporation. Mr. Rosenberg holds a B.S.E. in Computer Science from Princeton University and was a Fulbright Fellow to Japan. He also holds an M.S. in Electrical Engineering and Computer Science from the Massachusetts Institute of Technology, and an M.B.A. from the Sloan School at MIT.
Steve Shannon has served as our General Manager and Senior Vice President of Content & Services since October 2012. From June 2009 to October 2012, Mr. Shannon served as Executive Vice President at RealD Inc., a licensor of 3D and other visual technologies. From January 2006 to February 2009, Mr. Shannon served as Executive Vice President and General Manager of Product Development at Rovi Corporation, a digital entertainment technology company. From August 2002 to December 2005, Mr. Shannon served as Executive Vice President at Akimbo Systems, Inc., a video on-demand system company that he co-founded. From 1998 to 2002, Mr. Shannon served as Vice President of Marketing at ReplayTV, Inc. Mr. Shannon holds a B.A. in Economics from the University of California, Los Angeles and an M.B.A. from the University of California, Berkeley Haas School of Business.
Chas Smith has served as our General Manager and Senior Vice President of Roku TV & Players since August 2012 and served as our Vice President of Sales from March 2010 to July 2011. Prior to joining Roku, Mr. Smith ran his own digital media business consulting company from 2007 to March 2010. Mr. Smith also previously held executive positions at Avid Technology, a digital media company and Digidesign, a digital audio technology company.
Non-Employee Directors
Ravi Ahuja has served as a member of our board of directors since February 2013. Since June 2016, Mr. Ahuja has served as Chief Financial Officer of Fox Networks Group, an operating unit of Twenty-First Century Fox, a media company. From April 2010 to June 2016 he served as Executive Vice President, Business Operations and Development, and from May 2007 to March 2010 he served as Senior Vice President, Business Operations, of Fox Networks Group. From 1999 to 2007, Mr. Ahuja served in various executive capacities at
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Virgin Entertainment Group, Inc., a media company, including ultimately as its Chief Financial Officer. From 1997 to 1999, Mr. Ahuja served as an associate at McKinsey & Co., a management consulting firm. Mr. Ahuja holds a B.S. in Finance and an M.B.A. from the Wharton School at the University of Pennsylvania. Mr. Ahuja was selected to serve on the board of directors because of his management experience and his strong background in finance and global strategic planning.
Shawn Carolan has served as a member of our board of directors since September 2008. Since September 2004, Mr. Carolan has been a Managing Director of Menlo Ventures. Since January 2011, Mr. Carolan has served as Chief Executive Officer of Handle, Inc. From May 1997 to August 2000, Mr. Carolan served as a Senior Developer at Open Port Technology, Inc., an Internet-based messaging company. From June 1996 to September 1997, Mr. Carolan served as a graduate fellow at the University of Illinois Center for Computational Electromagnetics, an engineering research facility. Mr. Carolan is a member of the board of directors of IMVU, Inc. and leads the Menlo Ventures investment in Uber Technologies, Inc. Mr. Carolan was formerly a member of the board of directors of TeleNav, Inc. and YuMe, Inc. Mr. Carolan holds a B.S. and an M.S. in Electrical Engineering from the University of Illinois, Champaign and an M.B.A. from Stanford University. Mr. Carolan was selected to serve on the board of directors because of his extensive operating and management experience with connected software, services and devices.
Jeffrey Hastings has served as a member of our board of directors since August 2011. Since August 2009, Mr. Hastings has been Chief Executive Officer of BrightSign LLC, a manufacturer of digital signage media players. From August 2007 to March 2009, Mr. Hastings served as President & General Manager, Digital Media of Corel Corporation, a software company. From August 2005 to August 2007, Mr. Hastings served as General Manager at Pinnacle Systems, Inc., a hardware and software company. From April 2004 to August 2005, Mr. Hastings served as Chief Operating Officer at M-Audio, a hardware and software company. From April 2003 to April 2004, Mr. Hastings served as President at Rio, Inc., a portable audio device company. From August 2001 to April 2003, Mr. Hastings served several roles at SonicBlue Incorporated, a consumer electronics company, with his last position being Vice President, Engineering, Operations and Customer Care. From February 2000 to August 2001, Mr. Hastings served as Executive Vice President of Products at ReplayTV, Inc. Mr. Hastings holds a B.S. in Computer Science from Purdue University. Mr. Hastings was selected to serve on the board of directors because of his extensive experience in working with digital media companies and the experience and knowledge of our company he brings as a former officer of Roku.
Alan Henricks has served as a member of our board of directors since May 2012. Since May 2009, Mr. Henricks has served as an independent consultant and board member to technology companies. Since March 2014, Mr. Henricks has served as a member of the board of directors of A10 Networks, Inc. Since May 2015 Mr. Henricks has served as a member of the board of directors of Model N. From November 2014 to June 2015, Mr. Henricks served as a member of the board of directors of Applied Predictive Technologies, Inc. From 2010 to 2015, Mr. Henricks served as a member of the board of directors of Ellie Mae, Inc. From September 2006 to May 2009, Mr. Henricks served as Chief Financial Officer of Pure Digital Technologies, Inc. Prior to September 2006, Mr. Henricks served as Chief Financial Officer of various companies including Traiana Inc., Informix Software, Inc., Documentum, Inc., Borland International, Inc., Cornish & Carey and Maxim Integrated Products, Inc. Mr. Henricks holds a B.S. in Engineering from the Massachusetts Institute of Technology and an M.B.A. from Stanford University. Mr. Henricks was selected to serve on the board of directors because of his extensive experience serving as Chief Financial Officer of both public and private companies, as well as his prior service on public and private company boards.
Neil Hunt has served as a member of our board of directors since August 2017. From 1999 to July 2017, he served as Chief Product Officer of Netflix, Inc. Prior to Netflix, Mr. Hunt served in various engineering and product roles at the software test tool company Pure Software and its successors, Pure Atria Corporation and Rational Software. Mr. Hunt has been a non-executive member of Logitech International S.A.s board of directors since September 2010. Mr. Hunt holds a Doctorate in Computer Science from the University of Aberdeen, U.K. and a Bachelors degree from the University of Durham, U.K. Mr. Hunt was selected to serve on
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the board of directors because of his extensive experience in the streaming media technology industry, as well as his prior service on a public company board.
Daniel Leff has served as a member of our board of directors since August 2011. Since March 2013, Mr. Leff has been Founder and Managing Partner of Luminari Capital, a digital media-focused venture capital firm. From March 2008 to February 2013, Mr. Leff was a venture partner at Globespan Capital Partners, a technology-focused venture capital firm. Mr. Leff holds a B.S. in Chemistry from the University of California, Berkeley, a Ph.D. in Physical Chemistry from the University of California, Los Angeles, and an M.B.A. from the Anderson School of Management at the University California, Los Angeles. Mr. Leff was selected to serve on the board of directors because of his strong technical background, his extensive experience in working with growing technology companies and his wide-ranging domain expertise in the media industry.
Ray Rothrock has served as a member of our board of directors since August 2014. Since February 2014, Mr. Rothrock has served as Chairman and Chief Executive Officer of RedSeal, Inc., a cyber security company. From 1988 to June 2013, Mr. Rothrock was a Partner at Venrock, a venture capital firm. Since 1994, Mr. Rothrock has served as a member of the board of directors of Check Point Software Technologies Ltd. Mr. Rothrock holds a B.S. in Nuclear Engineering from Texas A&M University, an M.S. in Nuclear Engineering from the Massachusetts Institute of Technology and an M.B.A. from Harvard Business School. Mr. Rothrock was selected to serve on the board of directors because of his extensive experience with technology companies, as well as his prior service on public and private company boards.
Family Relationships
There are no family relationships among any of the directors or executive officers.
Board Composition
Certain members of our board of directors were elected pursuant to the provisions of a voting agreement, as amended. Under the terms of this voting agreement, the stockholders who are party to the voting agreement have agreed to vote their respective shares so as to elect: (1) one director designated by Menlo Ventures X, L.P., currently Mr. Carolan; (2) one director designated by Globespan Capital Partners V, L.P., currently Mr. Leff; (3) one director designated by Twenty-First Century Fox, Inc., currently Mr. Ahuja; and (4) two directors designated by Mr. Wood, currently Messrs. Wood and Hastings. The holders of a majority of our preferred stock and common stock further designated Messrs. Henricks, Hunt and Rothrock for election to our board of directors. The 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.
Our board of directors will consist of eight members upon the closing of this offering. In accordance with the amended and restated certificate of incorporation to be filed in connection with this offering, immediately after this offering, our board of directors will be divided into three classes. At each annual general meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following the election. Our directors will be divided among the three classes as follows:
| the Class I directors will be Shawn Carolan and Daniel Leff, and their terms will expire at the annual meeting of stockholders to be held in 2018; |
| the Class II directors will be Ravi Ahuja, Jeffrey Hastings and Ray Rothrock, and their terms will expire at the annual meeting of stockholders to be held in 2019; and |
| the Class III directors will be Alan Henricks, Neil Hunt and Anthony Wood, and their terms will expire at the annual meeting of stockholders to be held in 2020. |
We expect that 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
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directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.
Voting Agreement
In November 2015, we entered into an amended and restated voting agreement with certain holders of our outstanding preferred stock and warrants to purchase preferred stock, including entities affiliated with Menlo Ventures, Globespan Capital Partners and Twenty-First Century Fox. This agreement was later amended in August 2017. Shawn Carolan and Ravi Ahuja, members of our board of directors, are affiliated with Menlo Ventures and Twenty-First Century Fox, respectively. Daniel V. Leff, a member of our board of directors, was formerly affiliated with Globespan Capital Partners. The parties to the voting agreement have agreed to vote in a certain way on certain matters, including with respect to the election of directors. Pursuant to the voting agreement, the holders of our Series A preferred stock, voting as a separate class, have designated Anthony Wood and Jeffrey Hastings for election to our board of directors; the holders of our Series C preferred stock, voting as a separate class, have designated Shawn Carolan for election to our board of directors; the holders of our Series D preferred stock, voting as a separate class, have designated Daniel Leff for election to our board of directors; the holders of our Series E preferred stock, voting as a separate class, have designated Ravi Ahuja for election to our board of directors; and the holders of a majority of our Class B common stock and preferred stock, voting together as a single class, on an as converted basis, have designated Alan Henricks, Neil Hunt and Ray Rothrock for election to the board of directors. Upon the closing of this offering, the voting agreement will terminate and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors.
Director Independence
Under the listing requirements and rules of the Nasdaq Global Select Market, or Nasdaq, independent directors must comprise a majority of our board of directors as a listed company within one year of the closing of this offering.
Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that Messrs. Ahuja, Carolan, Henricks, Hunt, Leff and Rothrock do not have any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is independent as that term is defined under the applicable rules and regulations of the SEC and the listing requirements and rules of Nasdaq. Mr. Wood is not independent given his position as our President and Chief Executive Officer and Mr. Hastings is not independent given his status as the Chief Executive Officer of BrightSign LLC, where Mr. Wood is a member of the board of directors and majority stockholder. Accordingly, a majority of our directors are independent, as required under applicable Nasdaq listing rules. In making this determination, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including their beneficial ownership of our capital stock.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directors may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.
All of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, Nasdaq and SEC rules and regulations, except that with respect to the audit committee independence
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requirements, our audit committee will rely upon the phase-in rules of Nasdaq and the SEC, as further described below.
Audit Committee
Our audit committee consists of Messrs. Henricks, Leff and Hastings. Our board of directors has determined that Messrs. Henricks and Leff are independent under Nasdaq listing standards and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The chair of our audit committee is Mr. Henricks. Our board of directors has determined that Mr. Henricks is an audit committee financial expert within the meaning of SEC regulations. We are permitted to phase-in our compliance with the independent audit committee requirements set forth in Nasdaq rules and relevant SEC rules as follows: (1) one independent member at the time of listing, (2) a majority of independent members within 90 days of listing and (3) all independent members within one year of listing. Our board of directors has also determined that each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, the board of directors has examined each audit committee members scope of experience and the nature of their employment in the corporate finance sector.
The primary purpose of the audit committee is to discharge the responsibilities of our board of directors with respect to our accounting, financial and other reporting and internal control practices and to oversee our independent registered accounting firm. Specific responsibilities of our audit committee include:
| selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; |
| helping to ensure the independence and performance of the independent registered public accounting firm; |
| discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results; |
| developing procedures for employees to anonymously submit concerns about questionable accounting or audit matters; |
| reviewing our policies on risk assessment and risk management; |
| reviewing related party transactions; |
| obtaining and reviewing a report by the independent registered public accounting firm at least annually, that describes our internal quality control procedures, any material issues with such procedures, and any steps taken to deal with such issues when required by applicable law; and |
| approving (or, as permitted, pre-approving) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm. |
Compensation Committee
Our compensation committee consists of Messrs. Ahuja, Carolan, Hunt and Rothrock. Our board of directors has determined each member of the compensation committee is independent under Nasdaq listing standards, are non-employee directors as defined in Rule 16b-3 promulgated under the Exchange Act and are outside directors as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code. The chair of our compensation committee is Mr. Rothrock.
The primary purpose of the compensation committee is to discharge the responsibilities of our board of directors to oversee our compensation policies, plans and programs and to review and determine the
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compensation to be paid to our executive officers, directors and other senior management, as appropriate. Specific responsibilities of our compensation committee include:
| reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers; |
| reviewing and recommending to our board of directors the compensation of our directors; |
| reviewing and approving, or recommending that our board of directors approve, the terms of compensatory arrangements with our executive officers; |
| administering our stock and equity incentive plans; |
| selecting independent compensation consultants and assessing whether there are any conflicts of interest with any of the committees compensation advisers; |
| reviewing and approving, or recommending that our board of directors approve, incentive compensation and equity plans, severance agreements, change-of-control protections and any other compensatory arrangements for our executive officers and other senior management, as appropriate; and |
| reviewing and establishing general policies relating to compensation and benefits of our employees and reviewing our overall compensation philosophy. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Messrs. Ahuja and Rothrock. The chair of our nominating and corporate governance committee is Mr. Ahuja. Each member of the nominating and corporate governance committee is independent within the meaning of applicable listing standards, is a non-employee director and is free from any relationship that would interfere with the exercise of his or her independent judgment, as determined by the board of directors in accordance with the applicable Nasdaq listing standards.
Specific responsibilities of the nominating and corporate governance committee include:
| identifying, evaluating and selecting, or recommending that our board of directors approve, nominees for election to our board of directors; |
| evaluating the performance of our board of directors and of individual directors; |
| considering and making recommendations to our board of directors regarding the composition of the committees of the board of directors; |
| reviewing developments in corporate governance practices; |
| evaluating the adequacy of our corporate governance practices and reporting; |
| reviewing management succession plans; |
| developing and making recommendations to our board of directors regarding corporate governance guidelines and matters; and |
| overseeing an annual evaluation of the board of directors performance. |
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to all of our employees, officers, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions and agents and representatives, including directors and consultants. The
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full text of our code of business conduct and ethics will be posted on our website at www.roku.com. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of such provisions applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and our directors, on our website identified above. Information contained on or accessible through our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee is currently, or has been at any time, one of our officers or employees. Mr. Wood serves as a member of the board of directors of BrightSign LLC, where Mr. Hastings, a member of our board of directors, serves as Chief Executive Officer.
Non-Employee Director Compensation
The following table sets forth information concerning the compensation earned by or paid to our non-employee directors during fiscal 2016.
Name |
Fees Earned or
Paid in Cash |
Option
Awards (1) |
Total | |||||||||
Ravi Ahuja |
$ | | $ | | $ | | ||||||
Shawn Carolan |
| | | |||||||||
Jeffrey Hastings |
| | | |||||||||
Alan Henricks |
50,000 | 62,274 | 112,274 | |||||||||
Neil Hunt (2) |
| | | |||||||||
Daniel Leff |
| | | |||||||||
Ray Rothrock |
| | |
(1) | Amounts shown in this column do not reflect dollar amounts actually received by our non-employee directors. Instead, these amounts reflect the aggregate grant date fair value of each stock option granted in 2016 and the incremental fair value of stock options repriced in the fourth quarter of 2016, computed in accordance with the provisions of FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 6 to our consolidated financial statements included in this prospectus. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Our non-employee directors will only realize compensation to the extent the trading price of our Class A common stock is greater than the exercise price of such stock options. |
(2) | Mr. Hunt joined our board of directors in August 2017. |
We currently reimburse our directors for their reasonable out-of-pocket expenses in connection with attending board of directors and committee meetings. From time to time, we have granted stock options to certain of our non-employee directors as compensation for their services. Mr. Hastings, Mr. Henricks, Mr. Hunt and Mr. Rothrock are our only non-employee directors who hold options to purchase Class B common stock.
In May 2012, we granted Mr. Henricks an option to purchase 166,533 shares of Class B common stock with an exercise price of $2.28 per share, vesting monthly over four years. In May 2016, we granted Mr. Henricks an option to purchase 20,833 shares of Class B common stock with an exercise price of $7.02 per share, vesting monthly over one year, which stock option was repriced to have an exercise price of $5.64 per share in the fourth quarter of 2016. In May 2017, we granted Mr. Henricks an option to purchase 20,833 shares of Class B common stock with an exercise price of $6.12 per share, vesting monthly over one year.
In August 2014, we granted Mr. Hastings an option to purchase 83,333 shares of Class B common stock with an exercise price of $4.08 per share, vesting monthly over three years. In August 2017, we granted
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Mr. Hastings an option to purchase 20,833 shares of Class B common stock with an exercise price of $8.82 per share, vesting monthly over one year.
In August 2014, we granted Mr. Rothrock an option to purchase 83,333 shares of Class B common stock with an exercise price of $4.08 per share, vesting monthly over four years.
In August 2017, we granted Mr. Hunt an option to purchase 83,333 shares of Class B common stock with an exercise price of $8.82 per share, vesting monthly over four years.
In September 2017, we entered into an Independent Contractor Services Agreement with Mr. Hunt. Under this agreement, Mr. Hunt will provide consulting services to us as may be requested from time to time by our Chief Executive Officer. As compensation for these services, we will pay Mr. Hunt at a rate of $5,000 per day of service, not to equal or exceed $120,000 in any rolling 12 month period.
Non-Employee Director Compensation Policy
We have adopted a non-employee director compensation policy, pursuant to which our non-employee directors will be eligible to receive compensation for service on our board of directors and committees of our board of directors.
Equity Compensation
Initial Grant
Each new non-employee director who joins our board of directors after our initial public offering will receive an equity grant for shares for our Class A common stock equivalent to $320,000 under our 2017 Equity Incentive Plan, or the 2017 Plan, consisting of 50% in stock options vesting monthly over three years from the grant date and 50% in restricted stock units vesting annually over three years from the grant date, each subject to continued service as a director through each applicable vesting date.
Annual Grant
On the date of each annual meeting of our stockholders, each continuing non-employee director will receive an equity grant for shares for our Class A common stock equivalent to $160,000 under our 2017 Plan, consisting of 50% in stock options vesting monthly over one year from the grant date and 50% in restricted stock units vesting on the one-year anniversary measured from the grant date, each subject to continued service as a director through each applicable vesting date.
Vesting Acceleration
In the event of a change of control (each as defined in our 2017 Plan), any unvested portion of an equity award granted under the policy will fully vest and become exercisable immediately prior to the effective date of such change of control, subject to the non-employee directors continuous service with us on the effective date of the change of control.
The exercise price per share of each stock option and the calculation of the number of shares of restricted stock units granted under the non-employee director compensation policy will be the closing price of our common stock as reported by the NASDAQ Global Select Market on the date of grant. Each stock option will have a term of ten years from the date of grant, subject to earlier termination in connection with a termination of the non-employee directors continuous service with us.
Cash Compensation
Commencing with the first calendar quarter following the closing of our initial public offering, each non-employee director will receive an annual cash retainer of $35,000 for serving on our board of directors.
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The chairperson and members of the three committees of our board of directors will be entitled to the following additional annual cash retainers:
Board Committee |
Chairperson Fee | Member Fee | ||||||
Audit Committee |
$ | 20,000 | $ | 8,000 | ||||
Compensation Committee |
13,500 | 6,000 | ||||||
Nominating and Corporate Governance Committee |
8,000 | 3,900 |
All annual cash compensation amounts will be payable in equal quarterly installments in arrears, on the last day of each fiscal quarter for which the service occurred, pro-rated based on the days served in the applicable fiscal quarter.
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Our named executive officers, consisting of our principal executive officer and the next two most highly compensated executive officers as of December 31, 2016, were:
| Anthony Wood, President and Chief Executive Officer; |
| Steve Louden, Chief Financial Officer; and |
| Chas Smith, General Manager and Senior Vice President of Roku TV & Players |
Summary Compensation Table
The following table sets forth all of the compensation awarded to, earned by or paid to our named executive officers during fiscal 2016.
Name and Principal Position |
Year | Salary |
Option
Awards (1) |
All Other
Compensation (2) |
Total | |||||||||||||||
Anthony Wood |
2016 | $ | 750,000 | $ | 22,380 | $ | 13,255 | $ | 785,635 | |||||||||||
President and Chief Executive Officer |
||||||||||||||||||||
Steve Louden |
2016 | 603,251 | 411,033 | 13,255 | 1,027,539 | |||||||||||||||
Chief Financial Officer |
||||||||||||||||||||
Chas Smith |
2016 | 488,462 | 736,453 | 13,255 | 1,238,170 | |||||||||||||||
General Manager and Senior Vice President of Roku TV & Players |
(1) | Amounts shown in this column do not reflect dollar amounts actually received by our named executive officers. Instead, these amounts reflect the aggregate grant date fair value of each stock option granted in 2016 and the incremental fair value of stock options repriced in the fourth quarter of 2016, computed in accordance with the provisions of FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 6 to our consolidated financial statements included in this prospectus. Our named executive officers will only realize compensation to the extent the trading price of our Class A common stock is greater than the exercise price of such stock options. |
(2) | Amounts reported include medical and life insurance premiums paid by us on behalf of the named executive officer. |
Outstanding Equity Awards as of December 31, 2016
The following table presents information regarding outstanding equity awards held by our named executive officers as of December 31, 2016. All awards were granted under our 2008 Equity Incentive Plan.
Option Awards | ||||||||||||||||||||||||
Name |
Grant Date |
Vesting
Commencement Date |
Number of
Securities Underlying Unexercised Options Exercisable (#) |
Number of
Securities Underlying Unexercised Options Unexercisable (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
||||||||||||||||||
Anthony Wood |
11/18/2008 | 09/19/2008 | 2,007,841 | (1) | | $ | 0.1602 | 11/17/2018 | ||||||||||||||||
07/24/2012 | 09/18/2012 | 1,333,333 | (2)(5) | | 2.76 | 07/23/2022 | ||||||||||||||||||
07/24/2012 | | 166,666 | (3) | | 2.76 | 07/23/2022 | ||||||||||||||||||
08/11/2015 | 08/11/2015 | 1,139,163 | (4)(5)(14) | | 5.64 | 08/10/2025 | ||||||||||||||||||
Steve Louden |
07/03/2015 | 06/26/2015 | 17,543 | (5)(6) | | 5.70 | 07/02/2025 | |||||||||||||||||
07/03/2015 | 06/26/2015 | 565,789 | (5)(7)(14) | | 5.64 | 07/02/2025 | ||||||||||||||||||
05/17/2016 | 05/17/2016 | 125,000 | (5)(8)(14) | | 5.64 | 05/16/2026 |
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Option Awards | ||||||||||||||||||||||||
Name |
Grant Date |
Vesting
Commencement Date |
Number of
Securities Underlying Unexercised Options Exercisable (#) |
Number of
Securities Underlying Unexercised Options Unexercisable (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
||||||||||||||||||
Chas Smith |
10/30/2012 | 09/01/2012 | 333,332 | (5)(9) | | $ | 2.76 | 10/30/2022 | ||||||||||||||||
03/23/2015 | 03/23/2015 | 124,999 | (5)(10) | | 5.64 | 03/22/2025 | ||||||||||||||||||
03/23/2015 | 09/01/2016 | 250,000 | (5)(11) | | 5.64 | 03/23/2025 | ||||||||||||||||||
05/17/2016 | 05/17/2016 | 125,000 | (5)(12)(14) | | 5.64 | 05/16/2026 | ||||||||||||||||||
11/08/2016 | 09/02/2018 | 133,333 | (5)(13) | | 5.64 | 11/07/2026 |
(1) | This option is fully vested as of December 31, 2016. 22,645 shares have been exercised. |
(2) | 1/48 th of the total shares subject to this option grant will vest monthly measured from the vesting commencement date. As of December 31, 2016, 1,333,333 shares are vested. |
(3) | This option is subject to milestone vesting tied to our gross revenue and valuation. In November 2014, Rokus board of directors determined that certain of these milestones have been met and that 83,333 shares subject to this option vested in September 2014 and 83,333 shares vested in September 2015. This option is early exercisable and to the extent any purchased shares are unvested as of a given date, such shares will remain subject to a right of repurchase by Roku upon the termination of the service of Mr. Wood. |
(4) | 1/48 th of the total shares subject to this option grant will vest monthly measured from the vesting commencement date. As of December 31, 2016, 379,721 shares are vested. |
(5) | This option is early exercisable and to the extent any of such shares are unvested as of a given date, such purchased shares will remain subject to a right of repurchase by Roku upon the termination of the service of the named executive officer. Upon the closing of a corporate transaction (as defined in the 2008 Equity Incentive Plan) (i) 25% of the shares will vest immediately, and (ii) in the event that the employees employment is terminated without cause by Roku or the employee terminates his employment for good reason (in either case, such termination occurring within 12 months following a corporate transaction) then 100% of the unvested shares will vest immediately, subject to the employee signing a general release of all known and unknown claims in a form acceptable to Roku. |
(6) | 25% of the total shares subject to this option will vest one year after the vesting commencement date and 1/48 th of the shares subject to this option will vest monthly thereafter. As of December 31, 2016, 6,578 shares are vested. |
(7) | 25% of the total shares subject to this option will vest one year after the vesting commencement date and 1/48 th of the shares subject to this option will vest monthly thereafter. As of December 31, 2016, 212,171 shares are vested. |
(8) | 1/48 th of the total shares subject to this option grant will vest monthly measured from the vesting commencement date. As of December 31, 2016, 18,229 shares are vested. |
(9) | 25% of the total shares subject to this option grant will vest one year after the vesting commencement date and 1/48 th of the shares subject to this option grant will vest monthly thereafter. As of December 31, 2016, 333,332 shares are vested. |
(10) | 1/48 th of the total shares subject to this option grant will vest monthly measured from the vesting commencement date. As of December 31, 2016, 54,687 shares are vested. |
(11) | 1/24 th of the total shares subject to this option grant will vest monthly measured from the vesting commencement date. As of December 31, 2016, 31,250 shares are vested. |
(12) | 1/48 th of the total shares subject to this option grant will vest monthly measured from the vesting commencement date. As of December 31, 2016, 18,229 shares are vested. |
(13) | 1/12 th of the total shares subject to this option grant will vest monthly measured from the vesting commencement date. As of December 31, 2016, no shares are vested. |
(14) | This stock option was repriced in the fourth quarter of 2016. |
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Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. As an emerging growth company we will be exempt from certain requirements related to executive compensation, including, but not limited to, the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating to the ratio of total compensation of our Chief Executive Officer to the median of the annual total compensation of all of our employees, each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Pension Benefits
Our named executive officers did not participate in, or otherwise receive any benefits under, any pension or retirement plan sponsored by us during fiscal 2016.
Nonqualified Deferred Compensation
Our named executive officers did not participate in, or earn any benefits under, a non-qualified deferred compensation plan sponsored by Roku during fiscal 2016.
Employment, Severance and Change in Control Agreements
We have employment agreements with each of our executive officers other than Anthony Wood, who is our founder and serves as our President, Chief Executive Officer and Chairman. The agreements generally provide for at-will employment and set forth the executive officers initial base salary and initial equity grant. Each of our executive officers is a party to our severance benefit plan, which provides for certain employee benefits upon a qualifying termination of employment. In addition, each of our executive officers has executed our standard proprietary information and inventions agreement. The key terms of the employment agreements are described below.
Anthony Wood
We do not have a written employment agreement with Mr. Wood. In August 2017, we increased Mr. Woods annual base salary to $1,000,000 from $750,000. In November 2008, we granted Mr. Wood an option to purchase 2,007,841 shares of Class B common stock with an exercise price of $0.1602 per share and 505,050 shares of Class B common stock with an exercise price of $1.98 per share, with 25% of each option vesting in September 2009 and the remainder vesting monthly over 36 months from September 2009. The latter option was repriced to $0.1764 per share in September 2010 and was fully exercised in June 2013. In July 2012, we granted Mr. Wood an option to purchase 1,333,333 shares of Class B common stock with an exercise price of $2.76 per share with the shares vesting monthly over 48 months from September 2012. In July 2012, we granted Mr. Wood an option to purchase 166,666 shares of Class B common stock with an exercise price of $2.76 per share with the shares subject to milestone vesting tied to our gross revenue and valuation. In August 2015, we granted Mr. Wood an option to purchase 1,139,163 shares of Class B common stock with an exercise price of $5.70 per share with the shares vesting monthly over 48 months from August 2015, which stock option was repriced to have an exercise price of $5.64 per share in the fourth quarter of 2016. In August 2017, we granted Mr. Wood an option to purchase 833,333 shares of Class B common stock with an exercise price of $8.82 per share with the shares vesting monthly over 24 months from August 2019.
Stephen Kay
In November 2013, we entered into an employment agreement with Mr. Kay, pursuant to which he commenced employment as our Senior Vice President and General Counsel, on an at-will basis. Mr. Kays annual base salary as of June 30, 2017 was $500,000. In January 2014, we granted Mr. Kay an option to purchase
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333,216 shares of Class B common stock with an exercise price of $2.94 per share with 25% of the shares vesting in January 2015 and the remainder vesting monthly over 36 months from January 2015 and an option to purchase 136,053 shares of Class B common stock with an exercise price of $2.94 per share with 25% of the shares vesting in December 2014 and the remainder vesting monthly over 36 months from December 2014. In March 2015, we granted Mr. Kay an option to purchase 104,166 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 48 months from March 2015. In November 2015, we granted Mr. Kay an option to purchase 133,333 shares of Class B common stock with an exercise price of $7.02 per share vesting monthly over 12 months from January 2018, which stock option was repriced to have an exercise price of $5.64 per share in the fourth quarter of 2016. In May 2017, we granted Mr. Kay an option to purchase 83,332 shares of Class B common stock with an exercise price of $6.12 per share vesting monthly over 12 months from January 2019.
Steve Louden
In June 2015, we entered into an employment agreement with Mr. Louden, pursuant to which he commenced employment as our Chief Financial Officer, on an at-will basis. Mr. Loudens annual base salary as of June 30, 2017 was $575,000. In July 2015, we granted Mr. Louden an option to purchase 565,789 shares of Class B common stock with an exercise price of $5.70 per share with 25% of the shares vesting in June 2016 and the remainder vesting monthly over 36 months from June 2016, which stock option was repriced to have an exercise price of $5.64 per share in the fourth quarter of 2016 and an option to purchase 17,543 shares of Class B common stock with an exercise price of $5.70 per share with 25% of the shares vesting in June 2016 and the remainder vesting monthly over 36 months from June 2016. In May 2016, we granted Mr. Louden an option to purchase 124,999 shares of Class B common stock with an exercise price of $7.02 per share vesting monthly over 48 months from May 2016, which stock option was repriced to have an exercise price of $5.64 per share in the fourth quarter of 2016. In May 2017, we granted Mr. Louden an option to purchase 83,332 shares of Class B common stock with an exercise price of $6.12 per share vesting monthly over 12 months from June 2019.
Scott Rosenberg
In October 2012, we entered into an employment agreement with Mr. Rosenberg, pursuant to which he commenced employment as our Vice President, Business Development, Content and Services, on an at-will basis. Mr. Rosenbergs annual base salary as of June 30, 2017 was $500,000. In February 2013, we granted Mr. Rosenberg an option to purchase 41,665 shares of Class B common stock with an exercise price of $2.76 per share with 25% of the shares vesting in November 2013 and the remainder vesting monthly over 36 months from November 2013. In November 2013, we granted Mr. Rosenberg an option to purchase 16,666 shares of Class B common stock with an exercise price of $2.94 per share vesting monthly over 36 months from November 2013. In November 2014, we granted Mr. Rosenberg an option to purchase 29,166 shares of Class B common stock with an exercise price of $4.86 per share vesting monthly over 24 months from November 2016. In March 2015, we granted Mr. Rosenberg an option to purchase 10,416 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 48 months from March 2015. In August 2015, we granted Mr. Rosenberg an option to purchase 33,332 shares of Class B common stock with an exercise price of $5.70 per share vesting monthly over 48 months from August 2015, which stock option was repriced to have an exercise price of $5.64 per share in the fourth quarter of 2016. In May 2016, we granted Mr. Rosenberg an option to purchase 16,666 shares of Class B common stock with an exercise price of $7.02 per share vesting monthly over 48 months from May 2016, which stock option was repriced to have an exercise price of $5.64 per share in the fourth quarter of 2016. In November 2016, we granted Mr. Rosenberg options to purchase 83,333 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 48 months from November 2016 and to purchase 16,666 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 24 months from November 2018. In March 2017, we granted Mr. Rosenberg an option to purchase 83,333 shares of Class B common stock with an exercise price of $5.70 per share vesting monthly over 48 months from May 2016. In May 2017, we granted Mr. Rosenberg an option to purchase 83,333 shares of Class B common stock with an exercise price of $6.12 per share vesting monthly over 48 months from May
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2017. In August 2017, we granted Mr. Rosenberg an option to purchase 166,666 shares of Class B common stock with an exercise price of $8.82 per share vesting monthly over 48 months from August 2017.
Stephen Shannon
In August 2012, we entered into an employment agreement with Mr. Shannon, pursuant to which he commenced employment as our General Manager, Senior Vice President, Content and Services on an at-will basis. Mr. Shannons annual base salary as of June 30, 2017 was $550,000. In October 2012, we granted Mr. Shannon, an option to purchase 583,332 shares of Class B common stock with an exercise price of $2.76 per share with 25% of the shares vesting in October 2013 and the remainder vesting monthly over 36 months from October 2013. In March 2015, we granted Mr. Shannon an option to purchase 124,999 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 48 months from March 2015 and an option to purchase 250,000 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 24 months from October 2016. In November 2016, we granted Mr. Shannon an option to purchase 133,333 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 12 months from October 2018. In March 2017, we granted Mr. Shannon an option to purchase 83,332 shares of Class B common stock with an exercise price of $5.70 per share vesting monthly over 48 months from October 2019.
Chas Smith
In August 2012, we entered into an employment agreement with Mr. Smith, pursuant to which he commenced employment as our General Manager and Senior Vice President of Roku TV & Players, on an at-will basis. Mr. Smiths annual base salary as of June 30, 2017 was $500,000. In October 2010, we granted Mr. Smith an option to purchase 554,904 shares of Class B common stock with an exercise price of $0.36 per share with 25% of the shares vesting in July 2011 and the remainder vesting monthly over 36 months from July 2011. In October 2012, we granted Mr. Smith an option to purchase 333,332 shares of Class B common stock with an exercise price of $2.76 per share with 25% of the shares vesting in September 2013 and the remainder vesting monthly over 36 months from September 2013. In March 2015, we granted Mr. Smith an option to purchase 124,999 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 48 months from March 2015 and an option to purchase 250,000 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 24 months from September 2016. In May 2016, we granted Mr. Smith an option to purchase 124,999 shares of Class B common stock with an exercise price of $7.02 per share vesting monthly over 48 months from May 2016, which stock option was repriced to have an exercise price of $5.64 per share in the fourth quarter of 2016. In November 2016, we granted Mr. Smith an option to purchase 133,333 shares of Class B common stock with an exercise price of $5.64 per share vesting monthly over 12 months from September 2018. In August 2017, we granted Mr. Smith an option to purchase 83,332 shares of Class B common stock with an exercise price of $8.82 per share vesting monthly over 12 months from September 2019.
Severance Benefit Plan
Each of our executive officers and vice presidents is eligible to participate in our Severance Benefit Plan, which was approved by our board of directors in May 2016. The benefits provided under the Severance Benefit Plan supersede any similar severance benefits described in a participants offer letter or employment agreement. Participants in our Severance Benefit Plan will be entitled to receive a lump sum cash payment (12 months base salary for our Chief Executive Officer or 9 months base salary for all other participants) upon an involuntary termination without cause. In addition, in the event that such termination occurs, or the participant resigns for good reason, in connection with or within 12 months following a change of control, the participant will be entitled to receive the lump sum severance payment described above and 100% of the participants unvested shares will vest immediately. All such severance benefits are subject to the participant signing a general release of all known and unknown claims in substantially the form provided in the Severance Benefit Plan.
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Employee Benefit Plans
We believe that our ability to grant equity-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees, consultants and directors with the financial interests of our stockholders. In addition, we believe that our ability to grant options and other equity-based awards helps us to attract, retain and motivate employees, consultants and directors and encourages them to devote their best efforts to our business and financial success. The principal features of our equity incentive plans and our 401(k) plan are summarized below. These summaries are qualified in their entirety by reference to the actual text of the plans, which, other than the 401(k) plan, are filed as exhibits to the registration statement of which this prospectus is a part.
2017 Equity Incentive Plan
Our board of directors adopted our 2017 Equity Incentive Plan, or our 2017 Plan, in September 2017, and our stockholders approved the 2017 Plan in September 2017. Our 2017 Plan provides for the grant of incentive stock options to our employees and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity compensation to our employees, directors and consultants.
Authorized Shares
We have initially reserved 12,000,000 shares of Class A common stock for issuance under the 2017 Plan, Following the execution of the underwriting agreement related to this offering, upon the expiration or termination prior to exercise of up to 28,000,000 shares of Class B common stock issuable upon the exercise of stock options outstanding under our 2008 Equity Incentive Plan, an equal number of shares of Class A common stock will be added to the 2017 Plan share reserve. In addition, the number of shares of Class A common stock reserved for issuance under our 2017 Plan will automatically increase on the first day of January for a period of up to 10 years, commencing on January 1, 2018, in an amount equal to 5% of the total number of shares of our capital stock outstanding on the last day of the preceding year, or a lesser number of shares determined by our board of directors. The maximum number of shares of our Class A common stock that may be issued upon the exercise of incentive stock options under our 2017 Plan is 200,000,000.
Shares subject to stock awards granted under our 2017 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, do not reduce the number of shares available for issuance under our 2017 Plan. Additionally, shares issued pursuant to stock awards under our 2017 Plan that we repurchase or that are forfeited, as well as shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award, become available for future grant under our 2017 Plan.
Plan Administration
Our board of directors, or a duly authorized committee of our board of directors, will administer our 2017 Plan. Our board of directors may also delegate to one or more of our officers the authority to (1) designate employees (other than officers) to receive specified stock awards and (2) determine the number of shares subject to such stock awards. Under the 2017 Plan, our board of directors has the authority to determine the terms of awards, including recipients, the exercise, purchase or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of a share of our Class A common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the award and the terms of the award agreements.
The board of directors may also modify outstanding awards under our 2017 Plan, with the consent of any adversely affected participant. The board of directors has the authority to reprice any outstanding option or stock appreciation right, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.
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Stock Options
Incentive stock options and nonstatutory stock options are granted pursuant to stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for stock options, within the terms and conditions of the 2017 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2017 Plan vest at the rate specified by the plan administrator.
The plan administrator determines the term of stock options granted under the 2017 Plan, up to a maximum of 10 years. Unless the terms of an option holders stock option agreement provide otherwise, if an option holders service relationship with us, or any of our affiliates, ceases for any reason other than disability, death or cause, the option holder may generally exercise any vested options for a period of 3 months following the option holders cessation of service. The option term may be extended in the event that exercise of the option or sale of the underlying shares following such a termination of service is prohibited by applicable securities laws or by our insider trading policy. If an option holders service relationship with us or any of our affiliates ceases due to disability or death, or an option holder dies within a certain period following cessation of service, the option holder or a beneficiary may generally exercise any vested options for a period of 12 months in the event of disability and 18 months in the event of death. Options generally terminate immediately upon the termination of the individual for cause. In no event may an option be exercised beyond the expiration of its term.
The plan administrator will determine acceptable consideration for the purchase of Class A common stock issued upon the exercise of a stock option, which may include the following methods: (1) cash, check, bank draft or money order; (2) a broker-assisted cashless exercise procedure; (3) the tender of shares of our Class A or Class B common stock previously owned by the option holder; (4) if the option is a nonstatutory stock option, by a net exercise arrangement; and (5) other legal consideration set forth in the applicable award agreement.
In general, options are not transferable except by will, the laws of descent and distribution, or as otherwise provided by the plan administrator under our 2017 Plan. An option holder may designate a beneficiary, however, who may exercise the option following the option holders death.
Tax Limitations on Incentive Stock Options
The aggregate fair market value, determined at the time of grant, of our Class A common stock with respect to incentive stock options that are exercisable for the first time by an option holder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as nonstatutory stock options. No incentive stock option may be granted to any person who, at the time of grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) 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 (2) the term of the incentive stock option does not exceed five years from the date of grant.
Restricted Stock Unit Awards
Restricted stock unit awards are granted pursuant to restricted stock unit award agreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participants cessation of continuous service for any reason.
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Restricted Stock Awards
Restricted stock awards are granted pursuant to restricted stock award agreements adopted by the plan administrator. A restricted stock award may be awarded in consideration for cash, check, bank draft or money order, past services to us, or any other form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. The plan administrator determines the terms and conditions of restricted stock awards, including vesting and forfeiture terms. If a participants service relationship with us ceases for any reason, we may receive through a forfeiture condition or a repurchase right any or all of the shares of Class A common stock held by the participant that have not vested as of the date the participant terminates service with us.
Stock Appreciation Rights
Stock appreciation rights are granted pursuant to stock appreciation grant agreements adopted by the plan administrator. The plan administrator determines the purchase price or strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (1) the excess, if any, of the per share fair market value of our Class A common stock on the date of exercise over the purchase price or strike price and (2) the number of shares of Class A common stock with respect to which the stock appreciation right is exercised. This amount may be paid in shares of our Class A or Class B common stock, in cash, in any combination of cash and shares of our common stock or in any other form of consideration, as determined by the plan administrator and set forth in the award agreement. A stock appreciation right granted under the 2017 Plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.
The plan administrator determines the term of stock appreciation rights granted under the 2017 Plan, which may be up to a maximum of 10 years. Unless the terms of a participants stock appreciation right agreement provides otherwise, if a participants service relationship with us or any of our affiliates ceases for any reason other than cause, disability or death, the participant may generally exercise any vested stock appreciation right for a period of 3 months following the cessation of service. The term of the stock appreciation right may be further extended in the event that exercise of the stock appreciation right following such a termination of service is prohibited by applicable securities laws or by our insider trading policy. If a participants service relationship with us, or any of our affiliates, ceases due to disability or death, or a participant dies within a certain period following cessation of service, the participant (or, if applicable, a beneficiary) may generally exercise any vested stock appreciation right for a period of 12 months (in the case of disability) or 18 months (in the case of death). Stock appreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of the individual for cause. In no event may a stock appreciation right be exercised beyond the expiration of its term.
Section 162(m) Limits
Certain limits apply when we make awards under the 2017 Plan that are intended to comply with Section 162(m) of the Code. These limitations are intended to give us the flexibility to grant compensation that will not be subject to the $1,000,000 annual limitation on the income tax deductibility imposed by Section 162(m) of the Code at such time as necessary for us to comply with Section 162(m). In the case of stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise price or strike price of at least 100% of the fair market value of our common stock on the date of grant, such awards will not cover more than 2,000,000 shares of our Class A common stock in any calendar year. Additionally, no participant may be granted in a calendar year a performance stock award covering more than 2,000,000 shares of our Class A common stock or a performance cash award having a maximum value in excess of $5,000,000 under our 2017 Plan.
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Performance Awards
The 2017 Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility imposed by Section 162(m) of the Code. Our compensation committee may structure awards so that the stock or cash will be issued or paid only following the achievement of certain pre-established performance goals during a designated performance period.
Our compensation committee may establish performance goals by selecting from one or more of the following performance criteria: (1) earnings (including earnings per share and net earnings); (2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes, depreciation and amortization; (4) earnings before interest, taxes, depreciation, amortization and legal settlements; (5) earnings before interest, taxes, depreciation, amortization, legal settlements and other income (expense); (6) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense) and stock-based compensation; (7) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation and changes in deferred revenue; (8) total stockholder return; (9) return on equity or average stockholders equity; (10) return on assets, investment or capital employed; (11) stock price; (12) margin (including gross margin); (13) income (before or after taxes); (14) operating income; (15) operating income after taxes; (16) pre-tax profit; (17) operating cash flow; (18) sales or revenue targets; (19) increases in revenue or product revenue; (20) expenses and cost reduction goals; (21) improvement in or attainment of working capital levels; (22) economic value added (or an equivalent metric); (23) market share; (24) cash flow; (25) cash flow per share; (26) share price performance; (27) debt reduction; (28) implementation or completion of projects or processes; (29) stockholders equity; (30) capital expenditures; (31) debt levels; (32) operating profit or net operating profit; (33) workforce diversity; (34) growth of net income or operating income; (35) billings; (36) bookings; (37) employee retention; (38) user satisfaction; (39) the number of users (40) budget management; (41) partner satisfaction; (42) entry into or completion of strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property and acquisitions); and (43) to the extent that an award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by board of directors.
Our board of directors may establish performance goals on a company-wide basis, with respect to one or more business units, divisions, affiliates or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless otherwise specified by our board of directors (i) in the award agreement at the time the award is granted or (ii) in such other document setting forth the performance goals at the time the performance goals are established, our board of directors will appropriately make adjustments in the method of calculating the attainment of the performance goals as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of any extraordinary items as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock-based compensation and the award of bonuses under our bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles; and (12) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item.
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Other Stock Awards
The plan administrator may grant other awards based in whole or in part by reference to our Class A common stock. The plan administrator will set the number of shares under the stock award and all other terms and conditions of such awards.
Changes to Capital Structure
In the event there is a specified type of change in our capital structure, such as a stock split, reverse stock split, or recapitalization, appropriate adjustments will be made to (1) the class and maximum number of shares reserved for issuance under the 2017 Plan, (2) the class and maximum number of shares by which the share reserve may increase automatically each year, (3) the class and maximum number of shares that may be issued upon the exercise of incentive stock options, (4) the class and maximum number of shares subject to stock awards that can be granted in a calendar year (as established under the 2017 Plan pursuant to Section 162(m) of the Code), and (5) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards.
Corporate Transactions
Our 2017 Plan provides that in the event of certain specified significant corporate transactions, including: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of at least 90% of our outstanding securities, (3) the consummation of a merger or consolidation where we do not survive the transaction and (4) the consummation of a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding prior to such transaction are converted or exchanged into other property by virtue of the transaction, each outstanding award will be treated as the administrator determines unless otherwise provided in an award agreement or other written agreement between us and the award holder. The administrator may (1) arrange for the assumption, continuation or substitution of a stock award by a successor corporation; (2) arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation; (3) accelerate the vesting, in whole or in part, of the stock award and provide for its termination prior to the transaction; (4) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us; (5) cancel or arrange for the cancellation of the stock award prior to the transaction in exchange for a cash payment, if any, determined by the board; or (6) make a payment, in the form determined by the board, equal to the excess, if any, of the value of the property the participant would have received upon exercise of the awards prior to the transaction over any exercise price payable by the participant in connection with the exercise. The plan administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner.
In the event of a change in control, awards granted under the 2017 Plan will not receive automatic acceleration of vesting and exercisability, although this treatment may be provided for in an award agreement. Under the 2017 Plan, a change in control is defined to include (a) the acquisition of any person of more than 50% of the combined voting power of our then outstanding stock; (b) a merger, consolidation or similar transaction in which our stockholders immediately prior to the transaction do not own, directly or indirectly, more than 50% of the combined voting power of the surviving entity (or the parent of the surviving entity); (c) a sale, lease, exclusive license or other disposition of all or substantially all of our assets to an entity that did not previously hold more than 50% of the voting power over our capital stock and (d) our stockholders approve and the Board approves a plan of complete dissolution or liquidation or a complete dissolution or liquidation of Roku otherwise occurs except for a liquidation into a parent corporation and (e) individuals who constitute our incumbent board of directors ceasing to constitute at least a majority of our board of directors.
Transferability
A participant may not transfer stock awards under our 2017 Plan other than by will, the laws of descent and distribution or as otherwise provided under our 2017 Plan.
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Plan Amendment or Termination
Our board of directors has the authority to amend, suspend, or terminate our 2017 Plan, provided that such action does not materially impair the existing rights of any participant without such participants written consent. No incentive stock options may be granted after the tenth anniversary of the date our board of directors adopted our 2017 Plan. No stock awards may be granted under our 2017 Plan while it is suspended or after it is terminated.
2008 Equity Incentive Plan
Our board of directors adopted, and our stockholders approved, our 2008 Equity Incentive Plan, or our 2008 Plan, in February 2008. Our 2008 Plan was amended most recently in November 2015. Our 2008 Plan allows for the grant of incentive stock options to our employees and any of our subsidiary corporations employees and for the grant of nonstatutory stock options and restricted stock awards to our employees, officers, directors and consultants.
Our 2017 Plan will become effective upon the execution of the underwriting agreement related to this offering. As a result, we do not expect to grant any additional awards under the 2008 Plan following that date, although any awards granted under the 2008 Plan will remain subject to the terms of our 2008 Plan and applicable award agreements, until such outstanding awards that are stock options are exercised, or until they terminate or expire by their terms, and until any restricted stock awards become vested, terminate or are forfeited.
Authorized Shares
The maximum number of shares of Class B common stock that may be issued under our 2008 Plan is 33,176,597. The maximum number of shares that may be issued upon the exercise of Incentive Stock Options under our 2008 Plan is 66,353,194. Following the execution of the underwriting agreement related to this offering, upon the expiration or termination prior to exercise of up to 28,000,000 shares of Class B common stock issuable upon the exercise of stock options outstanding under the 2008 Plan, an equal number of shares of Class A common stock will be added to the share reserve of the 2017 Plan.
Plan Administration
Our board of directors or a duly authorized committee of our board of directors administers our 2008 Plan and the stock awards granted under it. Under our 2008 Plan, the board of directors has the authority to determine and amend the terms of awards, including recipients, the exercise, purchase or strike price of stock awards, if any, the number of shares subject to each stock award, the vesting schedule applicable to the awards, together with any vesting acceleration, and the form of consideration, if any, payable upon exercise or settlement of the award and the terms of the award agreements for use under our 2008 Plan. The board may amend the 2008 Plan in these and other respects with the consent of any adversely affected participant, although certain material amendments to the 2008 Plan require stockholder approval.
Under the 2008 Plan, the board of directors also has the authority to modify outstanding awards, reprice any outstanding option, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under GAAP, although if any such action adversely affects a participant, the written consent of that participant is required.
Corporate Transactions
Our 2008 Plan provides that in the event of certain specified significant corporate transactions, including: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of at least 90% of our outstanding securities, (3) the consummation of a merger or consolidation where we do not survive the transaction and (4) the consummation of a merger or consolidation where we do survive the transaction but the shares of our Class B common stock outstanding prior to such transaction are converted or exchanged into other property by virtue of
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the transaction, each outstanding award will be treated as the administrator determines. The administrator may (1) arrange for the assumption, continuation or substitution of a stock award by a successor corporation; (2) arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation; (3) accelerate the vesting, in whole or in part, of the stock award and provide for its termination prior to the transaction; (4) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us; or (5) make a payment, in the form determined by the board, equal to the excess, if any, of the value of the property the participant would have received upon exercise of the awards prior to the transaction over any exercise price payable by the participant in connection with the exercise. The plan administrator is not obligated to treat all stock awards, even those that are of the same type, or all participants in the same manner.
In the event of a change in control, awards granted under the 2008 Plan will not receive automatic acceleration of vesting and exercisability, although this treatment may be provided for in an award agreement. Under the 2008 Plan, a change in control is defined to include (a) the acquisition by any person of more than 50% of the combined voting power of our then outstanding stock; (b) a merger, consolidation or similar transaction in which the our stockholders immediately prior to the transaction do not own, directly or indirectly, more than 50% of the combined voting power of the surviving entity (or the parent of the surviving entity); (c) our stockholders approve or our board of directors approves a plan of complete dissolution or liquidation or a complete dissolution or liquidation of Roku otherwise occurs except for a liquidation into a parent corporation; and (d) a sale, lease, exclusive license or other disposition of all or substantially all of the assets to an entity that did not previously hold more than 50% of the voting power of our stock.
Transferability
Under our 2008 Plan, the board of directors may provide for limitations on the transferability of awards, in its sole discretion. Option awards are generally not transferable other than by will or the laws of descent and distribution, except as otherwise provided under our 2008 Plan.
Plan Amendment or Termination
Our board of directors has the authority to amend, suspend, or terminate our 2008 Plan, although certain material amendments require the approval of our stockholders, and amendments that would impair the rights of any participant require the consent of that participant.
2017 Employee Stock Purchase Plan
Our board of directors adopted our 2017 Employee Stock Purchase Plan, or the ESPP in September 2017, and our stockholders approved our ESPP in September 2017. The ESPP will become effective immediately on the execution and delivery of the underwriting agreement related to this offering. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees, and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Code for U.S. employees. In addition, the ESPP authorizes grants of purchase rights that do not comply with Section 423 of the Code under a separate non-423 component. In particular, where such purchase rights are granted to employees who are foreign nationals or employed or located outside the United States, our board of directors may adopt rules that are beyond the scope of Section 423 of the Code.
Share Reserve
Following this offering, the ESPP authorizes the issuance of shares of our Class A common stock under purchase rights granted to our employees or to employees of any of our designated affiliates. The number of shares of our Class A common stock reserved for issuance will automatically increase on January 1st of each year, beginning on January 1, 2018 (assuming the ESPP becomes effective in 2017) through January 1, 2027, by
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the lesser of (1) 1% of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of the automatic increase, and (2) 3,000,000 shares; provided that before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). As of the date hereof, no shares of our Class A common stock have been purchased under the ESPP.
Administration
Our board of directors has delegated its authority to administer the ESPP to our compensation committee. The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of our common stock on specified dates during such offerings. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our Class A common stock will be purchased for employees participating in the offering. We currently intend to have six (6) month offerings with one purchase period per offering, except that the first purchase period under our first offering may be longer than six months, depending on the date on which the underwriting agreement relating to this offering becomes effective. An offering under the ESPP may be terminated under certain circumstances.
Payroll Deduction.
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 (as defined in the ESPP) 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 the accounts of employees participating in the ESPP at a price per share that is at least the lesser of (1) 85% of the fair market value of a share of our Class A common stock on the first date of an offering, or (2) 85% of the fair market value of a share of our Class A common stock on the date of purchase. For the initial offering, which we expect will commence on the execution and delivery of the underwriting agreement relating to this offering, the fair market value on the first day of the offering period will be the price at which shares of Class A common stock are first sold to the public.
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, including: (1) being customarily employed for more than 20 hours per week, (2) being customarily employed for more than five months per calendar year, or (3) continuous employment with us or one of our affiliates for a period of time (not to exceed two years). No employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of our Class A common stock based on the fair market value per share of our Class A common stock at the beginning of an offering for each year such a purchase 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 under Section 424(d) of the Code.
Changes to Capital Structure
In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, liquidating dividend, combination of shares, exchange of shares, change in corporate structure, or similar transaction, the board of directors will make appropriate adjustments to: (1) the number of shares reserved under the ESPP, (2) the maximum number of shares by which the share reserve may increase automatically each year, (3) the number of shares and purchase price of all outstanding purchase rights, and (4) the number of shares that are subject to purchase limits under ongoing offerings.
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Corporate Transactions
In the event of certain significant corporate transactions, including: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of more than 50% of our outstanding securities, (3) the consummation of a merger or consolidation where we do not survive the transaction, and (4) the consummation of a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue, or substitute for such purchase rights, then the participants accumulated payroll contributions will be used to purchase shares of our common stock within 10 business days before such corporate transaction, and such purchase rights will terminate immediately.
ESPP Amendment or Termination
Our board of directors has the authority to amend or terminate our ESPP, provided that except in certain circumstances such amendment or termination may not materially impair any outstanding purchase rights without the holders consent. We will obtain stockholder approval of any amendment to our ESPP as required by applicable law or listing requirements.
401(k) Plan
We maintain a tax-qualified retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to defer eligible compensation up to certain Code limits, which are updated annually. We have the ability to make matching and discretionary contributions to the 401(k) plan but have not done so to date. Employee contributions are allocated to each participants individual account and are then invested in selected investment alternatives according to the participants directions. Employees are immediately and fully vested in their own contributions. The 401(k) plan is intended to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made, and contributions and earnings on those amounts are not taxable to the employees until withdrawn or distributed from the 401(k) plan.
Insurance Premiums
We pay premiums for medical insurance and dental insurance for all full-time employees, including our named executive officers. We also pay premiums for life insurance and long-term disability insurance benefits for all full-time employees, including our named executive officers. These benefits are available to all full-time employees, subject to applicable laws.
Limitations on Liability and Indemnification Matters
Upon the closing of this offering, our certificate of incorporation will contain provisions that limit the liability of our current and former directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for:
| any breach of the directors duty of loyalty to the corporation or its stockholders; |
| any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| unlawful payments of dividends or unlawful stock repurchases or redemptions; or |
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| any transaction from which the director derived an improper personal benefit. Such limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. |
Our certificate of incorporation will authorize us to indemnify our directors, officers, employees and other agents to the fullest extent permitted by Delaware law. Our bylaws will provide that we are required to indemnify our directors and executive officers to the fullest extent permitted by Delaware law and may indemnify our other employees and agents. Our bylaws will also provide that, upon satisfaction of certain conditions, we will advance expenses incurred by a director or executive officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any executive officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. With certain exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these certificate of incorporation and bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and executive officers. We also maintain customary directors and officers liability insurance.
The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our directors, executive officers or employees for which indemnification has been sought and we are not aware of any threatened litigation that may result in claims for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, executive officers or persons controlling us, 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.
Rule 10b5-1 Sales Plans
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our Class A and Class B common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or executive officer when entering into the plan, without further direction from them. The director or officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material nonpublic information subject to compliance with the terms of our insider trading policy. Prior to the expiration of the period ending on, and including, the 180th day after the date of this prospectus, the sale of any shares under such plan would be subject to the lock-up agreement that the director or executive officer has entered into with the underwriters.
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
The following is a summary of transactions since January 1, 2014 to which we have been a participant, in which the amount involved exceeded or will exceed $120,000 and in which any of our directors, executive officers or holders of more than five percent of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described in the section titled Executive Compensation or that were approved by our compensation committee.
We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arms-length transactions.
Preferred Stock Financings
In October 2014, we issued an aggregate of 3,206,234 shares of our Series G preferred stock at a purchase price of $7.7973 per share for an aggregate purchase price of $25.0 million. In November 2015, we issued an aggregate of 4,959,988 shares of our Series H preferred stock at a purchase price of $9.1734 per share for an aggregate purchase price of $45.5 million. The following table summarizes purchases of preferred stock by holders of more than five percent of our capital stock and their affiliated entities and our directors. None of our executive officers purchased shares of preferred stock.
Name |
Series G
Preferred Stock |
Series H
Preferred Stock |
Aggregate
Purchase Price |
|||||||||
Entities affiliated with Fidelity (1) |
1,813,484 | 545,052 | $ | 19,140,296 | ||||||||
Twenty-First Century Fox, Inc. (2) |
330,004 | 1,635,162 | 17,573,140 | |||||||||
Entities affiliated with Menlo Ventures (3) |
897,745 | 327,032 | 9,999,999 | |||||||||
Entities affiliated with Globespan Capital Partners (4) |
| 763,075 | 7,000,000 |
(1) | Includes shares of preferred stock purchased by (a) Ball & Co fbo Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund, (b) Booth & Co fbo Fidelity Securities Fund: Fidelity OTC Portfolio, (c) M Gardiner & Co fbo Fidelity Puritan Trust: Fidelity Puritan Fund, (d) SAILBOAT & CO. fbo Fidelity Magellan Fund: Fidelity Magellan Fund, (e) Mag & Co fbo Fidelity Growth Company Commingled Pool, (f) WAVELENGTH + CO fbo Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund and (g) Powhattan & Co fbo Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund. |
(2) | Mr. Ahuja, a member of our board of directors, is Chief Financial Officer at Fox Networks Group, an operating unit of Twenty-First Century Fox, Inc. |
(3) | Includes shares of preferred stock purchased by (a) Menlo Ventures X, L.P., (b) Menlo Entrepreneurs Fund X, L.P. and (c) MMEF X, L.P. Mr. Carolan, a member of our board of directors, is a Managing Director at Menlo Ventures. |
(4) | Includes shares of preferred stock purchased by (a) Globespan Capital Partners V, L.P. and (b) Globespan Capital Partners Opportunity Fund VI, L.P. Mr. Leff, a member of our board of directors, was a Venture Partner at Globespan Capital Partners V, L.P. until February 2013. |
Upon the closing of this offering, each share of preferred stock will convert into one share of Class B common stock. For a description of the material rights and privileges of the preferred stock, see Note 5 to our audited consolidated financial statements included elsewhere in this prospectus.
Investor Rights Agreement
In November 2015, we entered into an amended and restated investor rights agreement with certain holders of our outstanding preferred stock and warrants to purchase preferred stock, including entities affiliated with
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Menlo Ventures, Globespan Capital Partners and Twenty-First Century Fox, with certain registration rights, including the right to demand that we file a registration statement or request that their shares be covered by a registration statement that we are otherwise filing. Shawn Carolan and Ravi Ahuja, members of our board of directors, are affiliated with Menlo Ventures and Twenty-First Century Fox, respectively. Daniel V. Leff, a member of our board of directors, was formerly affiliated with Globespan Capital Partners. The investor rights agreement also provides these stockholders with information rights, which will terminate upon the closing of this offering, and a right of first refusal with regard to certain issuances of our capital stock, which will not apply to, and will terminate upon, the closing of, this offering. After the closing of this offering, the holders of 76,402,104 shares of Class B common stock issuable upon conversion of outstanding preferred stock and shares of preferred stock issuable upon the exercise of outstanding warrants, will be entitled to rights with respect to the registration of their shares of Class B common stock under the Securities Act pursuant to this amended and restated investor rights agreement. For a description of these registration rights, see the section titled Description of Capital StockRegistration Rights.
Employment Agreements
We have entered into employment agreements with our executive officers. For more information regarding these agreements, see Executive CompensationEmployment, Severance and Change in Control Agreements.
Equity Grants
We have granted stock options to our executive officers and certain members of our board of directors. For a description of these options, see Executive Compensation and ManagementNon-Employee Director Compensation.
Agreements with BrightSign LLC
In September 2010, we entered into a contribution agreement with BrightSign LLC, or BrightSign, pursuant to which we transferred the assets of our digital sign and controller business to BrightSign. Anthony Wood, our President and Chief Executive Officer, is a member of the board of directors and majority stockholder of BrightSign. In September 2010, we also entered into a transition services agreement with BrightSign, or the Transition Services Agreement, to provide temporary administrative services to BrightSign in order to facilitate its transition to an independent company. Under the original terms of the Transition Services Agreement, BrightSign paid us $35,000 per month for defined services. In May 2011, we amended the Transition Services Agreement to adjust the monthly fee to $28,000 per month and, in January 2012, we further amended the Transition Services Agreement to adjust the monthly fee to $3,000 per month. The Transition Services Agreement with BrightSign terminated in accordance with its terms in June 2014. Until June 2014, we also subleased a portion of our warehouse space in Scotts Valley, California to BrightSign. Pursuant to these arrangements, BrightSign paid us $17,000 in fiscal 2014. There were no payments under these arrangements subsequent to fiscal 2014. We paid BrightSign $314,000 in fiscal 2015 and $414,000 in the six months ended June 30, 2017 for products and services. There were no payments to BrightSign in fiscal 2016.
Indemnification Agreements
Our amended and restated certificate of incorporation will contain provisions limiting the liability of directors, and our bylaws will provide that we will indemnify each of our directors and executive officers to the fullest extent permitted under Delaware law. Our amended and restated certificate of incorporation and bylaws will also provide our board of directors with discretion to indemnify our officers and employees when determined appropriate by the board. In addition, we have entered into an indemnification agreement with each of our directors and executive officers, which requires us to indemnify them. For more information regarding these agreements, see the section titled Executive CompensationLimitations on Liability and Indemnification Matters.
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Related-Party Transaction Policy
We have adopted a formal written policy that our executive officers, directors, holders of more than five percent of any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing persons, will not be permitted to enter into a related-party transaction with us without the prior consent of our audit committee, or other independent members of our board of directors in the event it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Any request for us to enter into a transaction with an executive officer, director, principal stockholder, or any of their immediate family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our audit committee will consider the relevant facts and circumstances available and deemed relevant to our audit committee, including, but not limited to, whether the transaction will be on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related-partys interest in the transaction.
All of the transactions described in this section were entered into prior to the adoption of this policy.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of June 30, 2017:
| each of our named executive officers; |
| each of our directors; |
| all directors and executive officers as a group; |
| each person, or group of affiliated persons, known by us to beneficially own more than five percent of our Class A common stock or Class B common stock; and |
| all selling stockholders. |
The percentage of shares beneficially owned before the offering shown in the table is based on 85,748,495 shares of Class B common stock outstanding as of June 30, 2017, after giving effect to the conversion of all of our outstanding shares of preferred stock into shares of Class B common stock immediately upon the closing of this offering and reclassification of all of our outstanding shares of common stock into shares of Class B common stock. The information relating to the number and percentage of shares beneficially owned after the offering assumes the sale by us of 9,000,000 shares of Class A common stock in this offering and no exercise of the underwriters option to purchase additional shares of Class A common stock.
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown beneficially owned by them, subject to applicable community property laws. Shares of Class B common stock issuable under options or warrants that are exercisable within 60 days after June 30, 2017 are deemed beneficially owned and such shares are used in computing the percentage ownership of the person holding the options or warrants, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. The information contained in the following table is not necessarily indicative of beneficial ownership for any other purpose, and the inclusion of any shares in the table does not constitute an admission of beneficial ownership of those shares.
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Except as otherwise noted below, the address for persons listed in the table is c/o Roku, Inc., 150 Winchester Circle, Los Gatos, California 95032.
Name and Address of Beneficial Owner |
Beneficial Ownership
Prior to the Offering |
Beneficial Ownership
After the Offering |
||||||||||||||||||||||||||||||||||||||||||
Class A
Common Stock |
Class B
Common Stock |
% of
Total Voting Power Before the Offering |
# of Shares
Being Sold |
Class A
Common Stock |
Class B
Common Stock |
% of
Total Voting Power After the Offering |
||||||||||||||||||||||||||||||||||||||
Shares | % | Shares | % | Shares | % | Shares | % | |||||||||||||||||||||||||||||||||||||
Executive Officers |
||||||||||||||||||||||||||||||||||||||||||||
Anthony Wood (1) |
| | 25,886,083 | 28.4 | % | 28.4 | % | | | | 25,886,083 | 32.7 | % | 32.1 | % | |||||||||||||||||||||||||||||
Steve Louden (2) |
| | 791,663 | * | * | | | | 791,663 | 1.0 | * | |||||||||||||||||||||||||||||||||
Chas Smith (3) |
| | 1,188,721 | 1.4 | 1.4 | | | | 1,188,721 | 1.5 | 1.5 | |||||||||||||||||||||||||||||||||
Directors |
||||||||||||||||||||||||||||||||||||||||||||
Ravi Ahuja (4) |
| | 6,022,258 | 7.0 | 7.0 | | | | 6,022,258 | 7.6 | 7.5 | |||||||||||||||||||||||||||||||||
Shawn Carolan (5) |
| | 30,288,668 | 35.3 | 35.3 | 6,000,000 | | | 24,288,668 | 30.7 | 30.1 | |||||||||||||||||||||||||||||||||
Jeffrey Hastings (6) |
| | 104,166 | * | * | | | | 104,166 | * | * | |||||||||||||||||||||||||||||||||
Alan Henricks (7) |
| | 224,865 | * | * | | | | 224,865 | * | * | |||||||||||||||||||||||||||||||||
Neil Hunt (8) |
| | 83,333 | * | * | | | | 83,333 | * | * | |||||||||||||||||||||||||||||||||
Daniel Leff (9) |
| | 5,952,797 | 6.9 | 6.9 | | | | 5,952,797 | 7.5 | 7.4 | |||||||||||||||||||||||||||||||||
Ray Rothrock (10) |
| | 173,912 | * | * | | | | 173,912 | * | * | |||||||||||||||||||||||||||||||||
All directors and executive officers as a group (13 persons) (11) |
| | 73,262,802 | 76.3 | 76.3 | | | | 67,262,802 | 85.1 | 83.4 | |||||||||||||||||||||||||||||||||
Principal and Selling Stockholders |
||||||||||||||||||||||||||||||||||||||||||||
Entities Affiliated with Menlo Ventures (12) |
| | 30,288,668 | 35.3 | 35.3 | 6,000,000 | | | 24,288,668 | 30.7 | 30.1 | |||||||||||||||||||||||||||||||||
Entities Affiliated with Fidelity (13) |
| | 11,046,948 | 12.9 | 12.9 | | | | 11,046,948 | 14.0 | 13.7 | |||||||||||||||||||||||||||||||||
Entities Affiliated with Globespan Capital Partners V, L.P. (14) |
| | 5,226,581 | 6.1 |
|
6.1 |
|
| | | 5,226,581 | 6.6 | 6.5 | |||||||||||||||||||||||||||||||
Entities Affiliated with Twenty-First Century Fox, Inc. (15) |
| | 6,022,258 | 7.0 |
|
7.0 |
|
| | | 6,022,258 | 7.6 | 7.5 | |||||||||||||||||||||||||||||||
Sky Ventures Limited (16) |
| | 3,339,940 | 3.9 | 3.9 | 668,000 | | | 2,671,940 | 3.4 | 3.3 |
* | Denotes less than 1%. |
| Represents the voting power with respect to all shares of our Class A common stock and Class B common stock, voting as a single class. Each share of Class A common stock will be entitled to one vote per share and each share of Class B common stock will be entitled to ten votes per share. The Class A common stock and Class B common stock will vote together on all matters (including the election of directors) submitted to a vote of stockholders, except under limited circumstances described in the section titled Description of Capital StockClass A and Class B Common StockVoting Rights. |
(1) | Includes 5,457,692 shares issuable pursuant to stock options exercisable within 60 days after June 30, 2017. |
(2) | All 791,663 shares are issuable pursuant to stock options exercisable within 60 days after June 30, 2017. |
(3) | Includes 1,049,995 shares issuable pursuant to stock options exercisable within 60 days after June 30, 2017. |
(4) | Mr. Ahuja does not own shares in his individual capacity. He is Chief Financial Officer of Fox Networks Group, an operating unit of Twenty-First Century Fox, Inc. Mr. Ahuja does not have either voting or investment control over Twenty-First Century Fox, Inc.s shares and he disclaims beneficial ownership of Twenty-First Century Fox, Inc.s shares. |
(5) | Mr. Carolan is a managing member of the Menlo Funds (as defined in note (12)). |
(6) | All 104,166 shares are issuable pursuant to a stock option exercisable within 60 days after June 30, 2017. |
(7) | Includes 208,199 shares issuable pursuant to stock options exercisable within 60 days after June 30, 2017. |
(8) | All 83,333 shares are issuable pursuant to a stock option exercisable within 60 days after June 30, 2017. |
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(9) | Mr. Leff was a Venture Partner at Globespan Capital Partners V, L.P. until February 2013 and may be deemed to have shared voting and investment power over the shares held by Globespan Capital Partners V, L.P. Also includes 726,216 shares held of record by Luminari Capital, L.P. Daniel Leff is the Founder and Managing Partner of Luminari Capital, L.P. and may be deemed to have shared voting and investment power over the shares held by Luminari Capital, L.P. The address for Luminari Capital, L.P. is 300 Hamilton Avenue, 4 th Floor, Palo Alto, California 94301. |
(10) | Includes (a) 90,579 shares held of record by FiftySix Investments, LLC and (b) 83,333 shares issuable pursuant to a stock option exercisable within 60 days after June 30, 2017. |
(11) | Includes (a) 62,938,085 shares held by the directors and executive officers (or their affiliated funds) and (b) 10,324,717 shares issuable pursuant to stock options exercisable within 60 days after June 30, 2017. |
(12) | Consists of (i) 29,521,128 shares held of record by Menlo Ventures X, L.P., of which 5,847,953 shares are being sold in this offering, (ii) 516,615 shares held of record by MMEF X, L.P., of which 102,339 shares are being sold in this offering, and (iii) 250,925 shares held of record by Menlo Entrepreneurs Fund X, L.P. of which 49,708 shares are being sold in this offering, (collectively, the Menlo Funds). MV Management X, L.L.C. is the general partner of each of the Menlo Funds, and the managing members of the general partner are H. DuBose Montgomery, John W. Javre, Douglas C. Carlisle, Sonja H. Perkins, Mark A. Siegel, Pravin A. Vazirani and Shawn Carolan. These individuals may be deemed to have shared voting and investment power over the shares held by Menlo Funds. Each of these individuals disclaims beneficial ownership of such shares, except to the extent of his or her proportionate pecuniary interest therein. The address for the entities affiliated with Menlo Ventures is 2884 Sand Hill Road, Suite 100, Menlo Park, California 94025. If the underwriters exercise their option to purchase additional shares in full, Menlo Ventures X, L.P. will sell an additional 877,193 shares of Class B common stock, MMEF X, L.P. will sell an additional 15,351 shares of Class B common stock and Menlo Entrepreneurs Fund X, L.P. will sell an additional 7,456 shares of Class B common stock. As a result, the Menlo Funds will own 30.0% of our outstanding Class B common stock after this offering and have 29.3% of the total voting power after this offering. In the event of a partial exercise of the underwriters option to purchase additional shares, the shares to be sold by the Menlo Funds pursuant to the option will be proportionately reduced. |
(13) | Consists of (i) 3,579,213 shares held of record by Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund, (ii) 3,613,398 shares held of record by Fidelity Securities Fund: Fidelity OTC Portfolio, (iii) 920,139 shares held of record by Fidelity Puritan Trust: Fidelity Puritan Fund, (iv) 115,229 shares held of record by Fidelity Growth Company Commingled Pool, (v) 2,665,553 shares held of record by Fidelity Magellan Fund: Fidelity Magellan Fund, (vi) 5,041 shares held of record by Fidelity OTC Commingled Pool, and (vii) 148,375 shares held of record by Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund. Fidelity Management & Research Company, or Fidelity, 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 11,046,948 shares as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. |
(14) | Consists of (i) 4,681,527 shares held of record by Globespan Capital Partners V, L.P. and (ii) 545,054 shares held of record by Globespan Capital Partners Opportunity Fund VI, L.P. Globespan Management Associates V, LLC is the sole general partner of Globespan Management Associates V, L.P., which is the sole general partner of Globespan Capital Partners V, L.P. Globespan Opportunity Associates VI, LLC is the sole general partner of Globespan Opportunity Associates VI, L.P., which is the sole general partner of Globespan Capital Partners Opportunity Fund VI, L.P. Andrew P. Goldfarb, the Executive Managing Director of Globespan Management Associates V, LLC and Globespan Opportunity Associates VI, LLC, has sole voting and dispositive power over the shares held by Globespan Capital Partners V, L.P. and Globespan Capital Partners Opportunity Fund VI, L.P. The address for Globespan Capital Partners V, L.P. and Globespan Capital Partners Opportunity Fund VI, L.P. is One Boston Place, Suite 2810, Boston, MA 02108. |
(15) | Shares are held of record by Twenty-First Century Fox, Inc., a publicly traded company. The address for Twenty-First Century Fox, Inc. is 1211 Avenue of the Americas, New York, NY 10036. |
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(16) | All 3,339,940 shares of Class B common stock are held by Sky Ventures Limited, of which 668,000 are being sold in this offering. If the underwriters exercise their option to purchase additional shares in full, Sky Ventures Limited will sell an additional 100,200 shares of Class B common stock. As a result, Sky Ventures will own 3.3% of our outstanding Class B common stock after this offering and have 3.2% of the total voting power after this offering. In the event of a partial exercise of the underwriters option to purchase additional shares, the shares to be sold by Sky Ventures Limited pursuant to the option will be proportionately reduced. |
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General
The following description of our capital stock summarizes the most important terms of our capital stock as they are expected to be in effect upon the closing of this offering. The descriptions of our capital stock and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws that will be in effect upon the closing of this offering. Copies of these documents will be filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part.
Upon the closing of this offering, our amended and restated certificate of incorporation will provide for two classes of common stock: Class A common stock and Class B common stock. In addition, our amended and restated certificate of incorporation will authorize shares of undesignated preferred stock, the rights, preferences and privileges of which may be designated from time to time by our board of directors.
Upon the closing of this offering, our authorized capital stock will consist of shares, all with a par value of $0.0001 per share, of which:
| 1,000,000,000 shares are designated as Class A common stock; |
| 150,000,000 shares are designated as Class B common stock; and |
| 10,000,000 shares are designated as preferred stock. |
As of June 30, 2017, we had 4,904,357 shares of common stock and 80,844,138 shares of preferred stock outstanding. After giving effect to the reclassification of all outstanding shares of our common stock to Class B common stock and the conversion of all outstanding shares of preferred stock into shares of Class B common stock immediately upon the closing of this offering, there would have been 85,748,495 shares of Class B common stock outstanding on June 30, 2017 held by 198 stockholders of record. As of June 30, 2017 we had outstanding warrants to purchase 2,225,966 shares of preferred stock with a weighted-average exercise price of $2.70 per share and warrants to purchase 375,000 shares of Class B common stock with a weighted-average exercise price of $0.36 per share. As of June 30, 2017, we also had outstanding options to acquire 24,559,747 shares of Class B common stock.
Class A and Class B Common Stock
Except with respect to voting, conversion and transfer rights as described below and as otherwise expressly provided in our amended and restated certificate of incorporation or required by applicable law, shares of Class A common stock and Class B common stock will have the same rights and privileges and rank equally, share ratably and be identical in all respects as to all matters.
Dividend and Distribution Rights
Subject to the prior rights of holders of all classes and series of stock at the time outstanding having prior rights as to dividends, the holders of Class A common stock and Class B common stock will be entitled to receive, when, as and if declared by the board of directors, out of any assets of Roku legally available therefor, such dividends as may be declared from time to time by the board of directors. Any dividends paid to the holders of Class A common stock and Class B common stock shall be paid pro rata, on an equal priority, pari passu basis, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of the majority of the outstanding shares of the applicable class of common stock treated adversely, voting separately as a class. We will not declare or pay any dividend or make any other distribution to the holders of Class A common stock or Class B common stock payable in securities of Roku unless the same dividend or distribution with the same record date and payment date shall be declared and paid on all shares of common
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stock; provided, however, that (i) dividends or other distributions payable in shares of Class A common stock or rights to acquire shares of Class A common stock may be declared and paid to the holders of Class A common stock without the same dividend or distribution being declared and paid to the holders of the Class B common stock if, and only if, a dividend payable in shares of Class B common stock, or rights to acquire shares of Class B common stock, as applicable, are declared and paid to the holders of Class B common stock at the same rate and with the same record date and payment date; and (ii) dividends or other distributions payable in shares of Class B common stock or rights to acquire shares Class B common stock may be declared and paid to the holders of Class B common stock without the same dividend or distribution being declared and paid to the holders of the Class A common stock if, and only if, a dividend payable in shares of Class A common stock, or rights to acquire shares of Class A common stock, as applicable, are declared and paid to the holders of Class A common stock at the same rate and with the same record date and payment date.
Voting Rights
Holders of our Class A common stock and Class B common stock have identical rights, provided that, except as otherwise expressly provided in our amended and restated certificate of incorporation or required by applicable law, on any matter that is submitted to a vote of our stockholders, holders of our Class A common stock are entitled to one vote per share of Class A common stock and holders of our Class B common stock are entitled to 10 votes per share of Class B common stock. Holders of shares of 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, except that there will be a separate vote of our Class A common stock in order for us to, directly or indirectly, effect an asset transfer, acquisition or liquidation event (each as defined in our amended and restated certificate of incorporation) pursuant to which the Class A common stock would not receive equivalent consideration (as defined in our amended and restated certificate of incorporation) to the Class B common stock, and there will be a separate vote of our Class B common stock in order for us to, directly or indirectly, take action in the following circumstances:
| if we propose to amend, alter or repeal any provision of our amended and restated certificate of incorporation or our amended and restated bylaws that modifies the voting, conversion or other powers, preferences or other special rights or privileges or restrictions of the Class B common stock; |
| if we reclassify any outstanding shares of Class A common stock into shares having rights as to dividends or liquidation that are senior to the Class B common stock or the right to more than one vote for each share thereof; or |
| if we effect an asset transfer, acquisition or liquidation event (each as defined in our amended and restated certificate of incorporation) pursuant to which the Class B common stock would not receive equivalent consideration (as defined in our amended and restated certificate of incorporation) to the Class A common stock. |
Upon the closing of this offering, under our amended and restated certificate of incorporation, we may not increase or decrease the authorized number of shares of Class A common stock or Class B common stock without the affirmative vote of the holders of a majority of the combined voting power of the outstanding shares of Class A common stock and Class B common stock, voting together as a single class. In addition, we may not issue any shares of Class B common stock, unless that issuance is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class B common stock.
We have not provided for cumulative voting for the election of directors in our amended and restated certificate of incorporation.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions. The rights, preferences and privileges of the holders of our common stock are subject to,
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and may be adversely affected by, the rights of the holders of any series of our preferred stock that we may designate and issue in the future.
Liquidation Rights
In the event of our liquidation, dissolution or winding-up, upon the completion of the distributions required with respect to any series of preferred stock that may then be outstanding, the remaining assets of the Company legally available for distribution to stockholders shall be distributed on an equal priority, pro rata basis to the holders of Class A common stock and Class B common stock.
Subdivisions and Combinations
If we subdivide or combine in any manner outstanding shares of Class A common stock or Class B common stock, then the outstanding shares of all common stock will be subdivided or combined in the same proportion and manner.
Conversion
Each share of Class B common stock is convertible at any time immediately following the closing of this offering at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert into one share of Class A common stock upon any transfer, whether or not for value and whether voluntary or involuntary or by operation of law, except for certain transfers described in our amended and restated certificate of incorporation, including, without limitation, certain transfers for tax and estate planning purposes. All shares of Class B common stock will convert into Class A common stock on the earlier of (a) the first trading day on or after the date on which the outstanding shares of Class B common stock represent less than 10% of the then outstanding Class A and Class B common stock or (b) the date specified by vote of the holders of 66 2 ⁄ 3 % of the outstanding shares of Class B common stock, voting as a single class.
Preferred Stock
As of June 30, 2017, there were 80,844,138 shares of preferred stock outstanding. Immediately upon the closing of this offering, each outstanding share of preferred stock will convert into one share of Class B common stock.
Upon the closing of this offering, our board of directors may, without further action by our stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 10,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of our common stock. The issuance of our preferred stock could adversely affect the voting power of holders of our common stock, and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control or other corporate action. Upon the closing of this offering, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock.
Warrants
As of June 30, 2017, we had a warrant to purchase an aggregate of 375,000 shares of our Class B common stock outstanding with an exercise price of $0.36 per share, which was automatically net exercised in July 2017 pursuant to its terms into 357,283 shares of our Class B common stock.
As of June 30, 2017, we had warrants to purchase an aggregate of 1,250,000 shares of our Series C-2 preferred stock outstanding with an exercise price of $0.64931 per share. Upon the closing of this offering, these
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warrants will become exercisable for 1,250,000 shares of our Class B common stock with an exercise price of $0.64931 per share.
As of June 30, 2017, we had warrants to purchase an aggregate of up to 481,246 shares of our Series D preferred stock outstanding with an exercise price of $2.3784 per share. Upon the closing of this offering, these warrants will become exercisable for up to 481,246 shares of our Class B common stock with an exercise price of $2.3784 per share.
As of June 30, 2017, we had warrants to purchase an aggregate of up to 86,072 shares of our Series E preferred stock outstanding with an exercise price of $3.4854 per share. Upon the closing of this offering, these warrants will become exercisable for up to 86,072 shares of our Class B common stock with an exercise price of $3.4854 per share.
As of June 30, 2017, we had warrants to purchase an aggregate of up to 408,648 shares of our Series H preferred stock outstanding with an exercise price of $9.1734 per share. Upon the closing of this offering these warrants will become exercisable for up to 408,648 shares of our Class B common stock with an exercise price of $9.1734 per share.
Stock Options
As of June 30, 2017, options to purchase an aggregate of 24,559,747 shares of Class B common stock were outstanding under our 2008 Plan. In August 2017, we granted options to purchase an aggregate of 3,219,857 shares of Class B common stock under our 2008 Plan. As of June 30, 2017, 4,256,161 additional shares of Class B common stock were available for future grant under our 2008 Plan (without giving effect to options granted in August 2017), all of which shares will cease to be available at the time our 2017 Plan becomes effective upon the closing of this offering. For additional information regarding the terms of this plan see the section titled Executive CompensationEmployee Benefit Plans.
Registration Rights
Stockholder Registration Rights
We are party to an investor rights agreement which provides that holders of our preferred stock, including certain holders of 5% of our capital stock and entities affiliated with certain of our directors, have certain registration rights, as set forth below. This investor rights agreement was entered into in February 2008 and has been amended and restated from time to time in connection with our preferred stock financings. The registration of shares of our Class A common stock pursuant to the exercise of registration rights described below would enable the holders to sell these shares without restriction under the Securities Act when the applicable registration statement is declared effective. We will pay the registration expenses, other than underwriting discounts and selling commissions, of the shares registered pursuant to the demand, piggyback and Form S-3 registrations described below.
Generally, in an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include. The demand, piggyback and Form S-3 registration rights described below will expire three years after the effective date of the registration statement, of which this prospectus forms a part, or with respect to any particular stockholder, such time as that stockholder holds less than 1% of the number of shares of our Class A common stock then outstanding and that stockholder can sell all of its shares under Rule 144 of the Securities Act during any three-month period.
Demand Registration Rights
The holders of an aggregate of 76,402,104 shares of Class B common stock issuable upon conversion of outstanding shares of preferred stock and shares of preferred stock issuable upon the exercise of outstanding
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warrants will be entitled to certain demand registration rights. At any time beginning 180 days after the closing of this offering, the holders of at least 50% of these shares may, on not more than two occasions, request that we register all or a portion of their shares. Such request for registration must cover 20% of such shares then outstanding.
Piggyback Registration Rights
In connection with this offering, the holders of an aggregate of 83,070,104 shares of Class B common stock issuable upon conversion of outstanding shares of preferred stock and shares of preferred stock issuable upon the exercise of outstanding warrants, and without giving effect to the sale of shares in this offering by the selling stockholders, were entitled to, and the necessary percentage of holders waived, their rights to notice of this offering and to include their shares of registrable securities in this offering. In the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders, the holders of these shares will be entitled to certain piggyback registration rights allowing the holder to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to a demand registration or a registration statement on Forms S-4 or S-8, the holders of these shares are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration.
Form S-3 Registration Rights
The holders of an aggregate of 76,402,104 shares of Class B common stock issuable upon conversion of outstanding shares of preferred stock and shares of preferred stock issuable upon the exercise of outstanding warrants will be entitled to certain Form S-3 registration rights. The holders of these shares can make a request that we register their shares on Form S-3 if we are qualified to file a registration statement on Form S-3 and if the reasonably anticipated aggregate gross proceeds of the shares offered would equal or exceed $500,000. We will not be required to effect more than two registrations on Form S-3 in any twelve month period.
Anti-Takeover Provisions
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
Among other things, our amended and restated certificate of incorporation and amended and restated bylaws will:
| permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change of control; |
| provide that the authorized number of directors may be changed only by resolution of our board of directors; |
| provide that our board of directors will be classified into three classes of directors; |
| provide that, subject to the rights of any series of preferred stock to elect directors, directors may only be removed for cause, which removal may be effected, subject to any limitation imposed by law, by the holders of at least a majority of the voting power of all of our then-outstanding shares of the capital stock entitled to vote generally at an election of directors; |
| provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; |
| require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent or electronic transmission; |
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| provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholders notice; |
| provide that special meetings of our stockholders may be called only by the chairman of our board of directors, our chief executive officer or by our board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and |
| not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose. |
The amendment of any of these provisions would require approval by the holders of at least 66 2/3% of the voting power of all of our then-outstanding capital stock entitled to vote generally in the election of directors, voting together as a single class.
The combination of these provisions will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control.
These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to reduce our vulnerability to hostile takeovers and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of delaying changes in our control or management. As a consequence, these provisions may also inhibit fluctuations in the market price of our stock.
Section 203 of the Delaware General Corporation 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:
| 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; |
| 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 |
| 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. |
In general, Section 203 defines business combination to include the following:
| any merger or consolidation involving the corporation and the interested stockholder; |
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| any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; |
| subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
| any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or |
| the receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or through the corporation. |
In general, Section 203 defines an interested stockholder as an entity or person who, together with the persons affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.
Choice of Forum
Our amended and restated certificate of incorporation will provide that 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; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. The enforceability of similar choice of forum provisions in other companies certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with one or more actions or proceedings described above, a court could find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable.
Limitations of Liability and Indemnification
See the section titled Executive CompensationLimitation on Liability and Indemnification.
Exchange Listing
We have applied to list our Class A common stock on the Nasdaq Global Select Market under the symbol ROKU.
Transfer Agent and Registrar
Upon the closing of this offering, the transfer agent and registrar for our Class A and Class B common stock will be American Stock Transfer & Trust Company, LLC. The transfer agents 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, no public market for our Class A common stock existed, and a liquid trading market for our Class A common stock may not develop or be sustained after this offering. Future sales of substantial amounts of our Class A common stock in the public market could adversely affect prevailing market prices of our Class A common stock from time to time and could impair our ability to raise equity capital in the future. Furthermore, because only a limited number of shares of our Class A common stock will be available for sale shortly after this offering due to certain contractual and legal restrictions on resale described below, sales of substantial amounts of our Class A common stock in the public market after such restrictions lapse, or the anticipation of such sales, could adversely affect the prevailing market price of our Class A common stock and our ability to raise equity capital in the future.
Based upon the number of shares outstanding as of June 30, 2017, upon the closing of this offering, we will have outstanding an aggregate of 15,668,000 shares of Class A common stock and 79,080,495 shares of Class B common stock, assuming no exercise of the underwriters option to purchase additional shares of Class A common stock and no exercise of outstanding options or warrants, after giving effect to the conversion of all outstanding shares of our preferred stock into 80,844,138 shares of Class B common stock immediately upon the closing of this offering and the sale of 6,668,000 shares of Class A common stock by the selling stockholders. All of the shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, unless held by our affiliates, as that term is defined under Rule 144 under the Securities Act, or subject to lock-up agreements. The remaining shares of Class B common stock outstanding upon the closing of this offering are restricted securities as defined in Rule 144. Restricted securities may be sold in the U.S. public market only if registered or if they qualify for an exemption from registration, including by reason of Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. Subject to the lock-up arrangements described below and the provisions of Rule 144, these restricted securities will be available for sale in the public market after the date of this prospectus.
As of June 30, 2017, of the 24,559,747 shares of Class B common stock issuable upon exercise of options outstanding, approximately 15,875,202 shares will be vested and eligible for sale 181 days after the date of this prospectus. In August 2017, we granted options to purchase an aggregate of 3,219,857 shares of Class B common stock under our 2008 Plan, of which 54,944 shares will be vested and eligible for sale 181 days after the date of this prospectus.
We may issue shares of Class A common stock from time to time as consideration for future acquisitions, investments or other corporate purposes. In the event that any such acquisition, investment or other transaction is significant, the number of shares of common stock that we may issue may in turn be significant. We may also grant registration rights covering those shares of Class A common stock issued in connection with any such acquisition and investment.
In addition, the shares of Class A common stock reserved for future issuance under our 2017 Plan will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements, a registration statement under the Securities Act or an exemption from registration, including Rule 144 and Rule 701.
Rule 144
In general, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell their securities provided that (1) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale, (2) we have been subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale, and (3) we are current in our Exchange Act reporting at the time of sale.
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Persons who have beneficially owned restricted shares of our common stock for at least six months, but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:
| 1% of the number of shares of our Class A common stock then outstanding, which will equal approximately 156,680 shares immediately after the closing of this offering based on the number of common shares outstanding as of June 30, 2017. |
| the average weekly trading volume of our Class A common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.
Rule 701
In general, under Rule 701 a person who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been one of our affiliates during the immediately preceding 90 days may sell these shares in reliance upon Rule 144, but without being required to comply with the notice, manner of sale, public information requirements or volume limitation provisions of Rule 144. Rule 701 also permits affiliates 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 such shares pursuant to Rule 701. However, all Rule 701 shares are subject to lock-up agreements as described below and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.
Form S-8 Registration Statements
We intend to file with the SEC one or more registration statements on Form S-8 under the Securities Act to register the offer and sale of shares of our common stock that are issuable pursuant to our 2008 Plan and 2017 Plan. These registration statements will become effective immediately upon filing. Shares covered by these registration statements will then be eligible for sale in the public markets, subject to vesting restrictions, any applicable lock-up agreements described below and Rule 144 limitations applicable to affiliates.
Lock-Up Arrangements
We, all of our directors and executive officers and holders of substantially all of our shares of capital stock and securities exercisable for or convertible into shares of our Class A and Class B common stock outstanding immediately upon the closing of this offering, have agreed with the underwriters that, during the period ending on, and including, the 180th day following the date of this prospectus, subject to certain exceptions, we and they will not, directly or indirectly, offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale, or otherwise dispose of or hedge any of our shares of common stock, any options or warrants to purchase shares of our common stock, or any securities convertible into, or exchangeable for or that represent the right to receive shares of our common stock. These agreements are described in the section of this prospectus titled Underwriters.
In addition to the restrictions contained in the lock-up agreements described above, we have entered into agreements with certain security holders, including the investor rights agreement and our standard form of option agreement, that contain market stand-off provisions imposing restrictions on the ability of such security holders to offer, sell or transfer our equity securities for a period of 180 days following the date of this prospectus.
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Registration Rights
Upon the closing of this offering, the holders of 76,402,104 shares of our Class B common stock issuable upon conversion of outstanding convertible preferred stock and shares of convertible preferred stock issuable upon the exercise of outstanding warrants, or their transferees, will be entitled to certain rights with respect to the registration of the offer and sale of Class A common stock issuable upon conversion of such shares of Class B common stock under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. See the section titled Description of Capital StockRegistration Rights for additional information.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK
The following discussion describes the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our Class A common stock acquired in this offering by Non-U.S. Holders (as defined below). This discussion does not address all aspects of U.S. federal income taxes, does not discuss the potential application of the alternative minimum or Medicare contribution tax on net investment income, and does not deal with state, local or non-U.S. tax consequences that may be relevant to Non-U.S. Holders in light of their particular circumstances, nor does it address U.S. federal tax consequences other than income taxes (not addressed, for example, are gift and estate taxes). Rules different from those described below may apply to certain Non-U.S. Holders that are subject to special treatment under the Code, such as financial institutions, insurance companies, tax-exempt organizations, foreign governments, international organizations, broker-dealers and traders in securities, U.S. expatriates, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, persons that hold our Class A common stock as part of a straddle, conversion transaction, or other risk reduction strategy, partnerships and other pass-through entities, and investors in such partnerships or pass-through entities (regardless of their places of organization or formation). Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them. Furthermore, the discussion below is based upon the provisions of the Code, and Treasury regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income or estate tax consequences different from those discussed below. We have not requested a ruling from the IRS with respect to the statements made and the conclusions reached in the following summary. This discussion assumes that the Non-U.S. Holder holds our Class A common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment).
Persons considering the purchase of our Class A common stock pursuant to this offering should consult their own tax advisors concerning the U.S. federal income consequences of acquiring, owning and disposing of our Class A common stock in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction, including any state, local and non-U.S. tax consequences and any U.S. federal non-income tax consequences.
For the purposes of this discussion, a Non-U.S. Holder is, for U.S. federal income tax purposes, a beneficial owner of Class A common stock that is not a U.S. Holder. A U.S. Holder means a beneficial owner of our Class A common stock that is for U.S. federal income tax purposes (a) an individual who is a citizen or resident of the United States, (b) a corporation or other entity treated as a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (d) a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. Also, partnerships, or other entities that are treated as partnerships for U.S. federal income tax purposes (regardless of their place of organization or formation), are not addressed by this discussion and are, therefore, not considered to be Non-U.S. Holders for the purposes of this discussion. If a partnership, including any entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds shares of our Class A common stock, the U.S, federal income tax treatment of a partner in such partnership will generally depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Such partners and partnerships should consult their own tax advisors regarding the tax consequences of the purchase, ownership and disposition of our common stock.
Distributions
Subject to the discussion below regarding backup withholding and foreign accounts, distributions, if any, made on our Class A common stock to a Non-U.S. Holder of our Class A common stock generally will constitute
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dividends for U.S. tax purposes to the extent made out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles) and generally will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide us with a properly executed Internal Revenue Service, or IRS, Form W-8BEN, W-8BEN-E or other appropriate form, certifying the Non-U.S. Holders entitlement to benefits under that treaty. This certification must be provided to us or our paying agent prior to the payment of dividends.
In the case of a Non-U.S. Holder that is an entity, Treasury Regulations and the relevant tax treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends will be treated as paid to the entity or to those holding an interest in that entity. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holders behalf, the holder will be required to provide appropriate documentation to such agent. The holders agent may 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 should consult with your own tax advisor to determine if you are able to obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.
Withholding tax is generally not imposed on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that such holder maintains in the United States) if a properly executed IRS Form W-8ECI, stating that the dividends are so connected, is furnished to us (or, if stock is held through a financial institution or other agent, to such agent). In general, such effectively connected dividends will be subject to U.S. federal income tax, on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation for U.S. federal income tax purposes that receives effectively connected dividends may also be subject to an additional branch profits tax, which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holders effectively connected earnings and profits, subject to certain adjustments.
To the extent distributions on our Class A common stock, if any, exceed our current and accumulated earnings and profits, they will first reduce your adjusted basis in our Class A common stock as a non-taxable return of capital, but not below zero, and then any excess will be treated as gain and taxed in the same manner as gain realized from a sale or other disposition of Class A common stock as described in the next section.
Gain on Disposition of Our Class A Common Stock
Subject to the discussions below regarding backup withholding and foreign accounts, a Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of our Class A common stock unless (a) the gain is effectively connected with a trade or business of such holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that such holder maintains in the United States), (b) the Non-U.S. Holder is a nonresident alien individual and is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (c) we are or have been a United States real property holding corporation within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or such holders holding period.
If you are a Non-U.S. Holder described in (a) above, you generally will be required to pay tax on the net gain derived from the sale at regular graduated U.S. federal income tax rates and corporate Non-U.S. Holders described in (a) above may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual Non-U.S. Holder described in (b) above, you will be required to pay a flat 30% tax on the gain derived from the sale, which gain may be offset by U.S. source capital losses (even though you are not considered a resident of the United States). With respect to
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(c) above, in general, we would be a United States real property holding corporation if interests in U.S. real estate constituted (by fair market value) at least half of our total worldwide real property interests plus business assets. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation; however, there can be no assurance that we will not become a U.S. real property holding corporation in the future. Even if we are treated as a U.S. real property holding corporation, such treatment will not cause gain realized by a Non-U.S. Holder on a disposition of our Class A common stock to be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned, directly, indirectly and constructively, no more than five percent of our Class A common stock at all times within the shorter of (i) the five-year period preceding the disposition or (ii) the holders holding period and (2) our Class A common stock is regularly traded on an established securities market. There can be no assurance that our Class A common stock will qualify as regularly traded on an established securities market.
Information Reporting Requirements and Backup Withholding
Generally, we or certain financial middlemen must report information to the IRS with respect to any dividends we pay on our Class A common stock including the amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipients country of residence.
Dividends paid by us (or certain financial middlemen) to a Non-U.S. Holder may also be subject to U.S. backup withholding. U.S. backup withholding generally will not apply to a Non-U.S. Holder who provides a properly executed appropriate IRS Form W-8 or otherwise establishes an exemption. Notwithstanding the foregoing, backup withholding may apply if the payor has actual knowledge, or reason to know, that the holder is a U.S. person who is not an exempt recipient.
Under current U.S. federal income tax law, U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a disposition of our Class A common stock effected by or through a U.S. office of any broker, U.S. or non-U.S., unless the holder provides a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is considered effected outside the United States through a non-U.S. office of a non-U.S. broker. Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a U.S. person. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers.
If backup withholding is applied to you, you should consult with your own tax advisor to determine if you are able to obtain a tax refund or credit with respect to the amount withheld.
Foreign Accounts
A U.S. federal withholding tax of 30% may apply to dividends and, for any disposition occurring on or after January 1, 2019, the gross proceeds of a disposition of our Class A common stock paid to a foreign financial institution (as specifically defined by applicable rules), including when the foreign financial institution holds our Class A common stock on behalf of a Non-U.S. Holder, unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). This U.S. federal withholding tax of 30% will also apply to dividends and, for any disposition occurring on or after January 1, 2019, the gross proceeds of a disposition of our Class A common stock paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial
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direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Under certain circumstances, a Non-U.S. Holder might be eligible for refunds or credits of such taxes. Holders are encouraged to consult with their own tax advisors regarding the possible implications of this withholding tax on their investment in our Class A common stock.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR CLASS A COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON-INCOME TAX LAWS.
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Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. are acting as representatives, have severally agreed to purchase, and we and the selling stockholders have agreed to sell to them, severally, the number of shares of Class A common stock indicated below:
Name |
Number of
|
|||
Morgan Stanley & Co. LLC |
||||
Citigroup Global Markets Inc. |
||||
Allen & Company LLC |
||||
RBC Capital Markets, LLC |
||||
Needham & Company, LLC |
||||
Oppenheimer & Co. Inc. |
||||
William Blair & Company, L.L.C. |
||||
|
|
|||
Total |
15,668,000 | |||
|
|
The underwriters and the representatives are collectively referred to as the underwriters and the representatives, respectively. The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and the selling stockholders and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of Class A common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of Class A common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters option to purchase additional shares described below.
The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. After the initial offering of the shares of Class A common stock, the offering price and other selling terms may from time to time be varied by the representatives. Sales of Class A common stock made outside of the United States may be made by affiliates of the underwriters.
We and the selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 2,350,200 additional shares of Class A common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of Class A common stock as the number listed next to the underwriters name in the preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the preceding table.
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The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us and the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase up to an additional 2,350,200 shares of Class A common stock.
Total | ||||||||||||
Per
Share |
No
Exercise |
Full
Exercise |
||||||||||
Public offering price |
$ | $ | $ | |||||||||
Underwriting discounts and commissions to be paid by: |
$ | $ | $ | |||||||||
Us |
$ | $ | $ | |||||||||
The selling stockholders |
$ | $ | $ | |||||||||
Proceeds, before expenses, to us |
$ | $ | $ | |||||||||
Proceeds, before expenses, to selling stockholders |
$ | $ | $ |
We estimate that our portion of the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $4.0 million. We have agreed to reimburse the underwriters for their expenses of up to $35,000 related to the clearance of this offering with the Financial Industry Regulatory Authority, Inc. and compliance with state securities or blue sky laws.
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of Class A common stock offered by them.
We have applied to list our Class A common stock on the NASDAQ Global Select Market under the trading symbol ROKU.
We and all directors and officers and the holders of all of our outstanding stock, stock options and other securities convertible into or exchangeable or exercisable for our common stock have agreed that, without the prior written consent of the representatives on behalf of the underwriters, we and they will not, during the period ending on, and including, the 180th day after the date of this prospectus (the restricted period):
| 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, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock; |
| file any registration statement with the Securities and Exchange Commission relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or |
| enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock; |
whether any such transaction described above is to be settled by delivery of Class A common stock or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of the representatives on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for our Class A common stock.
The restrictions described in the immediately preceding paragraph are subject to specified exceptions, including, without limitation, the following:
| the sale of shares to the underwriters; |
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| the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; |
| transactions by any person other than us relating to shares of common stock or other securities acquired in this offering or in open market transactions after the completion of this offering, provided that no filing under Section 16(a) of the Exchange Act, is required or voluntarily made in connection with subsequent sales of the common stock or other securities acquired in such open market transactions; |
| transfers by operation of law pursuant to a qualified domestic order or in connection with a divorce settlement, provided that any filing required by Section 16(a) of the Exchange Act shall clearly indicate in the footnotes thereto that such transfer is being made pursuant to such court order and that such shares remain subject to a lock-up agreement with the underwriters, and provided further that no other public announcement or filing shall be required or voluntarily made during any such transaction; |
| in connection with the disposition or transfer of shares of common stock or other securities to us upon the net or cashless exercise of warrants outstanding as of the date of this prospectus and described in this prospectus or stock options or other equity awards outstanding as of the date of this prospectus and granted pursuant to an employee benefit plan described in this prospectus, provided that such shares of common stock received upon exercise shall continue to be subject to the restrictions on transfer set forth in the lock-up agreement, and provided further that no filing under Section 16(a) of the Exchange Act, or other public announcement, shall be required or voluntarily made in connection with any such transaction; |
| the exercise solely with cash of stock options outstanding as of the date of this prospectus granted under an employee benefit plan or stock purchase plan described in this prospectus, provided that the shares received upon exercise shall continue to be subject to the restrictions on transfer set forth in the lock-up agreement, and provided further that, if required, any public report or filing under Section 16(a) of the Exchange Act shall clearly indicate in the footnotes thereto that the filing relates to the exercise of a stock option, that no shares were sold by the reporting person and that the shares received upon exercise are subject to a lock-up agreement with the underwriters; |
| transfers of shares of common stock or other securities to us in connection with a repurchase by us pursuant to a repurchase right arising upon the termination of the transferees employment with us pursuant to contractual agreements with us, provided that any filing required by Section 16(a) of the Exchange Act shall clearly indicate in the footnotes thereto that such transfer is being made pursuant to such repurchase right under such agreement and that no other public announcement or filing shall be required or voluntarily made during any such transaction; |
| transfers of shares of our common stock or other securities 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 of control of our company that has been approved by our board of directors, provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, the securities shall continue to be subject to the restrictions on transfer set forth in the lock-up agreement; |
| the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of common stock, provided that (i) such plan does not provide for the transfer of common stock during the restricted period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required or voluntarily made regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of common stock may be made under such plan during the restricted period; or |
| an estimated 200,000 shares that may be sold upon the exercise of stock options that would otherwise expire during the lock-up period, solely in order to allow such optionees to cover the exercise price of such expiring stock options and anticipated tax obligations related to such exercise, based on the assumed initial public offering price of $13.00 per share. |
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The representatives, in their sole discretion, may release the Class A common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.
In order to facilitate the offering of the Class A common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the option to purchase additional shares described above. The underwriters can close out a covered short sale by exercising such option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under such option. The underwriters may also sell shares in excess of such option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of Class A common stock in the open market to stabilize the price of the Class A common stock. These activities may raise or maintain the market price of the Class A common stock above independent market levels or prevent or retard a decline in the market price of the Class A common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We, the selling stockholders, and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of Class A common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
Other Relationships
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 respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.
Pricing of the Offering
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. Among the factors to be
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considered in determining the initial public offering price are our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.
Selling Restrictions
Canada
The shares of Class A common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares of Class A common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, no offer of shares of Class A common stock may be made to the public in that Relevant Member State other than:
(a) | to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
(b) | to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the representatives for any such offer; or |
(c) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares of our Class A common stock shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive and each person who initially acquires any shares of our Class A common stock or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwriters and us that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive.
In the case of any shares of our Class A common stock being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares of Class A common stock acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares of Class A common
154
stock to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
For the purposes of this provision, the expression an offer of shares of our Class A common stock to the public in relation to any shares of our Class A in any Relevant Member State means the communication in any form and by means of sufficient information on the terms of the offer and the shares of our Class A common stock to be offered so as to enable an investor to decide to purchase shares of our Class A common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State.
United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons).
Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons, or the Exempt Investors, who are sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take into account the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider
155
whether the information in this prospectus is appropriate for their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Chile
The shares of Class A common stock are not registered in the Securities Registry (Registro de Valores) or subject to the control of the Chilean Securities and Exchange Commission (Superintendencia de Valores y Seguros de Chile). This prospectus supplement and other offering materials relating to the offer of the shares do not constitute a public offer of, or an invitation to subscribe for or purchase, the shares in the Republic of Chile, other than to individually identified purchasers pursuant to a private offering within the meaning of Article 4 of the Chilean Securities Market Act (Ley de Mercado de Valores) (an offer that is not addressed to the public at large or to a certain sector or specific group of the public).
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Hong Kong
The shares of Class A common stock have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares of Class A common stock has been or may be issued or has been or may be in the possession of any person for the purposes of issuance, 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 of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of Class A common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Japan
No registration pursuant to Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended), or FIEL has been made or will be made with respect to the solicitation of the application for the acquisition of the shares of Class A common stock.
Accordingly, the shares of Class A common stock have not been, directly or indirectly, offered or sold and will not be, directly or indirectly, offered or sold 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 re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements, and otherwise in compliance with, the FIEL and the other applicable laws and regulations of Japan.
156
For Qualified Institutional Investors, or QII
Please note that the solicitation for newly-issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the shares of Class A common stock constitutes either a QII only private placement or a QII only secondary distribution (each as described in Paragraph 1, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of Class A common stock. The shares of Class A common stock may only be transferred to QIIs.
For Non-QII Investors
Please note that the solicitation for newly-issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the shares of Class A common stock constitutes either a small number private placement or a small number private secondary distribution (each as is described in Paragraph 4, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of Class A common stock. The shares of Class A common stock may only be transferred en bloc without subdivision to a single investor.
New Zealand
The shares of Class A common stock offered hereby have not been offered or sold, and will not be offered or sold, directly or indirectly in New Zealand and no offering materials or advertisements have been or will be distributed in relation to any offer of shares in New Zealand, in each case other than:
| to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money; |
| to persons who in all the circumstances can properly be regarded as having been selected otherwise than as members of the public; |
| to persons who are each required to pay a minimum subscription price of at least NZ$500,000 for the shares before the allotment of those shares (disregarding any amounts payable, or paid, out of money lent by the issuer or any associated person of the issuer); or |
| in other circumstances where there is no contravention of the Securities Act 1978 of New Zealand (or any statutory modification or re-enactment of, or statutory substitution for, the Securities Act 1978 of New Zealand). |
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 of Class A common stock may not be circulated or distributed, nor may the shares of Class A common stock 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 pursuant to Section 275(1), 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 of Class A common stock are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
| a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
157
| a trust (where the trustee is not an accredited investor) the sole purpose of which is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within nine months after that corporation or that trust has acquired the shares of Class A common stock pursuant to an offer made under Section 275 of the SFA except:
| to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
| where no consideration is or will be given for the transfer; |
| where the transfer is by operation of law; |
| as specified in Section 276(7) of the SFA; or |
| as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Switzerland
The shares of Class A common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or 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 document 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 document nor any other offering or marketing material relating to the offering, us, or 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, or FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
158
The validity of the shares of Class A common stock offered hereby will be passed upon for us by Cooley LLP, Palo Alto, California. Davis Polk & Wardwell LLP, Menlo Park, California is acting as counsel to the underwriters.
The consolidated financial statements as of December 26, 2015 and December 31, 2016, and for each of the two years in the period ended December 31, 2016, included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements are included in reliance upon the report of such firm given upon their authority as experts in auditing and accounting.
WHERE CAN YOU FIND ADDITIONAL INFORMATION
We have submitted with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of Class A common stock being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For further information about us and the Class A common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
You can read our SEC filings, including the registration statement, over the Internet at the SECs website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, NE, Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
Upon the closing of this offering, we will be subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and web site of the SEC referred to above. We also maintain a website at www.roku.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. 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.
159
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
Consolidated Statements of Convertible Preferred Stock and Stockholders Deficit |
F-5 | |||
F-6 | ||||
F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Roku, Inc.
Los Gatos, California
We have audited the accompanying consolidated balance sheets of Roku, Inc. and subsidiaries (the Company) as of December 26, 2015 and December 31, 2016, and the related consolidated statements of operations, convertible preferred stock and stockholders deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Roku, Inc. and subsidiaries as of December 26, 2015 and December 31, 2016, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
June 26, 2017
(August 22, 2017 as to Note 12 and September 15, 2017 as to the reverse stock split as described in the Stock Split paragraph in Note 13)
F-2
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and par value)
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
Pro Forma
June 30, 2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Assets |
||||||||||||||||
Current Assets: |
||||||||||||||||
Cash |
$ | 75,748 | $ | 34,562 | $ | 70,169 | ||||||||||
Accounts receivable, net of allowances of $17,729 and $16,213 at December 26, 2015 and December 31, 2016, respectively, and $14,612 (unaudited) at June 30, 2017 |
53,169 | 79,325 | 56,340 | |||||||||||||
Receivable from related parties |
286 | 148 | | |||||||||||||
Inventories |
30,312 | 43,568 | 27,082 | |||||||||||||
Prepaid expenses and other current assets |
4,593 | 4,981 | 6,950 | |||||||||||||
Deferred cost of revenue |
824 | 2,636 | 4,363 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total current assets |
164,932 | 165,220 | 164,904 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Property and equipment, net |
7,886 | 9,528 | 12,071 | |||||||||||||
Deferred cost of revenue, noncurrent portion |
2,742 | 3,815 | 4,703 | |||||||||||||
Other noncurrent assets |
951 | 515 | 3,318 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total Assets |
$ | 176,511 | $ | 179,078 | $ | 184,996 | ||||||||||
|
|
|
|
|
|
|||||||||||
Liabilities, Convertible Preferred Stock and Stockholders (Deficit) Equity |
||||||||||||||||
Current Liabilities: |
||||||||||||||||
Accounts payable |
$ | 34,202 | $ | 31,397 | $ | 23,970 | ||||||||||
Accrued liabilities |
27,687 | 46,156 | 47,898 | |||||||||||||
Current portion of long-term debt |
| 15,000 | | |||||||||||||
Deferred revenue, current portion |
14,585 | 23,952 | 30,981 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total current liabilities |
76,474 | 116,505 | 102,849 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Long-term debt, less current portion |
15,000 | | 22,811 | |||||||||||||
Preferred stock warrant liability |
10,878 | 9,990 | 14,673 | $ | | |||||||||||
Noncurrent deferred revenue |
18,665 | 29,084 | 37,132 | |||||||||||||
Other long-term liabilities |
2,050 | 4,143 | 7,701 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities |
123,067 | 159,722 | 185,166 | 170,493 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Commitments and Contingencies (Note 7) |
||||||||||||||||
Convertible Preferred Stock: |
||||||||||||||||
Convertible preferred stock, $0.0001 par value84,368,163 shares authorized at December 26, 2015, December 31, 2016, and June 30, 2017 (unaudited); 80,844,138 shares issued and outstanding at December 26, 2015 at December 31, 2016 and June 30, 2017 (unaudited); no shares authorized, issued or outstanding pro forma (unaudited) |
213,180 | 213,180 | 213,180 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Stockholders (Deficit) Equity: |
||||||||||||||||
Common stock, $0.0001 par value122,000,000 shares authorized at December 26, 2015, December 31, 2016, and June 30, 2017 (unaudited), respectively, 4,530,981, 4,818,812, and 4,904,357 shares issued and outstanding at December 26, 2015, December 31, 2016, and June 30, 2017 (unaudited), respectively; 85,748,495 shares issued and outstanding pro forma (unaudited) |
| | | 8 | ||||||||||||
Additional paid-in capital |
17,335 | 26,005 | 30,694 | 258,539 | ||||||||||||
Accumulated deficit |
(177,071 | ) | (219,829 | ) | (244,044 | ) | (244,044 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stockholders (deficit) equity |
(159,736 | ) | (193,824 | ) | (213,350 | ) | $ | 14,503 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities, Convertible Preferred Stock and Stockholders (Deficit) Equity |
$ | 176,511 | $ | 179,078 | $ | 184,996 | ||||||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Years Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Net Revenue: |
||||||||||||||||
Player |
$ | 269,977 | $ | 293,929 | $ | 119,116 | $ | 117,329 | ||||||||
Platform |
49,880 | 104,720 | 43,140 | 82,391 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net revenue |
319,857 | 398,649 | 162,256 | 199,720 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of Revenue: |
||||||||||||||||
Player |
221,416 | 249,821 | 99,375 | 103,122 | ||||||||||||
Platform |
8,663 | 27,783 | 12,549 | 20,121 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost of revenue |
230,079 | 277,604 | 111,924 | 123,243 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross Profit: |
||||||||||||||||
Player |
48,561 | 44,108 | 19,741 | 14,207 | ||||||||||||
Platform |
41,217 | 76,937 | 30,591 | 62,270 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross profit |
89,778 | 121,045 | 50,332 | 76,477 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating Expenses: |
||||||||||||||||
Research and development |
50,469 | 76,177 | 38,471 | 48,118 | ||||||||||||
Sales and marketing |
45,153 | 52,888 | 26,245 | 28,722 | ||||||||||||
General and administrative |
31,708 | 35,341 | 18,255 | 20,855 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
127,330 | 164,406 | 82,971 | 97,695 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from Operations |
(37,552 | ) | (43,361 | ) | (32,639 | ) | (21,218 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Income (Expense), Net: |
||||||||||||||||
Interest expense |
(696 | ) | 146 | (131 | ) | (471 | ) | |||||||||
Change in fair value of preferred stock warrant liability |
(1,768 | ) | 888 | (394 | ) | (2,651 | ) | |||||||||
Other income (expense), net |
(448 | ) | (220 | ) | (25 | ) | 211 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income (expense), net |
(2,912 | ) | 814 | (550 | ) | (2,911 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(40,464 | ) | (42,547 | ) | (33,189 | ) | (24,129 | ) | ||||||||
Income tax expense |
147 | 211 | 53 | 86 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to common stockholders |
$ | (40,611 | ) | $ | (42,758 | ) | $ | (33,242 | ) | $ | (24,215 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share attributable to common stockholdersbasic and diluted |
$ | (10.08 | ) | $ | (9.01 | ) | $ | (7.08 | ) | $ | (4.98 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average shares used in computing net loss per share attributable to common stockholdersbasic and diluted |
4,030,579 | 4,745,943 | 4,696,170 | 4,866,028 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pro forma net loss per share attributable to common stockholdersbasic and diluted (unaudited) |
$ | (0.51 | ) | $ | (0.25 | ) | ||||||||||
|
|
|
|
|||||||||||||
Pro forma weighted-average shares used in computing pro forma net loss per share attributable to common stockholdersbasic and diluted (unaudited) |
85,590,081 | 85,710,166 | ||||||||||||||
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS DEFICIT
(in thousands, except share and per share data)
Convertible
Preferred Stock |
Common Stock |
Additional
Paid-in Capital |
Treasury
Stock |
Accumulated
Deficit |
Total
Stockholders Deficit |
|||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
BalanceDecember 27, 2014 |
75,475,380 | $ | 165,099 | 3,746,511 | $ | | $ | 11,205 | $ | | $ | (136,460 | ) | $ | (125,255 | ) | ||||||||||||||||
Issuance of Series D convertible preferred stock upon exercise of preferred stock warrants |
408,770 | 972 | | | | | | | ||||||||||||||||||||||||
Issuance of Series H convertible preferred stock in November at $9.17340 per sharenet of issuance costs of $68 |
4,959,988 | 45,432 | | | | | | | ||||||||||||||||||||||||
Reclassification of convertible preferred stock warrant liability to equity upon exercise of warrants |
| 1,677 | | | | | | | ||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options, net of repurchases |
| | 784,470 | | 837 | | | 837 | ||||||||||||||||||||||||
Vesting of early exercised stock options |
| | | | 9 | | | 9 | ||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 5,284 | | 5,284 | |||||||||||||||||||||||||
Net loss |
| | | | | | (40,611 | ) | (40,611 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
BalanceDecember 26, 2015 |
80,844,138 | 213,180 | 4,530,981 | | 17,335 | | (177,071 | ) | (159,736 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Issuance of common stock upon expiration of warrants |
| | 162,393 | | | | | | ||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options |
| | 125,438 | | 438 | | | 438 | ||||||||||||||||||||||||
Vesting of early exercised stock options |
| | | | 26 | | | 26 | ||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 8,206 | | | 8,206 | ||||||||||||||||||||||||
Net loss |
| | | | | | (42,758 | ) | (42,758 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
BalanceDecember 31, 2016 |
80,844,138 | 213,180 | 4,818,812 | | 26,005 | | (219,829 | ) | (193,824 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Issuance of common stock upon exercise of stock options (unaudited) |
| | 178,182 | | 759 | | | 759 | ||||||||||||||||||||||||
Share repurchases (unaudited) |
| | (92,637 | ) | | | (671 | ) | | (671 | ) | |||||||||||||||||||||
Vesting of early exercised stock options (unaudited) |
| | | | 8 | | | 8 | ||||||||||||||||||||||||
Stock-based compensation expense (unaudited) |
| | | | 4,593 | | | 4,593 | ||||||||||||||||||||||||
Net loss (unaudited) |
| | | | | | (24,215 | ) | (24,215 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
BalanceJune 30, 2017 (unaudited) |
80,844,138 | $ | 213,180 | 4,904,357 | $ | | $ | 31,365 | $ | (671 | ) | $ | (244,044 | ) | $ | (213,350 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net loss |
$ | (40,611 | ) | $ | (42,758 | ) | $ | (33,242 | ) | $ | (24,215 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||||||
Depreciation and amortization |
2,555 | 5,302 | 2,850 | 2,580 | ||||||||||||
Impairment of assets |
| 320 | 320 | | ||||||||||||
Stock-based compensation expense |
5,284 | 8,206 | 4,005 | 4,593 | ||||||||||||
Provision for doubtful accounts |
663 | 336 | 146 | 294 | ||||||||||||
Change in fair value of preferred stock warrant liability |
1,768 | (888 | ) | 394 | 2,651 | |||||||||||
Noncash interest expense |
354 | 115 | 59 | 300 | ||||||||||||
Loss on disposals of property and equipment |
137 | 29 | 29 | 51 | ||||||||||||
Loss from exit of facilities |
| 3,804 | 3,804 | | ||||||||||||
Write-off of deferred initial public offering costs |
1,609 | 594 | ||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Due from related parties |
(276 | ) | 138 | (5 | ) | 148 | ||||||||||
Accounts receivable |
(13,842 | ) | (26,492 | ) | 9,324 | 22,691 | ||||||||||
Inventories |
(3,754 | ) | (13,256 | ) | (3,390 | ) | 16,486 | |||||||||
Prepaid expenses and other current assets |
(1,887 | ) | (544 | ) | 1,138 | (2,098 | ) | |||||||||
Deferred cost of revenue |
(3,017 | ) | (2,885 | ) | (843 | ) | (2,615 | ) | ||||||||
Other noncurrent assets |
1,179 | 448 | 447 | (2,803 | ) | |||||||||||
Accounts payable |
4,724 | (2,808 | ) | (9,871 | ) | (7,756 | ) | |||||||||
Accrued liabilities |
2,802 | 17,796 | 2,617 | 1,271 | ||||||||||||
Other long-term liabilities |
1,391 | 294 | 1,216 | 3,558 | ||||||||||||
Deferred revenue |
8,317 | 19,786 | 3,569 | 15,077 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) operating activities |
(32,604 | ) | (32,463 | ) | (17,433 | ) | 30,213 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||||
Purchase of property and equipment |
(5,019 | ) | (8,596 | ) | (5,915 | ) | (4,586 | ) | ||||||||
Restricted cash |
(186 | ) | 29 | 33 | 86 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(5,205 | ) | (8,567 | ) | (5,882 | ) | (4,500 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities: |
||||||||||||||||
Payments of costs related to initial public offering |
(1,120 | ) | (594 | ) | | | ||||||||||
Proceeds from borrowings, net |
| | | 24,691 | ||||||||||||
Repayments of borrowings |
(2,576 | ) | (15,000 | ) | (15,000 | ) | (15,000 | ) | ||||||||
Borrowings on line of credit |
15,000 | 15,000 | | | ||||||||||||
Proceeds from exercise of stock options, net of repurchases |
839 | 438 | 202 | 203 | ||||||||||||
Proceeds from exercise of preferred stock warrants |
972 | | | | ||||||||||||
Proceeds from issuance of convertible preferred stock |
45,500 | | | | ||||||||||||
Issuance costs in connection with issuance of convertible preferred stock |
(68 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
58,547 | (156 | ) | (14,798 | ) | 9,894 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Increase (Decrease) In Cash |
20,738 | (41,186 | ) | (38,113 | ) | 35,607 | ||||||||||
CashBeginning of period |
55,010 | 75,748 | 75,748 | 34,562 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
CashEnd of period |
$ | 75,748 | $ | 34,562 | $ | 37,635 | $ | 70,169 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Cash paid for interest |
$ | 273 | $ | 236 | $ | 93 | $ | 136 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash paid for income taxes |
$ | 83 | $ | 121 | $ | 57 | $ | 66 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Supplemental disclosures of noncash investing and financing activities: |
||||||||||||||||
Purchases of property and equipment recorded in accounts payable and accrued liabilities |
$ | 1,608 | $ | 306 | $ | 902 | $ | 893 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair value of preferred stock warrants exercised |
$ | 1,677 | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Issuance of convertible preferred stock warrants in connection with debt |
$ | | $ | | $ | | $ | 2,032 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Unpaid initial public offering costs |
$ | | $ | | $ | | $ | 186 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Roku, Inc. (the Company or Roku), was formed in October 2002 as Roku LLC under the laws of the State of Delaware. On February 1, 2008, Roku LLC was converted into Roku, Inc., a Delaware corporation. The Companys TV streaming platform allows users to easily discover and access a wide variety of movies and TV episodes, as well as live sports, music, news and more. The Company operates in two reportable segments and generates revenue through the sale of streaming players, advertising, subscription and transaction revenue sharing, as well as through licensing arrangements with TV brands and cable, satellite, and telecommunication service operators (service operators).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of the Companys consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant items subject to such estimates include revenue recognition for multiple element arrangements, determination of revenue reporting as net versus gross, sales return reserves, customer incentive programs, inventory valuation, the valuation of deferred income tax assets, the recognition and disclosure of contingent liabilities and the fair value of the Companys preferred stock and common stock. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from the Companys estimates. To the extent that there are material differences between these estimates and actual results, the Companys financial condition or operating results will be affected.
Beginning in 2017, the Company reports its consolidated financial results based on calendar years ending on December 31 and quarters ending on the last day of each quarter. Prior to 2017, the Companys fiscal year was the 52- or 53-week period that ends on the last Saturday of December. The Companys fiscal years 2015 and 2016 ended on December 26, 2015 and December 31, 2016, respectively. Fiscal year 2015 spanned 52 weeks and 2016 spanned 53 weeks. The two fiscal quarters ended July 2, 2016 and June 30, 2017 included 27 and 26 weeks, respectively. Unless otherwise stated, references to particular years, quarters, months, and periods refer to the Companys fiscal years ended in December and the associated quarters, months, and periods of those fiscal years.
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with U.S. GAAP and includes the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheet as of June 30, 2017, the related interim consolidated statements of operations and cash flows for the six months ended July 2, 2016 and June 30, 2017, the consolidated statements of convertible preferred stock and stockholders deficit for the six months ended June 30, 2017, and the related footnote disclosures are unaudited. The unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP. In managements opinion, the unaudited interim financial
F-7
statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Companys financial position as of June 30, 2017, and its results of operations and cash flows for the six months ended July 2, 2016 and June 30, 2017. The results for the six months ended June 30, 2017 are not necessarily indicative of the results expected for the full fiscal year or any other periods.
Unaudited Pro Forma Consolidated Balance Sheet Information
Immediately upon the closing of the initial public offering contemplated by the Company and following the Companys filing of its amended and restated certificate of incorporation to reclassify all outstanding common stock as Class B common stock and create the Class A common stock, all outstanding shares of convertible preferred stock will automatically convert into shares of Class B common stock. The unaudited pro forma consolidated balance sheet information at June 30, 2017, gives effect to the conversion of all outstanding shares of the Companys convertible preferred stock into 80,844,138 shares of Class B common stock and the reclassification of all outstanding shares of the Companys common stock into 4,904,357 shares of Class B common stock. It also gives effect to an automatic conversion of warrants to purchase 2,225,966 shares of convertible preferred stock into warrants to purchase the same number of shares of Class B common stock, which results in the reclassification of the warrant liability to additional paid-in capital.
Foreign Currency
The functional currency of the Companys foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars from the local currency at rates in effect at period-end and nonmonetary assets and liabilities are remeasured at historical rates. Revenues and expenses are remeasured at average exchange rates in effect during each period. Foreign currency gains or losses from re-measurement and transaction gains or losses are recorded as other income (expense), net in the consolidated statements of operations. During the years ended December 26, 2015 and December 31, 2016, the Company recorded foreign currency losses of $467,000 and $373,000, respectively. During the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), the Company recorded foreign currency losses of $147,000 and foreign currency gains of $110,000, respectively.
Comprehensive Loss
Comprehensive loss is equal to the net loss for all periods presented. Therefore, the consolidated statements of comprehensive loss have been omitted from the consolidated financial statements.
Certain Significant Risks and Uncertainties
The Company is subject to those risks common in the technology-driven consumer market including, but not limited to, competitive forces, dependence on key personnel, consumer demand for its devices and TV streaming platform, the successful protection of its proprietary technologies, dependence on third-party suppliers, compliance with government regulations, and the ability to obtain additional financing when needed.
Segment Reporting
The Company reports its financial results consistent with the manner in which financial information is viewed by management for decision-making purposes. Financial information and operating performance are reviewed and resource allocation decisions are made based on two reportable segments. Other operating expenses that the Company does not manage at the segment level such as research and development, sales and marketing and general and administrative expenses are not allocated to or included in the segment information.
F-8
Concentrations
Financial instruments, which potentially subject the Company to risk of loss consist principally of cash and trade accounts receivable. The Company maintains cash with domestic financial institutions of high credit quality.
The Company performs ongoing evaluations to assess the probability of accounts receivable being collected based on historical experience, the age of the accounts receivable balances, the credit quality of its customers, current economic conditions, and other factors that may affect customers ability to pay. The Company generally does not require collateral and provides for potential credit losses when deemed necessary. During the fiscal year ended December 26, 2015, the Company recorded an allowance for doubtful accounts of $662,000 to provide for potential credit losses, primarily related to one customer. During the fiscal year ended December 31, 2016, the Company recorded a $600,000 reversal of this allowance when the loss was recovered through bankruptcy proceeds. Actual credit losses during the fiscal year ended December 31, 2016 and the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), were not significant.
Customers accounting for 10% or more of the Companys net revenue for the fiscal years ended December 26, 2015 and December 31, 2016, and for six months ending July 2, 2016 and June 30, 2017 were as follows:
Years Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Customer A |
16 | % | 13 | % | 13 | % | * | % | ||||||||
Customer B |
15 | 12 | 13 | 10 | ||||||||||||
Customer C |
23 | 24 | 25 | 20 | ||||||||||||
Customer D |
* | * | * | 11 |
Customers accounting for 10% or more of the Companys accounts receivable at December 26, 2015 and December 31, 2016 and June 30, 2017, were as follows:
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Customer A |
19 | % | 12 | % | * | % | ||||||
Customer B |
18 | 11 | * | |||||||||
Customer C |
14 | 17 | 10 | |||||||||
Customer D |
* | 17 | 16 |
* | Less than 10% |
Allowances for Returns, Sales Incentives and Doubtful Accounts
Accounts receivable are stated at invoice value less estimated allowances for product returns, customer incentives, and doubtful accounts.
Inventories
The Companys inventories consist primarily of finished goods and are stated at the lower of cost or market on a first-in, first-out basis. If the cost of the inventories exceeds their net realizable value, provisions are made currently for the difference between the cost and the market value. The Company evaluates inventory levels and purchase commitments for excess and obsolete products, based on managements assessment of future demand and market conditions.
F-9
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of the assets, generally ranging between eighteen months and five years. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives, which is generally five years.
Website and Internal-Use Software
The Company capitalizes costs to develop its website and internal-use software. The Company expenses all costs that relate to the planning and post-implementation phases of development as incurred. The Company capitalizes subsequent costs when preliminary efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and will be used as intended. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized. During the fiscal years ended December 26, 2015 and December 31, 2016, the Company capitalized website and internal-use software development costs of $687,000 and $1,796,000, respectively. During the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), the Company capitalized website and internal-use development costs of $856,000 and $718,000, respectively.
Capitalized costs are amortized using the straight-line method over an estimated useful life of the asset, which is generally two years, beginning when the asset is ready for its intended use. During the fiscal years ended December 26, 2015 and December 31, 2016, the Company amortized expenses of $346,000 and $661,000, respectively. During the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), the Company amortized expenses of $242,000 and $521,000, respectively.
Impairment of Long-Lived Assets
The Companys long-lived assets include property and equipment and other noncurrent assets and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recovered. Recoverability of assets is measured first by comparing their carrying amounts to their future undiscounted net cash flows. If such assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. During the fiscal year ended December 31, 2016, the Company recorded an impairment of $320,000 for obsolete internal-use software.
Deferred Offering Costs
On December 17, 2014, the Company submitted an initial registration statement with the SEC and submitted subsequent amendments in February 2015 and November 2015. In December 2015, the Company decided to postpone its IPO for more than 90 days based on managements evaluation of the business environment at that time. Deferred offering costs totaling $1,609,000 were expensed in December 2015 and are included in general and administrative expenses. In July 2016, the Company submitted a third amendment to its registration statement. In August 2016, the Company again decided to postpone its IPO based on an evaluation of the business environment and other factors and withdrew its registration statement. Deferred offering costs related to the July 2016 filing totaling $594,000 were expensed in 2016 and are included in general and administrative expenses in the consolidated statements of operations. In July 2017, the Company submitted a new initial registration statement. There were no deferred offering costs capitalized at December 26, 2015 and December 31, 2016. As of June 30, 2017 (unaudited), $186,000 had been capitalized as deferred offering costs and is included in other noncurrent assets.
F-10
Revenue Recognition
Overview The Company derives revenue primarily from sales of its players and platform services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.
Multiple Element Arrangements The Company commonly enters into multiple-element arrangements. In such arrangements, the Company will combine arrangement deliverables into units of accounting and allocate the total arrangement consideration to the different units of accounting based on a relative selling price hierarchy. To determine the relative selling price of each element, the Company uses vendor-specific objective evidence of fair value (VSOE), if available, third party evidence (TPE), if VSOE is not available, or best estimated selling price (BESP), if neither VSOE nor TPE are available. The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were available on a standalone basis. The Company establishes BESP considering multiple factors including, but not limited to, historical prices of products sold on a stand-alone basis, cost and gross margin objectives, competitive pricing practices and customer and market specific considerations. Revenue is recognized for each unit of accounting provided that all revenue recognition criteria have been met.
Players The Company sells the majority of its players through consumer retail distribution channels, including brick and mortar and online retailers, and through the Companys website. For sales through consumer retail distribution channels, revenue recognition occurs when title and risk of loss have transferred to the customer which usually occurs upon shipment to the customers or receipt of the products by the customer depending on shipping terms. The Company establishes allowances for expected product returns and these allowances are recorded as a direct reduction to revenue. Return allowances are based on the Companys historical experience. Certain payments to retailers and distributors such as market development funds, store promotions and price protection are recorded as a reduction of revenue. Roku reduces revenue at the later of the date at which the related player revenue is recognized or the date on which the program is offered. On occasion, these allowances cannot be reasonably and reliably estimated. Player revenue is then recognized at the time the players sell through to the end customer.
The Companys player sales include two units of accounting: hardware, which includes embedded software, and unspecified upgrades or enhancements on a when-and-if available basis. The Company has determined that its hardware and embedded software be considered as one single unit of accounting, because the hardware and software individually do not have standalone value and are not sold separately. The Company initially records the relative selling price of the unspecified upgrades or enhancements on a when-and-if-available basis as deferred revenue, and then recognizes the deferred revenue into player, net revenue ratably on a straight-line basis over the estimated economic life of the associated players.
Shipping charges billed to customers are included in player revenue and the related shipping costs are included in cost of player revenue. Revenue is recorded net of taxes collected or accrued. Sales taxes are recorded as current liabilities until remitted to the relevant government authority.
Platform The Company earns platform revenue from fees received from advertisers and content publishers and licensing its technology and proprietary operating system to service operators and TV brands. Platform revenue primarily includes fees earned or derived from the sale of digital advertising, revenue sharing with content publishers for new or recurring user subscriptions activated through the Companys platform and revenue share from user purchases of content publishers media through its platform. The Company also earns revenue from the sale of branded channel buttons on remote controls. Licensing revenues from service operators are mostly generated from unit activation or flat fees and ongoing maintenance fees. Licensing revenues from TV brands are generated on a flat fee basis or from per unit licensing fees earned.
F-11
Digital advertising includes video and display ads that are served on the Companys platform. Digital advertising revenue consists of video and display advertising commonly sold on a cost per thousand impression basis. Advertising revenue arrangements are evidenced by a fully executed insertion order. Revenue is recognized in the period the impressions and promotional media are delivered.
Fees derived from the Companys billing services supporting new or recurring user subscriptions activated through its platform and from purchases of content publishers media are recognized as transacted at the net amount retained by the Company, generally equal to a fixed percentage of the price charged by the content provider or a contractual flat fee. When the content publisher is responsible for user billing, the Company recognizes revenue from its share of the fees on an as reported basis, in arrears, on a monthly or quarterly basis.
The Company also earns fees through the sale of branded channel buttons on remote controls. These branded buttons provide one-touch, direct access to the providers content on the Companys platform. The Company typically receives a fixed fee per button unit, and revenue is recognized as remote controls are shipped by the Company or reported as shipped by TV brands.
Revenues earned from service operators and TV brands in the licensing of the Companys technology and proprietary operating system are accounted for under software revenue recognition guidance. The Company has been unable to establish VSOE for any component of these licensing arrangements and therefore these arrangements are accounted for as a single unit of accounting and revenue over the term of the relationship. Arrangements with service operators are generally comprised of a license for the technology and proprietary operating system, unspecified upgrades or enhancements, hosting of a branded channel store, and engineering and support services. Arrangements with TV brands commonly include a license to the technology and proprietary operating system over a specified term including updates and upgrades.
Deferred Revenue and Deferred Cost of Revenue
The Companys deferred revenue reflect fees received from licensing and service arrangements, including advertising, that will be recognized as revenue over time or as services are rendered. Deferred revenue balances consist of the amount of player sales allocated to unspecified upgrades or enhancements on a when-and-if available basis, licensing and services fees from service operators and TV brands, and payments from advertisers and content publishers.
Deferred cost of revenue consists of amounts associated with related deferred revenues and is recognized as cost of revenue in the same manner as its respective deferred revenue.
Deferred revenue and the associated deferred cost of revenue expected to be realized within one year are classified as current liabilities and current assets, respectively, and the remaining are recorded as noncurrent liabilities and noncurrent assets, respectively.
Cost of Revenue
Cost of Player Revenue Cost of player revenue is comprised of player manufacturing costs payable to third-party contract manufacturers, technology license or royalty fees, inbound and outbound freight and logistics costs, third-party packaging and assembly costs, warranty costs, write-downs of excess and obsolete inventory, allocated overhead costs related to manufacturing management, facilities and customer support, and salaries, benefits and stock-based compensation for operations personnel.
Cost of Platform Revenue Cost of platform revenue consists of advertising inventory costs, payment processing fees, third-party cloud service fees and allocated personnel-related costs, including salaries, benefits and stock-based compensation for Company personnel that support platform services, including billing and advertising operations, customer service and the Companys service operators and TV brands licensing businesses.
F-12
Warranty Costs
The Company generally provides for the estimated cost of hardware and software warranties at the time the related revenue is recognized. The Company assesses the adequacy of its preexisting warranty liabilities and adjusts the amounts as necessary based on actual experience and changes in future estimates.
Advertising Costs
Advertising costs are expensed when incurred and are included in sales and marketing expense in the consolidated statements of operations. The Company incurred advertising costs of $4,117,000 and $3,852,000 for the years December 26, 2015 and December 31, 2016, respectively, and $1,603,000 and $1,269,000 for the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), respectively.
Research and Development
Costs related to research and development are expensed as incurred. Research and development expenses primarily consist of salaries, benefits and stock-based compensation, as well as consulting expenses and allocated facilities and other overhead costs. Research and development activities include the development of new technologies, features and functionality in support of the Roku OS and devices in order to enhance the Companys players and platform segments, and the unspecified upgrades and enhancements that are available to activated devices.
Stock-Based Compensation
The Company measures compensation expense for all stock-based awards, including stock options granted to employees, based on the estimated fair value on the date of grant. The fair value of each stock option granted is estimated using Black-Scholes option-pricing model. Stock-based compensation is recognized on a straight-line basis over the requisite vesting period. For the fiscal years ended December 26, 2015 and December 31, 2016, the stock-based compensation was recorded net of estimated forfeitures using a forfeiture rate based on an analysis of the Companys actual historical forfeitures. The Company adopted new guidance effective January 1, 2017 and will recognize forfeitures as they occur.
The Company accounts for stock options issued to nonemployees based on the fair value of the awards determined using the Black-Scholes option-pricing model. The fair value of stock options granted to nonemployees is remeasured as the stock options vest, and the resulting change in fair value, if any, is recognized in the Companys consolidated statements of operations during the period the related services are rendered, generally four years.
Preferred Stock Warrant Liability
The Company accounts for freestanding warrants to purchase shares of its convertible preferred stock as a liability as the underlying shares of convertible preferred stock are contingently redeemable and, therefore, may obligate the Company to transfer assets at some point in the future. The warrants were recorded at fair value upon issuance and are subject to re-measurement at each balance sheet date. Any change in fair value is recognized in the statements of operations in other income and expense. The Company will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise of the warrants, the completion of a deemed liquidation event, or the conversion of convertible preferred stock into common stock. At that time, the convertible preferred stock warrant liability will be reclassified to equity.
Income Taxes
The Company accounts for income taxes using an asset and liability approach. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of
F-13
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized.
Net Loss per Share
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding and potentially dilutive securities would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive include common stock options, common stock warrants, convertible preferred stock warrants, convertible preferred stock, and unvested shares of common stock issued upon the early exercise of stock options.
Unaudited Pro Forma Net Loss per Share
Pro forma basic and diluted net loss per share were computed to give effect to the automatic conversion of Series A convertible preferred stock, Series B convertible preferred stock, Series C-1 convertible preferred stock, Series C-2 convertible preferred stock, Series D convertible preferred stock, Series E convertible preferred stock, Series F convertible preferred stock, Series G convertible preferred stock and Series H convertible preferred stock using the if converted method as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later.
Recently Issued Accounting Pronouncements
In July 2017, the Financial Accounting Standards Board (FASB) issued new guidance to address the complexity of the accounting for certain financial instruments with down round features that result in the strike price being reduced on the basis of the pricing of future equity offerings. Under this guidance, when determining the classification of certain financial instruments as liability or equity, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entitys own stock. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.
In August 2016, the FASB issued new guidance which addresses classification of certain cash receipts and cash payments related to the statement of cash flows. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.
In February 2016, the FASB issued new guidance related to new accounting and reporting guidelines for leasing arrangements. The guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. The new standard is to be applied using a modified retrospective approach. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.
In January 2016, the FASB issued new guidance related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of this new guidance on the consolidated financial statements and the related disclosures.
F-14
In May 2014, the FASB issued new guidance related to the recognition and reporting of revenue that establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In August 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017. In 2016 the FASB issued amendments on this guidance with the same effective date and transition guidance. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company plans to adopt the new revenue standard in its first quarter of 2018.
To date, the Company has established an implementation team and is in the process of evaluating the impact of the new standard on its accounting policies, processes, and system requirements. Furthermore, the Company has made and will continue to make investments in systems to enable timely and accurate reporting under the new standard.
The Company is continuing to evaluate adoption methods and the potential impact that the implementation of this standard will have on its condensed consolidated financial statements, but has not yet determined whether the effect will be material. However, the Company believes this new standard will impact its accounting for revenue arrangements in the following areas:
| Revenue from the licensing of the Companys technology and proprietary operating system to service operators and TV brands, which will be recognized earlier and could result in greater variability in revenue recognition; |
| Estimation of variable consideration for content publisher arrangements with revenue share from user subscriptions and media purchases through its platform and the sale of branded channel buttons on its remote controls; and |
| Required disclosures. |
The Company expects revenue recognition related to players to remain relatively unchanged under the new guidance and is in the process of evaluating the impact on its player arrangements.
Impact of Recent Accounting Pronouncements Adoption
In November 2015, the FASB issued new guidance which simplifies the presentation of deferred income taxes. This guidance requires that deferred tax assets and liabilities be classified as noncurrent in the consolidated balance sheets. The Company early adopted the guidance effective December 26, 2015 on a prospective basis. The adoption of this guidance had no impact on the consolidated statements of operations.
In April 2015, the FASB issued new guidance related to simplifying the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. This will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. The Company adopted this guidance effective December 27, 2015. The adoption of this guidance had no impact on the consolidated financial statements.
In March 2016, the FASB issued new guidance related to accounting for stock-based payment award transactions. The guidance is designed to simplify several aspects of accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. The Company adopted this guidance effective January 1, 2017. As part of this adoption, the Company will recognize forfeitures as they occur to determine the amount of compensation cost to be recognized in each period. The adoption of this guidance had no impact on the consolidated financial statements.
F-15
Subsequent Events
The Company has evaluated the effects of subsequent events on its annual consolidated financial statements for the fiscal year ended December 31, 2016 through June 26, 2017, the date on which consolidated financial statements for the fiscal year ended December 31, 2016 were issued, except for the change in operating segments discussed in Note 12, which were evaluated through August 22, 2017, and except for the 1-for-6 reverse stock split discussed in Note 13, which was evaluated through September 15, 2017. For the unaudited interim financial statements for the six months ended June 30, 2017, the Company has evaluated subsequent events through August 22, 2017, the date the consolidated financial statements were issued and further evaluated subsequent events in connection with the re-issuance of the interim financial statements on September 15, 2017.
Fair Value Measurements
Level 1 Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2 Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means.
Level 3 Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Level 1 liabilities consist of accounts payable, accrued expenses and long-term debt. The carrying amounts of accounts receivable, prepaid expenses, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items. Based on the borrowing rates currently available to the Company for debt with similar terms, the carrying value of the line of credit and term debt approximate fair value as well.
The tables below summarize the Companys financial instruments classification within the fair value hierarchy as of December 26, 2015, December 31, 2016, and June 30, 2017 as follows (in thousands):
December 26, 2015 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial liabilitiesconvertible preferred stock warrant liability |
$ | | $ | | $ | 10,878 | $ | 10,878 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | | $ | | $ | 10,878 | $ | 10,878 | ||||||||
|
|
|
|
|
|
|
|
December 31, 2016 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial liabilitiesconvertible preferred stock warrant liability |
$ | | $ | | $ | 9,990 | $ | 9,990 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | | $ | | $ | 9,990 | $ | 9,990 | ||||||||
|
|
|
|
|
|
|
|
June 30, 2017 | ||||||||||||||||
(unaudited) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial liabilitiesconvertible preferred stock warrant liability |
$ | | $ | | $ | 14,673 | $ | 14,673 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial liabilities |
$ | | $ | | $ | 14,673 | $ | 14,673 | ||||||||
|
|
|
|
|
|
|
|
Level 3 instruments consist solely of the Companys preferred stock warrant liability in which the fair value was measured upon issuance and at each reporting date. Inputs used to determine the estimated fair value of the
F-16
warrant liability as of the valuation date included remaining contractual term of the warrants, the risk-free interest rate, the volatility of comparable public companies over the remaining term, and the fair value of underlying shares. The significant unobservable inputs used in the fair value measurement of the preferred stock warrant liability were the fair value of the underlying stock at the valuation date and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.
A reconciliation of the preferred stock warrant liability measured and recorded at fair value on a recurring basis using significant unobservable inputs is as follows (in thousands):
Fair value as of December 27, 2014 |
$ | 10,787 | ||
Fair value of warrants exercised during the period |
(1,677 | ) | ||
Change in fair value of preferred stock warrant liability |
1,768 | |||
|
|
|||
Fair value as of December 26, 2015 |
10,878 | |||
Change in fair value of preferred stock warrant liability |
(888 | ) | ||
|
|
|||
Fair value as of December 31, 2016 |
$ | 9,990 | ||
Fair value of warrants issued during the period (unaudited) |
2,032 | |||
Change in fair value of preferred stock warrant liability (unaudited) |
2,651 | |||
|
|
|||
Fair value as of June 30, 2017 (unaudited) |
$ | 14,673 | ||
|
|
3. CONSOLIDATED BALANCE SHEET COMPONENTS
Accounts Receivable, Net Accounts receivable, net, as of December 26, 2015 and December 31, 2016 and June 30, 2017, consisted of the following (in thousands):
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Gross accounts receivable |
$ | 70,898 | $ | 95,538 | $ | 70,952 | ||||||
|
|
|
|
|
|
|||||||
Allowance for sales returns |
(9,514 | ) | (6,916 | ) | (5,047 | ) | ||||||
Allowance for sales incentives |
(7,642 | ) | (8,503 | ) | (8,860 | ) | ||||||
Other allowances |
(573 | ) | (794 | ) | (705 | ) | ||||||
|
|
|
|
|
|
|||||||
Total allowances |
(17,729 | ) | (16,213 | ) | (14,612 | ) | ||||||
|
|
|
|
|
|
|||||||
Total accounts receivablenet |
$ | 53,169 | $ | 79,325 | $ | 56,340 | ||||||
|
|
|
|
|
|
Allowance for Sales Returns Allowance for sales returns as of December 26, 2015 and December 31, 2016 and June 30, 2017, consisted of the following activities (in thousands):
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Beginning balance |
$ | (7,031 | ) | $ | (9,514 | ) | $ | (6,916 | ) | |||
Charged to revenue |
(25,458 | ) | (20,810 | ) | (9,259 | ) | ||||||
Utilization of sales return reserve |
22,975 | 23,408 | 11,128 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | (9,514 | ) | $ | (6,916 | ) | $ | (5,047 | ) | |||
|
|
|
|
|
|
F-17
Allowance for Sales Incentives Allowance for sales incentives as of December 26, 2015 and December 31, 2016 and June 30, 2017, consisted of the following activities (in thousands):
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Beginning balance |
$ | (4,015 | ) | $ | (7,642 | ) | $ | (8,503 | ) | |||
Charged to revenue |
(27,783 | ) | (36,626 | ) | (18,950 | ) | ||||||
Utilization of sales incentive reserve |
24,156 | 35,765 | 18,593 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | (7,642 | ) | $ | (8,503 | ) | $ | (8,860 | ) | |||
|
|
|
|
|
|
Property and Equipment, Net Property and equipment, net as of December 26, 2015 and December 31, 2016 and June 30, 2017, consisted of the following (in thousands):
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Computers and equipment |
$ | 6,242 | $ | 8,787 | $ | 10,453 | ||||||
Leasehold improvements |
4,347 | 4,201 | 6,599 | |||||||||
Website and internal-use software |
1,425 | 2,902 | 3,620 | |||||||||
Office equipment and furniture |
735 | 1,452 | 1,735 | |||||||||
|
|
|
|
|
|
|||||||
Total property and equipment |
12,749 | 17,342 | 22,407 | |||||||||
Accumulated depreciation and amortization |
(4,863 | ) | (7,814 | ) | (10,336 | ) | ||||||
|
|
|
|
|
|
|||||||
Property and equipment, net |
$ | 7,886 | $ | 9,528 | $ | 12,071 | ||||||
|
|
|
|
|
|
Depreciation and amortization expense for the years ended December 26, 2015 and December 31, 2016, was $2,555,000 and $5,302,000, respectively. Depreciation and amortization expense for the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), was $2,850,000 and $2,580,000, respectively.
Accrued Liabilities Accrued liabilities as of December 26, 2015, and December 31, 2016 and June 30, 2016 consisted of the following (in thousands):
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Accrued royalty expense |
$ | 5,396 | $ | 14,940 | $ | 13,819 | ||||||
Accrued inventory |
4,027 | 4,274 | 4,295 | |||||||||
Accrued payroll and related expenses |
2,527 | 5,342 | 6,096 | |||||||||
Accrued cost of revenue |
3,493 | 7,264 | 4,660 | |||||||||
Accrued payments to content publishers |
3,174 | 8,554 | 13,301 | |||||||||
Marketing and advertising expenses |
2,854 | 1,294 | 832 | |||||||||
Sales tax payable and related liabilities |
1,687 | 769 | 483 | |||||||||
Other accrued expenses |
4,529 | 3,719 | 4,412 | |||||||||
|
|
|
|
|
|
|||||||
Total accrued liabilities |
$ | 27,687 | $ | 46,156 | $ | 47,898 | ||||||
|
|
|
|
|
|
F-18
Deferred Revenue Deferred revenue as of December 26, 2015, and December 31, 2016, and June 30, 2017 consisted of the following (in thousands):
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Player, current |
$ | 10,387 | $ | 13,611 | $ | 17,013 | ||||||
Platform, current |
4,198 | 10,341 | 13,968 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred revenue, current |
14,585 | 23,952 | 30,981 | |||||||||
|
|
|
|
|
|
|||||||
Player, non-current |
4,276 | 5,215 | 4,856 | |||||||||
Platform, non-current |
14,389 | 23,869 | 32,276 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred revenue, non-current |
18,665 | 29,084 | 37,132 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred revenue |
$ | 33,250 | $ | 53,036 | $ | 68,113 | ||||||
|
|
|
|
|
|
4. DEBT
Debt obligations as of December 26, 2015 and December 31, 2016 and June 30, 2017, consisted of the following (in thousands):
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Term Loan |
$ | | $ | | $ | 25,000 | ||||||
Line of Credit |
15,000 | 15,000 | | |||||||||
|
|
|
|
|
|
|||||||
Total debt obligations |
15,000 | 15,000 | 25,000 | |||||||||
Compounding interest due at maturity |
| | 33 | |||||||||
Less unamortized debt discount and issuance costs |
| | (2,222 | ) | ||||||||
|
|
|
|
|
|
|||||||
Balance |
15,000 | 15,000 | 22,811 | |||||||||
Current portion of long-term debt |
| (15,000 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Long-term debt less current portion |
$ | 15,000 | $ | | $ | 22,811 | ||||||
|
|
|
|
|
|
Loan and Security Agreements
BankTerm Loan In July 2011, the Company amended its loan and security agreement (the LSA) with a financial institution (the Bank). The LSA provided for a term loan borrowing of $5,000,000 and a revolving line of credit of up to $7,500,000, both of which could be drawn on under certain conditions. The Company borrowed $4,500,000 in July 2011. Advances under the term loan incurred a financing payment equal to 2% of the advance payable at the end of the loan, in addition to quarterly interest payments at a fixed annual rate of 10%. Borrowings on the line of credit bore interest at a premium of 1.75% over the banks prime rate. The length of the term loan borrowing was 48 months, and the length of the revolving line of credit was 12 months. The LSA was secured by all assets of the Company and the Company repaid the loan in July 2015.
The Company had previously amended the LSA at various dates and, in November 2014, replaced the LSA with an amended and restated loan and security agreement (the Restated 2014 LSA) providing advances under the revolving line of credit up to $30,000,000 and extending the line of credit to September 30, 2016. Additionally, the Restated 2014 LSA provides for letters of credit to be issued up to the lesser of the available line of credit, reduced by outstanding advances and drawn but unreimbursed letters of credit, or $5,000,000.
The Restated 2014 LSA agreement contains a financial covenant to maintain a minimum required adjusted quick ratio (calculated as the sum of cash maintained with the Bank and the Banks affiliates and net billed
F-19
account receivable balances, divided by current liabilities plus all outstanding obligations to the Bank under the revolving line, less deferred revenue), and non-financial covenants including providing the audited annual financial statements to the bank within 180 days following the year end.
In May 2015, the Company entered into a first amendment to the Restated 2014 LSA with the Bank. The advances under the first amendment to the Restated LSA carry a floating per annum interest rate equal to the prime rate or the prime rate plus 2.5% depending on certain ratios. The first amendment further changed the financial covenant to maintain a current ratio (calculated as current assets, divided by current liabilities less deferred revenue), greater than or equal to 1.1. The interest rate on the line of credit was 3.75% as of December 31, 2016. As of December 26, 2015, and December 31, 2016, $15,000,000 under the line of credit was outstanding and letters of credit in the amount of $868,000 were outstanding. As of December 31, 2016, the Company was in compliance with all of the covenants in the Restated 2014 LSA.
In June 2017, the Company entered into a second amendment to the Restated 2014 LSA. The advances under the second amendment carry a floating per annum interest rate equal to, at the Companys option, (1) the prime rate or (2) LIBOR plus 2.75%, or the prime rate plus 1% depending on certain ratios. The extension further changed the financial covenant to maintain a current ratio (calculated as current assets, divided by current liabilities less deferred revenue) greater than or equal to 1.25. The revolving line of credit terminates on June 30, 2019 at which time the principal amount of all outstanding advances becomes due and payable. As of June 30, 2017 (unaudited), no borrowings under the revolving line of credit were outstanding and letters of credit in the amount of $1,472,000 were outstanding. As of June 30, 2017 (unaudited), the Company was in compliance with all of the covenants in the amended Restated 2014 LSA.
In June 2017, the Company entered into a subordinated loan agreement (2017 Agreement) with the Bank. The 2017 Agreement provides for a term loan borrowing of $40,000,000 with a minimum of $25,000,000 to be initially drawn at the close of the agreement and the remaining amount available for a 24 month period, to be drawn in no less than $5,000,000 increments. Advances under the term loan incur a facility fee equal to 1% of the drawn borrowings, in addition to interest payments at an interest rate equal to, at the Companys option, (1) the prime rate plus 3.5% or (2) LIBOR plus 6.5%, subject to a 1% LIBOR floor. Additionally, the borrowings incur payment in kind interest fees equal to 2.5%, accruing to the unpaid borrowings balance, compounded monthly. Payment in kind interest may be settled in cash, at the Companys election, during the term or at maturity. The Company is also obligated to pay final payment fees ranging from 1% to 4% depending on the timing of the payment. The 2017 Agreement terminates on October 9, 2020.
In connection with the 2017 Agreement the Company issued 408,648 warrants to purchase shares of Series H convertible preferred stock, with an exercise price of $9.17340. The warrants are exercisable up to ten years from the date of issuance.
LenderTerm Loan In July 2011, in connection with the LSA, the Company entered into a loan and security agreement (2011 Agreement) with an asset-based lender. The 2011 Agreement provided for a term loan borrowing of $10,000,000, which the Company could draw upon in two tranches under certain conditions. The Company borrowed $7,000,000 in July 2011. Advances made under the 2011 Agreement incurred a financing payment equal to 2% of the aggregate amount of the term borrowing advances and bore interest at a fixed rate of 10%. The length of the term loan borrowing was 48 months and the Company repaid the loan in July 2015.
F-20
5. CONVERTIBLE PREFERRED STOCK
Convertible Preferred Stock As of December 26, 2015 and December 31, 2016, and June 30, 2017, convertible preferred stock consisted of the following (in thousands, except share and per share data):
December 26, 2015 and December 31, 2016 and June 30,
2017 (unaudited) |
||||||||||||||||
Series |
Price |
Shares
Authorized |
Shares
Outstanding |
Liquidation
Preference |
||||||||||||
A |
$ | 0.36312 | 23,020,000 | 23,019,997 | $ | 8,359 | ||||||||||
B |
0.93808 | 6,396,071 | 6,396,068 | 6,000 | ||||||||||||
C-1 |
0.54109 | 9,240,560 | 9,240,558 | 5,000 | ||||||||||||
C-2 |
0.64931 | 8,950,467 | 7,700,466 | 5,000 | ||||||||||||
D |
2.37840 | 4,685,755 | 4,204,505 | 10,000 | ||||||||||||
E |
4.35679 | 11,160,733 | 11,074,655 | 48,250 | ||||||||||||
F |
5.43396 | 11,041,671 | 11,041,667 | 60,000 | ||||||||||||
G |
7.79730 | 3,206,239 | 3,206,234 | 25,000 | ||||||||||||
H |
9.17340 | 6,666,667 | 4,959,988 | 45,500 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
84,368,163 | 80,844,138 | $ | 213,109 | ||||||||||||
|
|
|
|
|
|
In January 2015, the Company issued 408,770 shares of Series D convertible preferred stock at a price of $2.37840 per share for cash proceeds of $972,000 from the exercise of Series D convertible preferred stock warrants.
In November 2015, the Company issued 4,959,988 shares of Series H convertible preferred stock at a price of $9.17340 per share for an aggregate purchase price of $45,500,000.
Preferred Stock Rights and Preferences The holders of convertible preferred stock have the following rights:
Dividends Holders of the Series A, B, C-1, C-2, (Series C-1 and C-2, together, the Series C) D, E, F, G, and H convertible preferred stock are entitled to receive noncumulative cash dividends at the rate of 8% of the applicable original issue price per annum on each outstanding share of preferred stock prior and in preference to any dividends to the common stockholders. In the event dividends are paid on any share of common stock, the Company must pay an additional dividend on all outstanding shares of convertible preferred stock in a per share amount equal to the amount paid or set aside for each share of common stock. Dividends are payable only when, as and if declared by the Companys board of directors (Board of Directors). To date, no dividends have been declared or paid.
Conversion Each share of Series A, B, C, D, E, F, G, and H convertible preferred stock is convertible, at the option of the holder, into shares of common stock based on a defined conversion rate.
The Companys amended and restated certificate of incorporation defines the conversion rate as the quotient obtained by dividing the original issue price for each series of convertible preferred stock by the applicable series conversion price. The series conversion price is initially the original issue price. The initial conversion price is adjusted for stock splits and combinations; common stock dividends and distributions; changes to series preferred stock as a result of recapitalization, reclassification, merger, consolidation, or otherwise; and sale of shares below the then-effective applicable series conversion price. As of December 31, 2016 and June 30, 2017 (unaudited), no transactions had occurred that would result in an adjustment to the initial conversion price and the conversion rate for all series of preferred stock was one-for-one.
Shares of Series A, B, C, and D convertible preferred stock (collectively the Prior Preferred) will automatically convert into shares of common stock, based on the then-applicable series conversion price, upon
F-21
the earlier of (i) at any time upon the affirmative election of the holders of at least a majority of the outstanding shares of the Prior Preferred, voting together as a single class on an as-if-converted basis, or (ii) immediately upon the closing of a firmly underwritten public stock offering in which gross cash proceeds to the Company (before underwriting discounts, commissions, and fees) are at least $80,000,000 (a Qualified IPO).
Each share of Series E convertible preferred stock will automatically convert into shares of common stock upon the earlier of (i) the affirmative election of the holders of at least 66 2/3% of the outstanding shares of Series E convertible preferred stock, voting together as a single class on an as-if converted basis or (ii) immediately upon the closing of a Qualified IPO; provided, however, if the offering price per common share to the public in the Qualified IPO is equal to less than two times the then-effective series conversion price of the Series E convertible preferred stock, then upon the closing of the Qualified IPO, each share of Series E preferred stock will automatically be converted into the number of shares of common stock with a value, based on the offering price to the public, of two times the then-effective series conversion price of the Series E convertible preferred stock.
Each share of Series F convertible preferred stock will automatically be converted into shares of common stock upon the earlier of (i) the affirmative election of the holders of at least 66 2/3% of the outstanding shares of the Series F convertible preferred stock, voting together as a single class on an as-if converted basis or (ii) the closing of a Qualified IPO where the offering price to the public is at least equal to the then-applicable series conversion price of the Series F preferred stock.
Each share of Series G convertible preferred stock will automatically be converted into an equal number of shares of common stock upon the earlier of (i) the affirmative election of the holders of at least 66 2/3% of the outstanding shares of the Series G convertible preferred stock, voting together as a single class on an as-if-converted basis, or (ii) the closing of a Qualified IPO where the offering price to the public is at least equal to the then-applicable series conversion price of the Series G preferred stock.
Each share of Series H convertible preferred stock will automatically be converted into an equal number of shares of common stock upon the earlier of (i) the affirmative election of the holders of at least 66 2/3% of the outstanding shares of the Series H convertible preferred stock, voting together as a single class on an as-if-converted basis, or (ii) the closing of a Qualified IPO where the offering price to the public is at least equal to the then-applicable series conversion price of the Series H preferred stock.
Liquidation Preference The holders of Series A, B, C, D, E, F, G, and H convertible preferred stock are entitled to a liquidation preference per share equal to the applicable original purchase price of $0.36312, $0.93808, $0.54109, $0.64931, $2.37840, $4.35679, $5.43396, $7.79730 and $9.17340 per share, respectively, plus all declared and unpaid dividends.
Upon liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a Liquidation Event), the holders of Series H preferred stock are entitled to be paid an amount per share equal to the Series H original purchase price, plus all declared and unpaid dividends (the Series H Liquidation Preference) out of the assets of the Company legally available for distribution before any distribution or payment can be made to the holders of Series A, B, C, D, E, F, and G convertible preferred stock or the holders of common stock. If, upon a Liquidation Event, the assets of the Company are insufficient to make payment in full to all holders of Series H convertible preferred stock, then the assets of the Company will be distributed among the holders of Series H convertible preferred stock ratably in proportion to the full amounts to which they would otherwise be entitled.
After payment of the full Series H Liquidation Preference, before any distribution or payment shall be made to the holders of Series A, B, C, D, E, and F convertible preferred stock or common stock, the holders of Series G convertible preferred stock are entitled to be paid an amount per share equal to the Series G original purchase price, plus all declared and unpaid dividends (the Series G Liquidation Preference) out of the assets of the Company legally available for distribution. If, upon a Liquidation Event, the assets of the Company are
F-22
insufficient to make payment in full to all holders of Series G convertible preferred stock, then the assets of the Company will be distributed among the holders of Series G convertible preferred stock ratably in proportion to the full amounts to which they would otherwise be entitled.
After payment of the full Series G Liquidation Preference, before any distribution or payment shall be made to the holders of Series A, B, C, D, and E convertible preferred stock or common stock, the holders of Series F convertible preferred stock are entitled to be paid an amount per share equal to the Series F original purchase price, plus all declared and unpaid dividends (the Series F Liquidation Preference) out of the assets of the Company legally available for distribution. If, upon a Liquidation Event, the assets of the Company are insufficient to make payment in full to all holders of Series F convertible preferred stock, then the assets of the Company will be distributed among the holders of Series F convertible preferred stock ratably in proportion to the full amounts to which they would otherwise be entitled.
After payment of the full Series H Liquidation Preference, Series G Liquidation Preference and Series F Liquidation Preference, the holders of Series A, B, C, D, and E preferred stock (collectively, the Junior Preferred Stock) are entitled to be paid an amount per share equal to the applicable original purchase price, plus all declared and unpaid dividends (the Junior Preferred Liquidation Preference) before any distribution or payment can be made to the holders of common stock. If, upon a Liquidation Event, the assets of the Company are insufficient to make payment in full to all holders of Junior Preferred Stock, then the assets of the Company will be distributed among the holders of Junior Preferred Stock ratably in proportion to the full amounts to which they would otherwise be entitled.
After payment of the full Series H Liquidation Preference, Series G Liquidation Preference, Series F Liquidation Preference and Junior Preferred Liquidation Preference, the remaining assets of the Company legally available for distribution will be distributed ratably to the holders of common stock and convertible preferred stock on an as-if converted to common stock basis.
Voting Rights The Companys amended and restated certificate of incorporation contains protective provisions for the holders of convertible preferred stock under which the vote of a defined number of each series then-outstanding convertible preferred stock is required for the Company to take actions that would adversely affect the powers, rights, preferences, or privileges of the holders of the Companys convertible preferred stock.
Holders of Series A, C-1, C-2, D, E, F, G, and H convertible preferred stock (collectively, the Voting Preferred) are entitled to voting rights for the number of votes equal to the number of shares of common stock that such shares can be converted into. The Series B convertible preferred stock is nonvoting, except for certain protective rights.
Election of Directors The holders of Series A convertible preferred stock are entitled to elect two directors to the Board of Directors. The holders of Series C, D, and E convertible preferred stock are entitled to elect one director each to the Board of Directors. The holders of common stock and the Voting Preferred, voting together as a single class on an as-if converted basis, are entitled to elect all remaining members of the Board of Directors.
The Company classifies its convertible preferred stock outside of stockholders deficit because the shares are considered effectively redeemable upon a deemed liquidation event. During the periods presented, the Company did not adjust the carry value of the convertible preferred stock to the deemed liquidation value of such shares as a qualifying liquidation event was not probable.
F-23
6. COMMON STOCK
As of December 26, 2015, and December 31, 2016 and June 30, 2017 the Company had reserved shares of common stock for issuance as follows:
December 26,
2015 |
December 31,
2016 |
June 30,
2017 |
||||||||||
(unaudited) | ||||||||||||
Conversion of: |
||||||||||||
Series A convertible preferred stock |
23,019,997 | 23,019,997 | 23,019,997 | |||||||||
Series B convertible preferred stock |
6,396,068 | 6,396,068 | 6,396,068 | |||||||||
Series C-1 convertible preferred stock |
9,240,558 | 9,240,558 | 9,240,558 | |||||||||
Series C-2 convertible preferred stock |
7,700,466 | 7,700,466 | 7,700,466 | |||||||||
Series C-2 convertible preferred stock warrants |
1,250,000 | 1,250,000 | 1,250,000 | |||||||||
Series D convertible preferred stock |
4,204,505 | 4,204,505 | 4,204,505 | |||||||||
Series D convertible preferred stock warrants |
481,246 | 481,246 | 481,246 | |||||||||
Series E convertible preferred stock |
11,074,655 | 11,074,655 | 11,074,655 | |||||||||
Series E convertible preferred stock warrants |
86,072 | 86,072 | 86,072 | |||||||||
Series F convertible preferred stock |
11,041,667 | 11,041,667 | 11,041,667 | |||||||||
Series G convertible preferred stock |
3,206,234 | 3,206,234 | 3,206,234 | |||||||||
Series H convertible preferred stock |
4,959,988 | 4,959,988 | 4,959,988 | |||||||||
Series H convertible preferred stock warrants |
| | 408,648 | |||||||||
Conversion of common stock warrants |
541,666 | 375,000 | 375,000 | |||||||||
Common stock options issued under stock option plan |
19,850,269 | 22,334,508 | 24,559,747 | |||||||||
Common stock options available for grant under stock option plan |
3,019,259 | 409,582 | 4,256,161 | |||||||||
|
|
|
|
|
|
|||||||
Total |
106,072,650 | 105,780,546 | 112,261,012 | |||||||||
|
|
|
|
|
|
Stock Option Plan As of December 26, 2015, December 31, 2016, and June 30, 2017 (unaudited) the Company had reserved for issuance 22,869,528 and 22,744,090 and 28,815,908 shares of common stock, respectively, under the Companys 2008 Equity Incentive Plan (the 2008 Plan). Options granted under the 2008 Plan must be granted at a price per share equivalent to the fair market value on the date of grant. Recipients of option grants under the 2008 Plan who possess more than 10% of the combined voting power of the Company (a 10% Shareholder) are subject to certain limitations, and incentive stock options granted to such recipients must be at a price no less than 110% of the fair market value at the date of grant. Options under the 2008 Plan generally vest over four years and have a term of 10 years.
Early Exercise of Stock Options The 2008 Plan allows employees to exercise options granted prior to vesting, if approved by the Companys Board of Directors. The unvested shares are subject to the Companys repurchase right at the original purchase price. The proceeds from the early exercise of stock options are initially recorded as an accrued liability and reclassified to stockholders equity as the Companys repurchase right lapses. As of December 26, 2015, December 31, 2016, and June 30, 2017 (unaudited) 11,410 shares, 3,287 shares, and 20,080 shares subject to repurchase were outstanding, respectively.
F-24
Activity under the Companys 2008 Plan is as follows:
Shares
Available for Grant |
Number of
Shares |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Life (Years) |
Weighted
Average Grant Date Fair Value Per Share |
||||||||||||||||
Balance, December 27, 2014 |
3,327,089 | 14,076,900 | 2.01 | 7.2 | | |||||||||||||||
Increased authorization |
6,250,000 | | | | ||||||||||||||||
Granted |
(7,202,748 | ) | 7,202,748 | 5.82 | | $ | 2.58 | |||||||||||||
Exercised |
| (796,613 | ) | 1.10 | | | ||||||||||||||
Repurchased |
12,152 | | 3.67 | | | |||||||||||||||
Forfeited and expired |
632,766 | (632,766 | ) | 3.88 | | | ||||||||||||||
|
|
|
|
|||||||||||||||||
Balance, December 26, 2015 |
3,019,259 | 19,850,269 | 3.37 | 7.1 | | |||||||||||||||
Granted |
(4,038,735 | ) | 4,038,735 | 6.35 | | 2.71 | ||||||||||||||
Exercised |
| (125,438 | ) | 3.49 | | | ||||||||||||||
Forfeited and expired |
1,429,058 | (1,429,058 | ) | 4.54 | | | ||||||||||||||
|
|
|
|
|||||||||||||||||
Balance, December 31,2016 |
409,582 | 22,334,508 | 3.66 | 6.6 | | |||||||||||||||
Increase authorization (unaudited) |
6,250,000 | | | | ||||||||||||||||
Granted (unaudited) |
(2,793,455 | ) | 2,793,455 | 5.91 | | 2.96 | ||||||||||||||
Exercised (unaudited) |
| (178,182 | ) | 4.91 | | | ||||||||||||||
Forfeited and expired (unaudited) |
390,034 | (390,034 | ) | 5.49 | | | ||||||||||||||
|
|
|
|
|||||||||||||||||
Balance, June 30, 2017 (unaudited) |
4,256,161 | 24,559,747 | 3.88 | 6.5 | | |||||||||||||||
|
|
|
|
Number of
Shares |
Weighted-
Average Exercise Price |
Weighted-
Average Remaining Contractual Life (Years) |
Aggregate
Intrinsic Value |
|||||||||||||
(in thousands) | ||||||||||||||||
At December 31, 2016 |
||||||||||||||||
Shares vested and expected to vest |
21,368,514 | $ | 3.58 | 6.5 | $ | 45,365 | ||||||||||
Shares vested and exercisable |
13,054,379 | 2.44 | 5.1 | 42,558 | ||||||||||||
At June 30, 2017 (unaudited) |
||||||||||||||||
Shares vested and exercisable |
14,331,484 | 2.66 | 5.0 | 71,120 |
Stock-Based Compensation The fair value of options granted under the 2008 Plan is estimated on the grant date using the Black-Scholes option-valuation model. This valuation model for stock-based compensation expense requires the Company to make certain assumptions and judgments about the variables used in the calculation, including the expected term, the expected volatility of the Companys common stock, an assumed risk-free interest rate, and expected dividends. In addition to these assumptions, the Company also estimated a forfeiture rate of unvested stock options to calculate the stock-based compensation expense prior to January 1, 2017. Beginning January 1, 2017, the Company began recognizing forfeitures as they occur with the adoption of the new guidance related to accounting for stock-based payment award transactions.
Expected Term The Companys expected term represents the period that the Companys stock-based awards are expected to be outstanding and is determined based on the simplified method as described in ASC Topic 718-10-S99-1, SEC Materials SAB Topic 14, Share-Based Payment .
Expected Volatility The Companys volatility factor is estimated using several comparable public company volatilities for similar option terms.
Expected Dividends The Company has never paid cash dividends and has no present intention to pay cash dividends in the future, and as a result, the expected dividends are $0.
F-25
Risk-Free Interest Rate The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equivalent to the estimated life of the stock-based awards. Where the expected term of the Companys stock-based awards does not correspond with the term for which an interest rate is quoted, the Company performs a straight-line interpolation to determine the rate from the available term maturities.
Fair Value of Common Stock Given the absence of a public trading market, the Companys board of directors consider numerous objective and subjective factors to determine the fair value of the common stock at each grant date. These factors include, but are not limited to (i) independent contemporaneous third-party valuations of the common stock; (ii) the prices for the preferred stock sold to outside investors; (iii) the rights and preferences of convertible preferred stock relative to the common stock; (iv) the lack of marketability of the common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or sale of the Company, given prevailing market conditions.
The Company uses the straight-line method for expense recognition.
The assumptions used to value stock-based awards granted during the years ended December 26, 2015 and December 31, 2016, and for the six months ended July 2, 2016 and June 30, 2017 are as follows:
Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Dividend rate |
$ | | | | | |||||||||||
Expected term (in years) |
6.1 | 5.3-6.5 | 5.3-6.5 | 5.3-6.5 | ||||||||||||
Risk-free interest rate |
1.39-1.90 | % | 1.33-1.95 | % | 1.32-1.50 | % | 1.90-2.25 | % | ||||||||
Expected volatility |
43-46 | % | 44-46 | % | 44-46 | % | 40-44 | % | ||||||||
Fair value of common stock |
$ | 5.64-$7.02 | $ | 5.64-$6.60 | $ | 6.60 | $ | 5.70-$6.90 |
The total intrinsic value of options exercised during the fiscal years ended December 26, 2015 and December 31, 2016, was $3,946,000 and $367,000, respectively. The total intrinsic value of options exercised during the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), was $242,000 and $207,000, respectively. As of December 31, 2016, the Company had $19,183,000 of unrecognized stock compensation expense, net of estimated forfeitures of $2,284,000 related to unvested stock options that are expected to be recognized over a weighted-average period of approximately 2.7 years. As of June 30, 2017 (unaudited), the Company had $23,595,000 of unrecognized stock compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of approximately 2.6 years.
As a result of the Companys Black-Scholes option-valuation fair value calculations and the Companys use of the straight-line vesting attribution method, the Company recognized employee stock-based compensation expense during the fiscal years ended December 26, 2015 and December 31, 2016, and June 30, 2017 as follows (in thousands):
Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Cost of player revenue |
$ | 90 | $ | 136 | $ | 58 | $ | 74 | ||||||||
Cost of platform revenue |
54 | 224 | 102 | 40 | ||||||||||||
Research and development |
1,685 | 2,766 | 1,273 | 1,881 | ||||||||||||
Sales and marketing |
1,678 | 2,292 | 1,157 | 1,291 | ||||||||||||
General and administrative |
1,777 | 2,788 | 1,415 | 1,307 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 5,284 | $ | 8,206 | $ | 4,005 | $ | 4,593 | ||||||||
|
|
|
|
|
|
|
|
F-26
Stock Option Repricing In November 2016, the Companys Board of Directors approved a common stock option repricing program whereby previously granted and unexercised options held by current employees with exercise prices above $5.64 per share were repriced on a one-for-one basis to $5.64 per share which represented the fair value of the Companys common stock as of the date of the repricing. There was no other modification to the vesting schedule of the previously issued option. As a result, 5,117,725 unexercised options originally granted to purchase common stock at prices ranging from $5.70 to $7.02 per share were repriced under this program.
We treated the repricing as a modification of the original awards and calculated additional compensation costs for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing resulted in incremental stock-based compensation of $1,043,000. Expense related to vested shares of $96,000 was expensed on the repricing date and the remaining $947,000 related to unvested shares is being amortized over the remaining vesting period of such options.
Common Stock Warrants In connection with various debt agreements entered into from January 2009 to July 2010, the Company issued a total of 541,666 fully vested warrants to purchase shares of common stock, with exercise prices ranging from $0.18 to $0.36 per share. The warrants are exercisable up to seven years from the date of issuance.
The warrant agreements contain clauses that affect the term of the warrants in the event of certain transactions. In the event that the Company is acquired, the warrants generally terminate upon the consummation of the transaction. In the event of an IPO, the warrants issued in 2010 expire on the third anniversary of the closing of the IPO. Both of the warrant agreements contain a clause that provides for an automatic net exercise of the warrant upon expiration of the warrant. None of the warrants had been exercised as of December 26, 2015. In 2016 the Company issued 162,393 shares of common stock upon expiration of 166,666 common stock warrants issued in 2009.
Preferred Stock Warrants In connection with July 2011 loan and security agreements, the Company issued fully vested warrants to lenders to purchase 1,250,000 shares of Series C-2 convertible preferred stock with an exercise price of $0.64931 per share. The warrants are exercisable up to 10 years from the date of issuance. The warrants were initially valued at $2,214,000 and recorded as discounts on the related borrowings.
In connection with October 2011 amendments to loan and security agreements, the Company issued fully vested warrants to lenders to purchase 249,999 shares of Series D convertible preferred stock with an exercise price of $2.37840 per share. The warrants are exercisable up to 10 years from the date of issuance. The warrants were initially valued at $503,000 and recorded as discounts on the related borrowings.
In connection with a March 2012 convertible note and warrant purchase agreement, the Company granted fully vested warrants to investors to purchase 525,561 shares of Series D convertible preferred stock with an exercise price of $2.37840 per share and a term of five years. The warrants were initially valued at $823,000 and recorded as a discount on the related borrowings. The investors exercised 116,791 of the preferred stock warrants in May 2013 and 408,770 of the preferred stock warrants in January 2015.
In connection with a March 2012 amendment to an amended loan and security agreement, the Company issued fully vested warrants to lenders to purchase 168,180 shares of Series D convertible preferred stock with an exercise price of $2.37840 per share. The warrants are exercisable up to 10 years from the date of issuance. The warrants were initially valued at $335,000 and recorded as a discount on the related borrowings.
In connection with an April 2012 loan agreement, the Company issued fully vested warrants to lenders to purchase 63,067 shares of Series D convertible preferred stock at an exercise price of $2.37840 per share and 86,072 shares of Series E convertible preferred stock with an exercise price of $3.48546 per share. The warrants are exercisable up to 10 years from the date of issuance. The warrants were initially valued at $278,000 and recorded as a discount on the related borrowings.
F-27
In connection with a June 2017 loan agreement, the Company issued warrants to lenders to purchase 408,648 shares of Series H convertible preferred stock with an exercise price of $9.17340 per share. The warrants are exercisable up to 10 years from the date of issuance. The warrants were initially valued at $2,032,000 and recorded as a discount on the related borrowings.
Outstanding preferred stock warrants as of December 26, 2015 and December 31, 2016 and June 30, 2017 were as follows:
Series |
Number Outstanding
December 26, 2015 and December 31, 2016 |
Number Outstanding
June 30, 2017 (unaudited) |
Issuance Date |
Exercise
Price |
Original
Term |
|||||||||||||||
C-2 |
1,250,000 | 1,250,000 | July 13, 2011 | $ | 0.64931 | 10 years | ||||||||||||||
D |
249,999 | 249,999 | October 17, 2011 | 2.37840 | 10 years | |||||||||||||||
D |
168,180 | 168,180 | March 12, 2012 | 2.37840 | 10 years | |||||||||||||||
D |
63,067 | 63,067 | April 27, 2012 | 2.37840 | 10 years | |||||||||||||||
E |
86,072 | 86,072 | April 27, 2012 | 3.48546 | 10 years | |||||||||||||||
H |
| 408,648 | June 9, 2017 | 9.17340 | 10 years | |||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
1,817,318 | 2,225,966 | ||||||||||||||||||
|
|
|
|
The shares of convertible preferred stock issuable upon exercise of the warrants are convertible into common stock. The exercise price and the number of shares issuable upon exercise of the warrants are subject to adjustment in the event of diluting stock issuances. As of December 26, 2015, December 31, 2016, and June 30, 2017 (unaudited), no transactions had occurred that would result in an adjustment to the exercise price or the conversion rate of the warrants and the conversion rate for all of the convertible preferred stock issuable upon exercise of the warrants was one-for-one.
All of the warrant agreements contain clauses that affect the term of the warrant in the event of certain transactions. With the exception of Series H Warrants, in the event that the Company is acquired, the warrants generally terminate upon the consummation of the transaction. The Series H Warrants provide that in the event the Company is acquired, the Series H Warrants either automatically net exercise, terminate immediately prior to the transaction, or are assumed by the acquiring or successor entity, depending on the type and terms of the acquisition transaction. With the exception of the Series H Warrants, in the case of an IPO, the warrants expire on the third anniversary of the closing of the IPO. In addition, the warrant agreements contain a clause that provides for an automatic net exercise of the warrant upon expiration of the warrant.
The fair value of the preferred stock warrants has been recorded as a liability as of December 26, 2015, December 31, 2016 and June 30, 2017 (unaudited). The fair value of the preferred stock warrants is remeasured as of each balance sheet date using the Black-Scholes option-pricing model. Changes in the fair value of the preferred stock warrants during the year are recognized in the consolidated statements of operations.
The assumptions used to value the preferred stock warrants using the Black-Scholes model are as follows:
Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Dividends |
$ | | $ | | $ | | $ | | ||||||||
Expected term (in years) |
3.3-3.8 | 3.2-3.9 | 3.2-3.4 | 3.0-8.2 | ||||||||||||
Risk-free interest rate |
1.1%1.4 | % | 0.7%1.6 | % | 0.7%1.0 | % | 1.5%2.2 | % | ||||||||
Volatility |
42.0%46.9 | % | 46.2%47.8 | % | 46.8%47.8 | % | 43.8%49.0 | % |
F-28
7. COMMITMENTS AND CONTINGENCIES
Commitments The Company has operating lease agreements for office, research and development and sales and marketing space in the United States, the United Kingdom (UK), and China, with expiration dates from May 2017 to February 2021.
Rent expense for the years ended December 26, 2015 and December 31, 2016, was $4,170,000 and $4,627,000 respectively. Rent expense for the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited) was $2,383,000 (excluding amounts related to the loss from the exit of the former headquarters facilities) and $3,089,000, respectively. Future minimum lease payments under all operating leases as of December 31, 2016, are as follows (in thousands):
Fiscal Year |
Operating
Leases |
|||
2017 |
$ | 8,138 | ||
2018 |
9,532 | |||
2019 |
9,593 | |||
2020 |
8,539 | |||
2021 |
22 | |||
Less: Sublease rental income |
(4,436 | ) | ||
|
|
|||
Total |
$ | 31,388 | ||
|
|
The total approximate future minimum lease payments is primarily comprised of lease payments for two office locations. The first is for the Companys headquarters facilities in Los Gatos, California, which expires in 2020 and has future operating lease obligations of $23,327,000. The second is for the Companys prior headquarters facility in Saratoga, California, which expires in 2020 and has future operating lease obligations of $10,296,000.
In connection with its leased facilities the Company recognized a liability for asset retirement obligations in 2015 representing the present value of estimated costs to be incurred at lease expiration. The liability for asset retirement obligations was not material as of December 31, 2016.
Purchase Commitments The Company has various manufacturing contracts with vendors in the conduct of the normal course of its business. Two major vendors have contracts that are noncancelable or have varying provisions regarding cancellation. As of December 31, 2016, the Company had $64,347,000 purchase commitments for inventory issued to these vendors.
The Company records a liability for noncancelable purchase commitments in excess of its future demand forecasts. The Company recorded $2,040,000 for these purchase commitments in Accrued liabilities at December 31, 2016.
Loss from Exit of Facilities In January 2016, the Company moved its headquarters facilities to Los Gatos, California from Saratoga, California. The Company has entered into subleases for a portion of the former headquarters and expects to sublease the remaining portion for the remainder of the lease period. In connection with the move, the Company recognized a facilities exit charge for the estimated loss on the sublease of $3,804,000 to Operating Expenses during the year ended December 31, 2016. The estimated loss is comprised of the remaining fair value of lease obligations and related expenses for exited locations, as determined at the cease-use dates of those facilities, net of estimated sublease income that could be reasonably obtained in the future, and will be paid out over the remaining lease terms, which end in fiscal 2020. The loss is offset by a non-cash adjustment for deferred rent liability associated with the exited locations of $1,120,000. Projected sublease income is based on managements estimates, which are subject to change.
F-29
A summary of the Companys exit liability activity for the year ended December 31, 2016 is as follows (in thousands):
December 31,
2016 |
||||
Beginning balance |
$ | | ||
Estimated loss from exit |
3,804 | |||
Non-cash adjustment |
1,120 | |||
Amortization of liability |
(2,839 | ) | ||
|
|
|||
Ending balance |
$ | 2,085 | ||
|
|
The Company recorded $2,005,000 of the $2,085,000 lease liability in Accrued liabilities and the remaining $80,000 in Other long-term liabilities at December 31, 2016.
Letter of Credit As of December 31, 2016 and June 30, 2017 (unaudited) the Company had irrevocable letters of credit outstanding in the amount of $868,000 and $1,472,000 for the benefit of a landlord related to noncancelable facilities leases. The letters of credit have an expiration date of August 2017.
Contingencies The Company may be involved in disputes or litigation matters that arise in the ordinary course of business. Management is not aware of any dispute that it believes would have a material adverse effect on its business, operating results, cash flows or financial condition.
Indemnification Many of the Companys agreements include certain provisions for indemnifying content publishers, licensees, contract manufacturers and suppliers if the Companys products or services infringe a third partys intellectual property rights. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each agreement. To date, the Company has not incurred any material costs as a result of such obligations and have not accrued any liabilities related to such obligations in the consolidated financial statements.
Player Warranties Upon issuance of a standard player warranty, the Company recognizes a liability for the obligation it assumes under the warranty. As of December 26, 2015, December 31, 2016 and June 30, 2017 (unaudited) the accrued warranty reserve was immaterial.
The Companys standard player warranty period ranges from 12 to 24 months from the date of player activation. Upon shipment of player to its customers, the Company estimates expenses for the cost to replace products that may be returned under warranty and accrues a liability in cost of player revenue for this amount. The determination of the Companys warranty requirements is based on historical experience. The Company estimates and adjusts these accruals at each balance sheet date for changes in these factors.
The Company offered customers separately priced optional-extended warranties through 2016. The Company defers and amortizes revenue associated with the sales of the extended warranties over the warranty period. As of December 26, 2015, December 31, 2016, and June 30, 2017 (unaudited) the extended warranty deferred revenue was immaterial.
F-30
8. INCOME TAXES
Net loss before income taxes for the years ended December 26, 2015 and December 31, 2016, consisted of the following (in thousands):
Year Ended | ||||||||
December 26,
2015 |
December 31,
2016 |
|||||||
United States |
$ | (41,696 | ) | $ | (42,977 | ) | ||
Foreign |
1,232 | 430 | ||||||
|
|
|
|
|||||
Net loss before income taxes |
$ | (40,464 | ) | $ | (42,547 | ) | ||
|
|
|
|
The income tax expense for the years ended December 26, 2015 and December 31, 2016, consisted of the following (in thousands):
Year Ended | ||||||||
December 26,
2015 |
December 31,
2016 |
|||||||
Current: |
||||||||
Federal |
$ | | $ | | ||||
State |
71 | 50 | ||||||
Foreign |
76 | 160 | ||||||
|
|
|
|
|||||
147 | 210 | |||||||
Deferred: |
||||||||
Federal |
| | ||||||
State |
| | ||||||
Foreign |
| 1 | ||||||
|
|
|
|
|||||
Total |
$ | 147 | $ | 211 | ||||
|
|
|
|
The following is a reconciliation of the statutory federal income tax to the Companys effective tax rate for the years ended December 26, 2015 and December 31, 2016:
Year Ended | ||||||||
December 26,
2015 |
December 31,
2016 |
|||||||
U.S. federal income tax at statutory rate |
34.0 | % | 34.0 | % | ||||
U.S. state and local income taxes |
(0.2 | ) | (0.1 | ) | ||||
Change in valuation allowance |
(33.7 | ) | (36.9 | ) | ||||
Federal research and development tax credit |
3.9 | 4.8 | ||||||
Convertible preferred stock warrants |
(1.5 | ) | 0.7 | |||||
Stock-based compensation |
(1.7 | ) | (2.5 | ) | ||||
Permanent items |
(1.1 | ) | (0.2 | ) | ||||
Foreign rate differential |
0.4 | | ||||||
Other |
(0.5 | ) | (0.2 | ) | ||||
|
|
|
|
|||||
Effective tax rate |
(0.4 | )% | (0.4 | )% | ||||
|
|
|
|
F-31
Significant components of the Companys deferred income tax assets and liabilities as of December 26, 2015 and December 31, 2016, consist of the following (in thousands):
December 26,
2015 |
December 31,
2016 |
|||||||
Deferred tax assets: |
||||||||
Net operating loss carryforwards |
$ | 35,112 | $ | 46,954 | ||||
Reserves and accruals |
15,147 | 15,575 | ||||||
Research and development credits |
7,397 | 10,555 | ||||||
Depreciation and amortization |
946 | 1,568 | ||||||
Stock-based compensation |
2,338 | 4,068 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
60,940 | 78,720 | ||||||
Valuation allowance |
(60,912 | ) | (78,695 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | 28 | $ | 25 | ||||
|
|
|
|
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized through future operations. As a result of the Companys analysis of all available objective evidence, both positive and negative, as of December 31, 2016, management believes it is more likely than not that the deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its deferred tax assets December 26, 2015 and December 31, 2016 with the exception of deferred tax assets related to foreign entities in the UK and China. The valuation allowance increased by $17,783,000 from December 26, 2015 to December 31, 2016.
For federal and state income tax reporting purposes, respective net operating loss carryforwards of $129,788,000 and $65,988,000 are available to reduce future taxable income, if any. These net operating loss carryforwards will begin to expire in 2028 for federal and state income tax purposes.
As a result of certain realization requirements of ASC 718, CompensationStock Compensation , the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 26, 2015 and December 31, 2016, that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation that are greater than the compensation recognized for financial reporting. Equity will be increased by $1,169,000 and $95,000 for federal and state income tax purposes, respectively, if and when such deferred tax assets are ultimately realized. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized.
As of December 31, 2016, the Company has research and development tax credit carryforwards of $9,067,000 and $7,586,000 for federal and state income tax purposes, respectively. If not utilized, the federal carryforwards will begin to expire in 2028. The state tax credits can be carried forward indefinitely.
The Internal Revenue Code of 1986, as amended (the Code), contains provisions that may limit the net operating loss and credit carryforwards available for use in any given period upon the occurrence of certain events, including a statutorily defined significant change in ownership. Utilization of the net operating loss and tax credit carryforwards is subject to an annual limitation due to an ownership change, as defined by section 382 of the Code. The Company completed a recent study to assess whether any section 382 ownership change has occurred since the Companys formation. Based on the study, the Company had a section 382 ownership change on December 18, 2009 and tax attributes generated by the Company through the ownership change date are subject to the limitation.
F-32
The total amount of unrecognized tax benefits as of December 31, 2016 is $4,368,000 which is fully composed of research and development credits. A reconciliation of the beginning and ending amount of unrecognized tax benefits in the fiscal years ended December 26, 2015 and December 31, 2016 is as follows (in thousands):
December 26,
2015 |
December 31,
2016 |
|||||||
Unrecognized tax benefits at beginning of year |
$ | 2,309 | $ | 2,917 | ||||
Gross increase for tax positions of current years |
945 | 1,246 | ||||||
Gross increase for tax positions of prior year |
| 205 | ||||||
Gross decrease for tax positions of prior years |
(337 | ) | | |||||
|
|
|
|
|||||
Unrecognized tax benefits balance at end of year |
$ | 2,917 | $ | 4,368 | ||||
|
|
|
|
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense. As of December 31, 2016, there were no accrued interest and penalties related to uncertain tax positions.
None of the Companys unrecognized tax benefit, if recognized, would affect its effective tax rate. The Company does not believe that the amount of unrecognized tax benefits will change significantly in the next 12 months.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. These audits include questioning the timing and amount of deductions; the nexus of income among various tax jurisdictions; and compliance with federal, state, and local tax laws. The Company is not currently under audit by the Internal Revenue Service or other similar state and local authorities. All tax years remain open to examination by major taxing jurisdictions to which the Company is subject.
The Company did not provide for federal income taxes on approximately $605,000 of undistributed earnings of its foreign subsidiaries as of December 31, 2016, because the Company intends to permanently reinvest such earnings outside the U.S.
9. RELATED-PARTY TRANSACTIONS
The Company has agreements with one of the Companys strategic investors. In the fiscal years ended December 26, 2015 and December 31, 2016, the Company recorded $459,000 and $654,000 of revenue from sales to this investor. The Company had receivable balances of $286,000 and $148,000 related to these sales at December 26, 2015 and December 31, 2016, respectively.
In addition, a member of the Companys Board of Directors is a senior vice president at an operating unit of one of the strategic investors.
10. RETIREMENT PLANS
The Company maintains a 401(k) tax deferred saving plan (the Savings Plan) for the benefit of qualified employees. Qualified employees may elect to make contributions to the Savings Plan on a biweekly basis, subject to certain limitations. The Company may make contributions to the Savings Plan at the discretion of the Board of Directors. No contributions were made for the fiscal years ended December 26, 2015 and December 31, 2016.
In 2014, the Company established a defined contribution plan in the U.K. for its U.K.-based employees. The Company contributed $165,000 and $208,000 to the plan for fiscal years ended December 26, 2015 and December 31, 2016, respectively. The Company contributed $101,000 and $137,000 to the plan for the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), respectively.
F-33
11. NET LOSS PER SHARE
The Company calculates its basic and diluted net loss per share allocable to common stockholders in conformity with the two-class method required for companies with participating securities. In computing diluted net loss allocable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities. The Companys basic net loss per share allocable to common stockholders is calculated by dividing the net loss allocable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. For purposes of the calculation of diluted net loss per share allocable to common stockholders, convertible preferred stock, unvested shares of common stock issued upon the early exercise of stock options, convertible preferred stock warrants, options to purchase common stock and common stock warrants are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share allocable to common stockholders as their effect is antidilutive.
Basic and diluted net loss per share of common stock allocable to common stockholders is calculated by dividing the net loss allocable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of employee stock-based awards and warrants. Because the Company has reported a net loss for the years ended December 26, 2015 and December 31, 2016 and the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited), diluted net loss per common share is the same as the basic net loss per share for those years.
The Company considers all series of its convertible preferred stock to be participating securities as they are entitled to receive noncumulative dividends prior and in preference to any dividends on shares of common stock. Due to the Companys net losses, there is no impact on the loss per share calculation in applying the two-class method since the participating securities have no legal obligation to share in any losses.
The table presents the calculation of basic and diluted net loss per share as follows (in thousands, except share and per share data):
Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Numerator: |
||||||||||||||||
Net loss allocable to common stockholders |
$ | (40,611 | ) | $ | (42,758 | ) | $ | (33,242 | ) | $ | (24,215 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted-average shares used in computing net loss per share, basic and diluted |
4,030,579 | 4,745,943 | 4,696,170 | 4,866,028 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share, basic and diluted |
$ | (10.08 | ) | $ | (9.01 | ) | $ | (7.08 | ) | $ | (4.98 | ) | ||||
|
|
|
|
|
|
|
|
The potential common shares that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive for the periods presented are as follows:
Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Options to purchase common stock |
19,850,269 | 22,334,508 | 21,473,345 | 24,559,747 | ||||||||||||
Unvested shares of common stock issued upon early exercise of stock options |
11,410 | 3,287 | 6,289 | 20,080 | ||||||||||||
Warrants to purchase common stock |
541,666 | 375,000 | 375,000 | 375,000 |
F-34
Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
Warrants to purchase convertible preferred stock |
1,817,318 | 1,817,318 | 1,817,318 | 2,225,966 | ||||||||||||
Convertible preferred stock |
80,844,138 | 80,844,138 | 80,844,138 | 80,844,138 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
103,064,801 | 105,374,251 | 104,516,090 | 108,024,931 | ||||||||||||
|
|
|
|
|
|
|
|
Unaudited Pro Forma Loss Per Share
Pro forma basic and diluted net loss per share were computed to give effect to the conversion of the Series A, Series B, Series C-1, Series C-2, Series D, Series E, Series F, Series G and Series H convertible preferred stock using the as-if converted method into common shares as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later. Also, the numerator has been adjusted to reverse the fair value adjustments related to the convertible preferred stock warrants as they will become warrants to purchase common stock and at such time will no longer require periodic revaluation.
The table presents the calculation of basic and diluted pro forma net loss per share for the periods presented as follows (in thousands, except share and per share data):
Year Ended
December 31, 2016 |
Six Months Ended
June 30, 2017 |
|||||||
(unaudited) | ||||||||
Pro forma loss per share, basic and diluted |
||||||||
Numerator: |
||||||||
Net loss, basic and diluted |
$ | (42,758 | ) | $ | (24,215 | ) | ||
Add: Change in fair value of convertible preferred stock warrant liability |
(888 | ) | 2,651 | |||||
|
|
|
|
|||||
Net loss used in computing pro forma net loss per share, basic and diluted |
$ | (43,646 | ) | $ | (21,564 | ) | ||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted-average shares used in computing net loss per share, basic and diluted |
4,745,943 | 4,866,028 | ||||||
Add: Pro forma adjustment to reflect assumed conversion of convertible preferred stock |
80,844,138 | 80,844,138 | ||||||
|
|
|
|
|||||
Weighted-average shares used in computing pro forma net loss per share, basic and diluted |
85,590,081 | 85,710,166 | ||||||
|
|
|
|
|||||
Pro forma net loss per share, basic and diluted |
$ | (0.51 | ) | $ | (0.25 | ) | ||
|
|
|
|
12. SEGMENT INFORMATION
An operating segment is defined as a component of an entity for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (CODM) for purposes of allocating resources and evaluating financial performance. The Company uses the management approach to determine the segment financial information that should be disaggregated and presented separately in the Companys notes to its consolidated financial statements. The management approach is based on the manner by which management has organized the segments within the Company for making operating decisions, allocating resources, and assessing performance.
The Companys CODM is its Chief Executive Officer, and the CODM evaluates performance and makes decisions about allocating resources to its operating segments based on financial information presented on a
F-35
consolidated basis and on revenue and gross profit for each operating segment. In the second quarter of 2017 the Company changed the operating segments to combine one of the previous operating segments with two existing segments to reflect how the CODM evaluates performance and allocates resources. This change did not result in a change to the reportable segments.
The Company is organized into two reportable segments as follows:
Player Consists primarily of net sales of streaming media players and accessories through retailers and distributors, as well as directly to customers through the Companys website.
Platform Consists primarily of fees received from advertisers and content publishers, and from licensing the Companys technology and proprietary operating system to service operators. Platform revenue primarily includes fees earned from the sale of digital advertising and revenue share from new or recurring user subscriptions activated through the Companys platform and revenue share from user purchases of content publishers media through its platform. The Company also earns revenue from the sale of branded channels on remote controls.
The accounting policies for the segments are the same as those described in the summary of significant accounting policies. The Company does not allocate property and equipment or any other assets or capital expenditures to reportable segments. Operating expenses are not managed at the segment level.
The Company evaluates the performance of its reportable segments based on the financial measures, including segment gross profit, which is regularly reviewed by the CODM and provides insight into the individual segments and their ability to contribute to Companys operating results.
Customers accounting for 10% or more of player segment revenue, net for the fiscal years ended December 26, 2015 and December 31, 2016, and the six months ended July 2, 2016 and June 30, 2017, were as follows:
Year Ended | Six Months Ended | |||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Customer A |
19 | % | 18 | % | 18 | % | 13 | % | ||||||||
Customer B |
12 | 11 | 11 | 12 | ||||||||||||
Customer C |
26 | 32 | 33 | 32 | ||||||||||||
Customer D |
* | * | * | 10 |
Customers accounting for 10% or more of platform segment revenue for the fiscal years ended December 26, 2015 and December 31, 2016, and the six months ended July 2, 2016 and June 30, 2017, were as follows:
Year Ended |
Six
Months Ended |
|||||||||||||||
December 26,
2015 |
December 31,
2016 |
July 2,
2016 |
June 30,
2017 |
|||||||||||||
(unaudited) | ||||||||||||||||
Customer 1 |
31 | % | 15 | % | 18 | % | * | % | ||||||||
Customer 2 |
11 | * | * | * | ||||||||||||
Customer 3 |
* | 10 | * | 13 |
* | Less than 10% |
Substantially all Company assets were held in the United States and were attributable to the operations in the United States as of December 26, 2015 and December 31, 2016, and the six months ended July 2, 2016 (unaudited) and June 30, 2017 (unaudited). Revenue in international markets was less than 10% in each of the periods presented.
F-36
13. SUBSEQUENT EVENTS
Lease Agreements In January 2017, the Company entered into a real estate lease agreement for office space in New York, New York. Future minimum lease payments aggregating $7,803,000 are payable 2017 through 2024. The Company issued an irrevocable letter of credit in the amount of $604,000 for the benefit of the landlord related to the lease agreement.
In April 2017, the Company entered into a real estate lease agreement for office space in Santa Monica, California. Future minimum lease payments aggregating $1,770,000 are payable 2017 through 2020.
Common Stock Warrants In July 2017, the Company issued 357,283 shares of common stock upon net exercise of 375,000 common stock warrants issued in connection with a debt agreement entered in 2010.
2008 Equity Incentive Plan In March 2017, the Company increased the number of shares reserved for issuance under the Companys 2008 Plan by 6,250,000 shares to a total of 33,176,660 shares.
Licensing Agreement In the first quarter of 2017, the Company entered into a patent and technology license agreement. The agreement provides the Company with a multi-year license for streaming players, with the right to sublicense to Roku TV brand licenses, as well as a release of potential claims for past liabilities under the licensed patents. The Company will incur future license fees over the course of the license. The Company accrued a liability of $4,563,000 as of December 31, 2016, which was recognized as Cost of RevenuePlayer during the year ended December 31, 2016 related to the release of potential claims for past liabilities.
Common Stock Options In August 2017, the Company granted options to purchase an aggregate of 3,219,857 shares of common stock with an exercise price of $8.82 per share. Total stock-based compensation cost was approximately $13,000,000, which is expected to be recognized over 4 years.
Stock Split In September 2017, the Company implemented a 1-for-6 reverse stock split of its outstanding common stock and preferred stock. The reverse stock split did not result in an adjustment to par value. All references in the accompanying consolidated financial statements and related notes to the number of shares of common stock, convertible preferred stock, warrants and options to purchase common stock and per share data have been restated on a retroactive basis for all periods presented to reflect the effect of this action.
Business Combination On September 6, 2017, the Company acquired all of the outstanding shares of a privately held technology company located in Denmark to enhance the Companys player product offering. Under the terms of the agreement, the Company agrees to pay $3,500,000 in cash. In addition, the Company issued 108,332 shares of its common stock to two of the founders as part of a continuing services arrangement. The shares are subject to a right of repurchase which lapses over a three year period at varying prices per share. In addition, the Company expects to incur approximately $350,000 of costs related to the acquisition. Due to the limited time since the acquisition date, the initial accounting for the business combination is incomplete at this time. As a result, the Company is unable to disclose amounts recognized as of the acquisition date for major classes of assets and liabilities acquired and resulting from the transaction along with any potential goodwill. The Company will include this information in its Quarterly Report on Form 10-Q for the three months ended September 30, 2017.
F-37
Since we launched our first streaming device, our users have streamed 27.7 billion hours.1 Thats 3.2 million years of Happy Streaming.
1. from January 1, 2008 through June 30, 2017
Roku
Now this is TV.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the Class A common stock being registered. All the amounts shown are estimates except the SEC registration fee, the FINRA filing fee and the Nasdaq Global Select Market listing fee.
Item |
Amount | |||
SEC registration fee |
$ | 29,237 | ||
FINRA filing fee |
38,338 | |||
Nasdaq Global Select Market listing fee |
150,000 | |||
Legal fees and expenses |
1,500,000 | |||
Accounting fees and expenses |
1,200,000 | |||
Printing and engraving expenses |
350,000 | |||
Transfer agent and registrar fees |
15,000 | |||
Miscellaneous fees and expenses |
717,425 | |||
|
|
|||
Total |
$ | 4,000,000 | ||
|
|
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporations board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act. Our amended and restated certificate of incorporation that will be in effect upon the closing of this offering provides for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by the Delaware General Corporation Law, and our amended and restated bylaws that will be in effect upon the closing of this offering provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by the Delaware General Corporation Law.
We have entered into indemnification agreements with our directors and officers, whereby we have agreed to indemnify our directors and officers to the fullest extent permitted by law, including indemnification against expenses and liabilities incurred in legal proceedings to which the director or officer was, or is threatened to be made, a party by reason of the fact that such director or officer is or was a director, officer, employee or agent of Roku, provided that such director or officer acted in good faith and in a manner that the director or officer reasonably believed to be in, or not opposed to, the best interest of Roku. At present, there is no pending litigation or proceeding involving a director or officer of Roku regarding which indemnification is sought, nor is the registrant aware of any threatened litigation that may result in claims for indemnification.
We maintain insurance policies that indemnify our directors and officers against various liabilities arising under the Securities Act and the Securities Exchange Act of 1934, as amended, that might be incurred by any director or officer in his capacity as such.
The underwriters are obligated, under certain circumstances, pursuant to the underwriting agreement filed as Exhibit 1.1 hereto, to indemnify us and our officers and directors against liabilities under the Securities Act.
II-1
Item 15. Recent Sales of Unregistered Securities
The following sets forth information regarding all unregistered securities sold since January 1, 2014:
Sales of Preferred Stock
(1) | In October 2014, we sold an aggregate of 3,206,234 shares of Series G preferred stock to a total of 11 accredited investors at a purchase price per share of $7.7973 for an aggregate purchase price of $25,000,001. |
(2) | In November 2015, we sold an aggregate of 4,959,988 shares of Series H preferred stock to a total of 14 accredited investors at a purchase price per share of $9.1734 for an aggregate purchase price of $45,499,999. |
Issuances of Preferred Stock Warrants
(3) | In June 2017, we issued warrants to purchase up to an aggregate of 408,648 shares of Series H preferred stock to a total of three accredited investors at an aggregate exercise price per share of $9.1734 for an aggregate exercise price of $3,748,696.15. |
Option and Common Stock Issuances
(4) | From January 1, 2014 through September 18, 2017, we granted to certain employees, consultants and directors options to purchase an aggregate of 24,833,813 shares of Class B common stock under our 2008 Plan, at exercise prices ranging from $2.94 to $8.82 per share. |
(5) | From January 1, 2014 through September 18, 2017, we issued and sold an aggregate of 2,150,458 shares of Class B common stock upon the exercise of options under our 2008 Plan at exercise prices ranging from $0.1602 to $6.12, per share, for an aggregate exercise price of $3,666,311.14. |
(6) | In July 2017, we issued 357,283 shares of our Class B common stock upon the automatic net exercise of a warrant to purchase 375,000 shares of our Class B common stock. |
(7) | 108,332 shares of Class B common stock issued in September 2017 in connection with an acquisition. |
The offers, sales and issuances of the securities described in paragraphs (1) through (7) above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder or Rule 701 promulgated under the Securities Act as transactions by an issuer not involving a public offering or under benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each of these transactions acquired 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 or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.
II-2
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The following exhibits are filed as part of this Registration Statement:
II-3
+ | Indicates management contract or compensatory plan. |
# | Previously filed. |
(b) Financial Statement Schedules
See index to financial statements on page F-1. All schedules have been omitted because they are not required or are not applicable.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the
II-4
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 of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act of 1933, 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. |
(3) | For the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(4) | If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
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Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Gatos, State of California, on the 18th day of September, 2017.
R OKU , I NC . | ||
By: |
/s/ Anthony Wood |
|
Anthony Wood | ||
President, Chief Executive Officer and Chairman |
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Anthony Wood Anthony Wood |
President, Chief Executive Officer and Chairman (Principal Executive Officer) |
September 18, 2017 | ||
/s/ Steve Louden Steve Louden |
Chief Financial Officer
( Principal Financial and Accounting Officer ) |
September 18, 2017 | ||
* Ravi Ahuja |
Director |
September 18, 2017 | ||
* Shawn Carolan |
Director |
September 18, 2017 | ||
* Jeffrey Hastings |
Director |
September 18, 2017 | ||
* Alan Henricks |
Director |
September 18, 2017 | ||
* Neil Hunt |
Director | September 18, 2017 | ||
* Daniel Leff |
Director |
September 18, 2017 | ||
* Ray Rothrock |
Director |
September 18, 2017 |
*By: |
/s/ Anthony Wood |
|
Anthony Wood Attorney-in-Fact |
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Exhibit 1.1
[] Shares
ROKU, INC.
CLASS A COMMON STOCK, PAR VALUE $0.0001 PER SHARE
UNDERWRITING AGREEMENT
[], 2017
[], 2017
Morgan Stanley & Co. LLC
Citigroup Global Markets Inc.
as Representatives of the several Underwriters
listed on Schedule II hereto
c/o Morgan Stanley & Co. LLC
1585 Broadway
New York, New York 10036
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Roku, Inc., a Delaware corporation (the Company ), proposes to issue and sell to the several Underwriters named in Schedule II hereto (the Underwriters ), for whom Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. are acting as representatives (collectively, the Representatives ), and certain stockholders of the Company (collectively, the Selling Shareholders ) named in Schedule I hereto severally propose to sell to the several Underwriters, an aggregate of [] shares of Class A common stock, par value $0.0001 per share, of the Company (the Firm Shares ), of which [] shares are to be issued and sold by the Company and [] shares are to be sold by the Selling Shareholders, each Selling Shareholder selling the amount set forth opposite such Selling Shareholders name in Schedule I hereto.
The Company and the Selling Shareholders also propose to issue and sell to the several Underwriters not more than an additional [] shares of its Class A common stock, par value $0.0001 per share (the Additional Shares ), of which [] shares are to be issued and sold by the Company and [] shares are to be sold by the Selling Shareholders, as and to the extent indicated on Schedule I hereto, if and to the extent that you, as the Representatives, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of Class A common stock granted to the Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the Shares . The shares of Class A common stock, par value $0.0001 per share, and Class B common stock, par value $0.0001 per share, of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to together as the Common Stock . The Company and the Selling Shareholders are hereinafter sometimes collectively referred to as the Sellers .
The Company has filed with the Securities and Exchange Commission (the Commission ) a registration statement (File No. 333-220318), including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the Securities Act ), is hereinafter referred to as the Registration Statement ; the prospectus in the form first used to confirm sales of Shares (or in the form first made available to the Underwriters by the Company to meet requests of purchasers pursuant to Rule 173 under the Securities Act) is hereinafter referred to as the Prospectus . If the Company has filed an abbreviated registration statement to register additional shares of Class A Common Stock 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.
For purposes of this Agreement, free writing prospectus has the meaning set forth in Rule 405 under the Securities Act, Time of Sale Prospectus means the preliminary prospectus together with the documents and pricing information set forth in Schedule III hereto, and broadly available road show means a bona fide electronic road show as defined in Rule 433(h)(5) under the Securities Act that has been made available without restriction to any person. As used herein, the terms Registration Statement, preliminary prospectus, Time of Sale Prospectus and Prospectus shall include the documents, if any, incorporated by reference therein as of the date hereof.
1. Representations and Warranties of the Company . The Company represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the Companys knowledge, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain, as of the date of such amendment or supplement, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will, as of the date of such amendment or supplement, comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Time of Sale Prospectus does not, and at the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers, at the Closing Date (as defined in Section 5) and at any Option Closing Date (as defined in Section 5), the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iv) each broadly available road show, if any, when considered together with the Time of Sale Prospectus, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (v) the Prospectus, as of its date, does not contain and, as amended or supplemented, if
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applicable, will not contain, as of its date, at the Closing Date and at any Option Closing Date, any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement, the Time of Sale Prospectus or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.
(c) The Company is not an ineligible issuer in connection with the offering pursuant to Rules 164, 405 and 433 under the Securities Act. Any free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or will comply in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Except for the free writing prospectuses, if any, identified in Schedule III hereto, and electronic road shows, if any, each furnished to you before first use, the Company has not prepared, used or referred to, and will not, without your prior consent, prepare, use or refer to, any free writing prospectus.
(d) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own or lease its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole.
(e) Each subsidiary of the Company has been duly organized, is validly existing and in good standing under the laws of the jurisdiction of its organization (to the extent the concept of good standing is applicable in such jurisdiction), has the corporate or other organizational power and authority to own or lease its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction (to the extent the concept of good standing is applicable in such jurisdiction) in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable (to the extent that such concepts are applicable in such jurisdiction) and are owned directly by the Company or a subsidiary of the Company, free and clear of all liens, encumbrances, equities or claims. The Company does not have any significant subsidiaries, as such term is defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act.
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(f) This Agreement has been duly authorized, executed and delivered by the Company.
(g) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in each of the Time of Sale Prospectus and the Prospectus.
(h) The shares of Common Stock (including the Shares to be sold by the Selling Shareholders) outstanding prior to the issuance of the Shares to be sold by the Company have been duly authorized and are validly issued, fully paid and non-assessable.
(i) The Shares to be sold by the Company have been duly authorized and, when issued, delivered and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights.
(j) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of (i) applicable law, (ii) the certificate of incorporation or bylaws of the Company, (iii) any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, except that in the case of clauses (i), (iii) and (iv) as would not, individually or in the aggregate, have a material adverse effect on the Company or on the power and ability of the Company to perform its obligations under this Agreement; and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states or the rules and regulations of the Financial Industry Regulatory Authority ( FINRA ) in connection with the offer and sale of the Shares.
(k) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Prospectus.
(l) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject (i) other than proceedings accurately described in all material respects in the Time of Sale Prospectus and proceedings that would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, or on the power or ability of the Company to perform its obligations under this Agreement or to consummate the
4
transactions contemplated by the Time of Sale Prospectus or (ii) that are required to be described in the Registration Statement or the Prospectus and are not so described in all material respects; and there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described in all material respects or filed as required.
(m) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder.
(n) The Company is not, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will not be, required to register as an investment company as such term is defined in the Investment Company Act of 1940, as amended.
(o) The Company and its subsidiaries, taken as a whole, (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ( Environmental Laws ), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole.
(p) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole.
(q) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement, except those contracts, agreements and understandings described in the Time of Sale Prospectus and the Prospectus, all of which have been validly waived in connection with the issuance and sale of the Shares contemplated hereby.
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(r) (i) None of the Company, its subsidiaries or controlled affiliates, or any director or officer thereof, or, to the Companys knowledge, any employee, agent or representative of the Company or of any of its subsidiaries or controlled affiliates, has taken or will take any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment, giving or receipt of money, property, gifts or anything else of value, directly or indirectly, to any government official (including any officer or employee of a government or 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) ( Government Official ) in order to influence official action, or to any person in violation of any applicable anti-corruption laws; (ii) the Company and its subsidiaries and controlled affiliates have conducted their businesses in compliance with applicable anti-corruption laws and have instituted and maintain and will continue to maintain policies and procedures reasonably designed to promote and achieve compliance with such laws and with the representations and warranties contained herein; and (iii) neither the Company nor any of its subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of any applicable anti-corruption laws.
(s) The operations of the Company and its subsidiaries are and have been conducted at all times in material compliance with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws ), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
(t) (i) None of the Company, any of its subsidiaries, or any director or officer thereof, or, to the Companys knowledge, any employee, agent, controlled affiliate or representative of the Company or any of its subsidiaries or controlled affiliates, is an individual or entity ( Person ) that is, or is owned or controlled by one or more Persons that are:
(A) the subject of any sanctions administered or enforced by the U.S. Department of Treasurys Office of Foreign Assets Control, the United Nations Security Council, the European Union, Her Majestys Treasury, or other relevant sanctions authority (collectively, Sanctions ), or
(B) located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Crimea, Cuba, Iran, North Korea, Sudan and Syria).
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(ii) The Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:
(A) to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or
(B) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).
(iii) 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 dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.
(u) Subsequent to the respective dates as of which information is given in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, (i) the Company and its subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction; (ii) the Company has not purchased any of its outstanding capital stock, other than from its employees or other service-providers in connection with the termination of their service pursuant to equity compensation plans or agreements described in the Time of Sale Prospectus or in connection with the exercise of the Companys right of first refusal upon a proposed transfer, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than ordinary and customary dividends; and (iii) there has not been any material change in the capital stock (other than the exercise of equity awards or grants of equity awards or forfeiture of equity awards outstanding as of such respective dates as of which information is given in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, in each case granted pursuant to the equity compensation plans described in the Time of Sale Prospectus), short-term debt or long-term debt of the Company and its subsidiaries, except in each case as described in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, respectively.
(v) The Company and its subsidiaries do not own any real property. The Company and its subsidiaries have good and marketable title to all personal property owned by them that is material to the business of the Company and its subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects except such as are described in the Time of Sale Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries, in any material respect; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and, to the Companys knowledge, enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries, in each case except as described in the Time of Sale Prospectus.
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(w) The Company and its subsidiaries own or possess, or can acquire on commercially reasonable terms, sufficient rights to use all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names, domain names and other intellectual property, whether or not registered (collectively, Intellectual Property ) currently employed by them in connection with the business as currently operated by them except where the failure to own, possess, have the right to use or the ability to acquire any of the foregoing would not result in a material adverse effect on the Company and its subsidiaries, taken as a whole. Except as disclosed in the Time of Sale Prospectus, neither the Company nor any of its subsidiaries has received any notice of any claims, action, suit or proceeding of infringement of or conflict with asserted rights of others, with respect to any of the foregoing which action, suit, proceeding or claim singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company and its subsidiaries, taken as a whole. Except as would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole, the Company and each of its subsidiaries has taken reasonable steps in accordance with customary industry practice to maintain the confidentiality of all Intellectual Property, the value of which to the Company or any of its subsidiaries is contingent upon maintaining the confidentiality thereof.
(x) The Company and its subsidiaries have used all software and other materials distributed under a free, open source, or similar licensing model (including but not limited to the MIT License, Apache License, GNU General Public License, GNU Lesser General Public License and GNU Affero General Public License) ( Open Source Software ) in compliance with all license terms applicable to such Open Source Software, except where the failure to comply would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; and neither the Company nor any of its subsidiaries has used or distributed any Open Source Software 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, as would not have a material adverse effect on the Company and its subsidiaries, taken as a whole.
(y) The Company and each of its subsidiaries have complied, and are presently in compliance, with the Companys privacy and security policies and with all obligations, laws and regulations regarding the collection, use, transfer, storage, protection, disposal and/or disclosure of personally identifiable information and/or any other information collected from or provided by third parties, except to the extent that the failure to do so would not reasonably be expected to have a material adverse effect on the Company and its subsidiaries, taken as a whole. The Company and its subsidiaries have taken commercially reasonable steps to protect the information technology systems and
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data used in connection with the operation of the Company and/or its subsidiaries against unauthorized access, use, modification, disclosure or other misuse. To the Companys knowledge, there has been no material security breach or attack or other compromise of or relating to any such information technology system or data.
(z) No material labor dispute with the employees of the Company or any of its subsidiaries exists, except as described in the Time of Sale Prospectus, or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could have a material adverse effect on the Company and its subsidiaries, taken as a whole.
(aa) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are, in the reasonable judgment of the Company, prudent and customary in the businesses in which they are engaged; neither the Company nor any of its subsidiaries has been refused any insurance coverage sought or applied for; and neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, except as described in the Time of Sale Prospectus.
(bb) The Company and its subsidiaries, taken as a whole, possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to obtain such certificates, authorizations and permits would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Company and its subsidiaries, taken as a whole, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company and its subsidiaries, taken as a whole, except as described in the Time of Sale Prospectus.
(cc) The consolidated financial statements (including the related notes thereto) of the Company and its consolidated subsidiaries included in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly in all material respects the consolidated financial position of the Company and its subsidiaries as of the dates indicated and the results of their operations and cash flows for the periods specified; such financial statements have been prepared in conformity with U.S. GAAP applied on a consistent basis throughout the periods covered thereby; and the other financial information included in the Registration Statement, the Time of Sale Prospectus and the Prospectus has been derived from the accounting records of the Company and its subsidiaries and presents fairly in all material respects the information shown thereby.
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(dd) The Company and each of its subsidiaries, taken as a whole, maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements 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 managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Time of Sale Prospectus, since the end of the Companys most recent audited fiscal year, there has been (i) no material weakness in the Companys internal control over financial reporting (whether or not remediated) and (ii) no change in the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
(ee) Except as described in the Time of Sale Prospectus or the Registration Statement, the Company has not sold, issued or distributed any shares of Common Stock during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants.
(ff) The Company and each of its subsidiaries have filed all federal, state, local and foreign tax returns required to be filed through the date of this Agreement or have requested extensions thereof and have paid all taxes required to be paid thereon (except for cases in which the failure to file or pay would not have a material adverse effect on the Company and its subsidiaries taken as a whole, or except as currently being contested in good faith and for which reserves required by U.S. GAAP have been created in the financial statements of the Company), and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company nor any of its subsidiaries have any notice or knowledge of any tax deficiency which could reasonably be expected to be determined adversely to the Company or its subsidiaries and which could reasonably be expected to have) a material adverse effect on the Company and its subsidiaries taken as a whole.
(gg) 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.
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(hh) The Company (i) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representatives, with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) has not authorized anyone other than Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. to engage in Testing-the-Waters Communications. The Company reconfirms that Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications. 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.
(ii) As of the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers, none of (A) the Time of Sale Prospectus, (B) any free writing prospectus, when considered together with the Time of Sale Prospectus, and (C) any individual Written Testing-the-Waters Communication, when considered together with the Time of Sale Prospectus, included, includes or will include an untrue statement of a material fact or omitted, omits or will 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.
(jj) Deloitte & Touche LLP, which has expressed its opinion with respect to the financial statements of the Company and its consolidated subsidiaries filed with the Commission as a part of the Registration Statement and included in each of the Time of Sale Prospectus and the Prospectus, is an independent registered public accounting firm with respect to the Company and its consolidated 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.
(kk) The statistical, industry-related and market-related data included in the Time of Sale Prospectus and the Prospectus are based on or derived from sources which the Company reasonably and in good faith believes are reliable and accurate, and such data is consistent with the sources from which they are derived.
(ll) Neither the Company nor any of its subsidiaries has any securities rated by any nationally recognized statistical rating organization, as such term is defined in Section 3(a)(62) of the Exchange Act.
2. Representations and Warranties of the Selling Shareholders. Each Selling Shareholder, severally and not jointly, represents and warrants to and agrees with each of the Underwriters that (except that Sections 2(l) and 2(m) apply only to Sky Venture Limited (the Specified Selling Shareholder )):
(a) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder of, and the performance by such Selling Shareholder of its obligations under, this Agreement, the Custody Agreement signed by such Selling Shareholder and American Stock Transfer &
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Trust Company, LLC, as Custodian (the Custodian ), relating to the deposit of the Shares to be sold by such Selling Shareholder (the Custody Agreement ) and the Power of Attorney appointing certain individuals as such Selling Shareholders attorneys-in-fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement (the Power of Attorney ) will not contravene (i) any provision of applicable law, or (ii) the certificate of incorporation, by-laws or other comparable governing or constituent documents of such Selling Shareholder (if such Selling Shareholder is not a natural person), or (iii) any agreement or other instrument binding upon such Selling Shareholder or (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, except in the case of clauses (i), (iii) and (iv) as would not, individually or in the aggregate, have a material adverse effect on the ability of such Selling Shareholder to consummate the transactions contemplated by this Agreement, the Custody Agreement and the Power of Attorney, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by such Selling Shareholder of its obligations under this Agreement or the Custody Agreement or Power of Attorney of such Selling Shareholder, except such as have been obtained and made under the Securities Act, such as may be required by the Exchange Act or the rules and regulations thereunder or may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares.
(c) Such Selling Shareholder has, and on the Closing Date will have, valid title to, or a valid security entitlement within the meaning of Section 8-501 of the New York Uniform Commercial Code in respect of, the Shares to be sold by such Selling Shareholder free and clear of all security interests, claims, liens, equities or other encumbrances and the legal right and power, and all authorization and approval required by law, to enter into this Agreement, the Custody Agreement and the Power of Attorney and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder or a security entitlement in respect of such Shares.
(d) The Custody Agreement and the Power of Attorney have been duly authorized, executed and delivered by such Selling Shareholder and are valid and binding agreements of such Selling Shareholder, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles.
(e) Upon payment for the Shares to be sold by such Selling Shareholder pursuant to this Agreement, delivery of such Shares, as directed by the Underwriters, to Cede & Co. ( Cede ) or such other nominee as may be designated by the Depository Trust Company ( DTC ), registration of such Shares in the name of Cede or such other nominee and the crediting of such Shares on the books of DTC to securities accounts of the Underwriters (assuming that neither DTC nor any such Underwriter has notice of any adverse claim (within the meaning of Section 8-105 of the New York Uniform Commercial Code (the UCC )) to such Shares), (A) DTC shall be a protected purchaser of such Shares within the meaning of Section 8-303 of the UCC, (B) under Section 8-501 of the UCC, the Underwriters will acquire a valid security entitlement in respect of such Shares and (C) no action based on any adverse claim, within the
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meaning of Section 8-102 of the UCC, to such Shares may be asserted against the Underwriters with respect to such security entitlement; for purposes of this representation, such Selling Shareholder may assume that when such payment, delivery and crediting occur, (x) such Shares will have been registered in the name of Cede or another nominee designated by DTC, in each case on the Companys share registry in accordance with its certificate of incorporation, bylaws and applicable law, (y) DTC will be registered as a clearing corporation within the meaning of Section 8-102 of the UCC and (z) appropriate entries to the accounts of the several Underwriters on the records of DTC will have been made pursuant to the UCC.
(f) Such Selling Shareholder is not prompted by any information concerning the Company or its subsidiaries which is not set forth in the Time of Sale Prospectus to sell its Shares pursuant to this Agreement.
(g) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain, as of the date of such amendment or supplement, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Time of Sale Prospectus does not, and at the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers, at the Closing Date (as defined in Section 5) and at any Option Closing Date (as defined in Section 5), the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iii) each broadly available road show, if any, when considered together with the Time of Sale Prospectus, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (iv) the Prospectus, as of its date, does not contain and, as amended or supplemented, if applicable, will not contain, as of its date, at the Closing Date and at any Option Closing Date, any untrue statement of a material fact or omit to state a material fact necessary 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 paragraph 2(g) are limited to statements or omissions made in reliance upon and in conformity with information relating to such Selling Shareholder furnished to the Company in writing by such Selling Shareholder expressly for use in the Registration Statement, the Time of Sale Prospectus, the Prospectus or any amendments or supplements thereto, it being understood and agreed that the only information furnished by such Selling Shareholder consists of the name of such Selling Shareholder, the number of offered shares and the address and other information with respect to such Selling Shareholder (excluding percentages) which appear in the Registration Statement, Time of Sale Prospectus, and the Prospectus in the table (and corresponding footnotes) under the caption Principal and Selling Stockholders (with respect to each Selling Shareholder, the Selling Shareholder Information ).
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(h) (i) None of such Selling Shareholder, any of its subsidiaries, or any director or officer thereof, or, to the knowledge of such Selling Shareholder, any employee, agent, controlled affiliate or representative of such Selling Shareholder or any of its subsidiaries or controlled affiliates, is a Person that is, or is owned or controlled by one or more Persons that are:
(A) the subject of any Sanctions, or
(B) located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Crimea, Cuba, Iran, North Korea, Sudan and Syria).
(ii) Such Selling Shareholder will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:
(A) to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or
(B) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).
(iii) For the past 5 years, such Selling Shareholder and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.
(i) (i) None of such Selling Shareholder, its subsidiaries or controlled affiliates, or any director or officer thereof, or, to knowledge of such Selling Shareholder, any employee, agent or representative of such Selling Shareholder or of any of its subsidiaries or controlled affiliates, has taken or will take any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment, giving or receipt of money, property, gifts or anything else of value, directly or indirectly, to any Government Official in order to influence official action, or to any person in violation of any applicable anti-corruption laws; (ii) such Selling Shareholder and its subsidiaries and controlled affiliates have conducted their businesses in compliance with applicable anti-corruption laws and have instituted and maintain and will continue to maintain policies and procedures reasonably designed to promote and achieve compliance with such laws and with the representations and warranties contained herein; and (iii) neither such Selling Shareholder nor any of its subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of any applicable anti-corruption laws.
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(j) The operations of such Selling Shareholder and its subsidiaries are and have been conducted at all times in material compliance with all applicable Anti-Money Laundering Laws, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving such Selling Shareholder or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the best knowledge of such Selling Shareholder, threatened.
(k) Such Selling Shareholder represents and warrants that it is not (i) an employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ( ERISA ), (ii) a plan or account subject to Section 4975 of the Internal Revenue Code of 1986, as amended or (iii) an entity deemed to hold plan assets of any such plan or account under Section 3(42) of ERISA, 29 C.F.R. 2510.3-101, or otherwise.
(l) No stamp, documentary, issuance, registration, transfer, withholding, capital gains, income or other taxes or duties are payable in England or Wales, or to any taxing authority thereof or therein, by or on behalf of (i) the Underwriters, (ii) the Company or (iii) any of the Companys subsidiaries in connection with (A) the execution, delivery or consummation of this Agreement, (B) the sale and delivery of the Shares to the Underwriters or purchasers procured by the Underwriters or (C) the resale and delivery of the Shares by the Underwriters in the manner contemplated herein.
(m) Such Selling Shareholder has the power to submit, and pursuant to Section 17(a) has, to the extent permitted by law, legally, validly, effectively and irrevocably submitted, to the jurisdiction of the Specified Courts (as defined in Section 17(a)), and has the power to designate, appoint and empower, and pursuant to Section 17(b)), has legally, validly and effectively designated, appointed and empowered an agent for service of process in any suit or proceeding based on or arising under this Agreement in any of the Specified Courts.
3. Agreements to Sell and Purchase . Each Seller, severally and not jointly, hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from such Seller at $[] a share (the Purchase Price ) the number of Firm Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the number of Firm Shares to be sold by such Seller as the number of Firm Shares set forth in Schedule II hereto opposite the name of such Underwriter bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company and the Selling Shareholders agree to sell to the Underwriters the Additional Shares, and the Underwriters shall have the right to purchase from the Company and such Selling Shareholders, severally and not jointly, up to [] Additional Shares at the Purchase Price, of which [] shares are to be issued and sold by the Company and [] shares are to be sold by the Selling Shareholders, as and to the extent indicated on Schedule I hereto, provided, however, that the amount paid by the Underwriters for any Additional Shares shall be reduced by an amount per share equal to any dividends declared by the Company and
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payable on the Firm Shares but not payable on such Additional Shares. You may exercise this right on behalf of the Underwriters in whole or from time to time in part by giving written notice not later than 30 days after the date of this Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Each purchase date must be at least one business day after the written notice is given and may not be earlier than the closing date for the Firm Shares nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 5 hereof solely for the purpose of covering sales of shares in excess of the number of the Firm Shares. On each day, if any, that Additional Shares are to be purchased (an Option Closing Date ), each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased on such Option Closing Date as the number of Firm Shares set forth in Schedule II hereto opposite the name of such Underwriter bears to the total number of Firm Shares.
4. Terms of Public Offering . The Sellers are advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Sellers are further advised by you that the Shares are to be offered to the public initially at $[] a share (the Public Offering Price ) and to certain dealers selected by you at a price that represents a concession not in excess of $[] a share under the Public Offering Price.
5. Payment and Delivery . Payment for the Firm Shares to be sold by each Seller shall be made to such Seller in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on [],or at such other time on the same or such other date, not later than [],as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the Closing Date .
Payment for any Additional Shares shall be made to the Company and to the Custodian for the benefit of the Selling Shareholders in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in Section 3 or at such other time on the same or on such other date, in any event not later than [], as shall be designated in writing by you.
The Firm Shares and Additional Shares shall be registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as the case may be. The Firm Shares and Additional Shares shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the respective accounts of the several Underwriters. The Purchase Price payable by the Underwriters shall be reduced by (i) any transfer taxes paid by, or on behalf of, the Underwriters in connection with the transfer of the Shares to the Underwriters duly paid and (ii) any withholding required by law.
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6. Conditions to the Underwriters Obligations . The obligations of the Sellers to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than [] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Prospectus that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus.
(b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date (i) an opinion and (ii) a negative assurance letter of Cooley LLP, outside counsel for the Company, dated the Closing Date, in form and substance reasonably satisfactory to the Representatives.
(d) The Underwriters shall have received on the Closing Date opinions of Cooley LLP and Hogan Lovells US LLP, outside counsel for the Selling Shareholders, dated the Closing Date, in form and substance reasonably satisfactory to the Representatives.
(e) The Underwriters shall have received on the Closing Date (i) an opinion and (ii) a negative assurance letter of Davis Polk & Wardwell LLP, counsel for the Underwriters, dated the Closing Date, in form and substance reasonably satisfactory to the Representatives.
With respect to Section 6(c)(i) and 6(c)(ii) above, Cooley LLP and Davis Polk & Wardwell LLP may state that their opinions and beliefs are based upon their participation in the preparation of the Registration Statement, the Time of Sale Prospectus and the Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified.
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The opinions and negative assurance letter described in Sections 6(c) and 6(d) above shall be rendered to the Underwriters at the request of the Company or one or more of the Selling Shareholders, as the case may be.
(f) The Underwriters shall have received, on each of the date hereof and the Closing Date, (i) a letter dated the date hereof or the Closing Date, as the case may be, in form and substance reasonably satisfactory to the Representatives, from Deloitte & Touche LLP containing statements and information of the type ordinarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus; provided that the letter delivered on the Closing Date shall use a cut-off date not earlier than the date hereof; and (ii) a certificate signed by the Chief Financial Officer of the Company, in form and substance reasonably satisfactory to the Representatives.
(g) The lock-up agreements, each substantially in the form of Exhibit A hereto (the Lock-up Agreements ), among you and the shareholders (including recipients of equity awards and other ), officers and directors of the Company relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.
(h) The Underwriters shall have received on the Closing Date one or more certificates, dated the Closing Date and signed by the attorney-in-fact for the Selling Shareholders to the effect that the representations and warranties of the Selling Shareholders contained in this Agreement are true and correct as of the Closing Date and that the Selling Shareholders have complied with all of the agreements and satisfied all of the conditions on their part to be performed or satisfied hereunder on or before the Closing Date.
(i) The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of the following:
(i) a certificate, dated the Option Closing Date and signed by an executive officer of the Company, confirming that the certificate delivered on the Closing Date pursuant to Section 6(b) hereof remains true and correct as of such Option Closing Date;
(ii) an opinion and negative assurance letter of Cooley LLP, outside counsel for the Company, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion and negative assurance letter required by Section 6(c) hereof;
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(iii) opinions of Cooley LLP and Hogan Lovells US LLP, outside counsel for the Selling Shareholders, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 6(d) hereof;
(iv) an opinion and negative assurance letter of Davis Polk & Wardwell LLP, counsel for the Underwriters, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 6(e) hereof;
(v) (A) a letter dated the Option Closing Date, in form and substance satisfactory to the Representatives, from Deloitte & Touche LLP substantially in the same form and substance as the letter furnished to the Underwriters pursuant to Section 6(f) hereof; provided that the letter delivered on the Option Closing Date shall use a cut-off date not earlier than three business days prior to such Option Closing Date; and (B) a certificate, dated the Option Closing Date signed by the Chief Financial Officer of the Company, in form and substance reasonably satisfactory to the Representatives;
(vi) a certificate, dated the Option Closing Date and signed by the attorney-in-fact for the Selling Shareholders, confirming that the certificates delivered on the Closing Date pursuant to Section 6(h) hereof remain true and correct as of such Option Closing Date; and
(vii) such other documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares to be sold on such Option Closing Date and other matters related to the issuance of such Additional Shares.
7. Covenants of the Company . The Company covenants with each Underwriter as follows:
(a) To furnish to you, without charge, eight signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 7(e) or 7(f) below, as many copies of the Time of Sale Prospectus, the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement, the Time of Sale Prospectus or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule.
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(c) To furnish to you a copy of each proposed free writing prospectus to be prepared by or on behalf of, used by, or referred to by the Company and not to use or refer to any proposed free writing prospectus to which you reasonably object.
(d) Not to take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of the Underwriter that the Underwriter otherwise would not have been required to file thereunder.
(e) If the Time of Sale Prospectus is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Time of Sale Prospectus in order to make the statements therein, in the light of the circumstances, not misleading, or if any event shall occur or condition exist as a result of which the Time of Sale Prospectus conflicts with the information contained in the Registration Statement then on file, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Time of Sale Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to any dealer upon request, either amendments or supplements to the Time of Sale Prospectus so that the statements in the Time of Sale Prospectus as so amended or supplemented will not, in the light of the circumstances when the Time of Sale Prospectus is delivered to a prospective purchaser, be misleading or so that the Time of Sale Prospectus, as amended or supplemented, will no longer conflict with the Registration Statement, or so that the Time of Sale Prospectus, as amended or supplemented, will comply with applicable law.
(f) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law.
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(g) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request; provided, however, that nothing contained herein shall require the Company to qualify to do business in any jurisdiction, to execute a general consent to service of process in any jurisdiction or to subject itself to taxation in any jurisdiction in which it is not otherwise subject.
(h) To make generally available to the Companys security holders and to you as soon as practicable an earning statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the date of this Agreement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.
(i) To promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Shares within the meaning of the Securities Act and (b) completion of the Restricted Period (as defined in this Section 7).
(j) If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
(k) To not, without the prior written consent of the Representatives on behalf of the Underwriters, during the period ending on and including the 180th day after the date of the Prospectus (the Restricted Period ), (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, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (3) file any registration statement with the Commission relating to the offering of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock.
(l) The restrictions contained in Section 7(j) shall not apply to (a) the Shares to be sold hereunder, (b) the issuance by the Company of shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and disclosed in the Time of Sale Prospectus and the Prospectus, (c) the issuance by the Company of shares of, or options to purchase shares of, Common Stock or restricted stock units to employees, officers, directors, advisors or consultants of the Company pursuant to employee benefit plans described in the Time of Sale Prospectus and Prospectus, provided that, prior to the issuance of any such shares or the grant of any such options or restricted stock units, the Company shall cause each recipient of such
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grant or issuance to execute and deliver a lock up agreement, substantially in the form of Exhibit A hereto, (d) the filing by the Company of registration statements on Form S-8 with respect to the employee benefit plans described in the Time of Sale Prospectus and Prospectus; or (e) the sale or issuance of or entry into an agreement to sell or issue shares of Common Stock in connection with the Companys acquisition of one or more businesses, products or technologies (whether by means of merger, stock purchase, asset purchase or otherwise) or in connection with joint ventures, commercial relationships or other strategic transactions; provided , that, the aggregate number of shares of Common Stock that the Company may sell or issue or agree to sell or issue pursuant to this clause (e) shall not exceed 5% of the total number of shares of Common Stock issued and outstanding immediately following the completion of the transactions contemplated by this Agreement; and provided further that the Company shall cause each recipient of such shares to execute and deliver to you, on or prior to such issuance, a lock up agreement, substantially in the form of Exhibit A hereto.
(m) If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a Lock-up Agreement for an officer or director of the Company and provide 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 B hereto through a major news service at least two business days before the effective date of the release or waiver.
(n) To enforce the terms of all existing agreements, plans and arrangements restricting the transfer by any holder of such holders Common Stock or other securities convertible into or exercisable or exchangeable for Common Stock (the Securities ) following the public offering and sale of the Shares contemplated hereby, including, without limitation, Section 2.11 of the Amended and Restated Investor Rights Agreement, dated November 9, 2015 and as amended from time to time, by and between the Company and the other investors party thereto, Section 9(d) of the Option Agreement under the Companys 2008 Equity Incentive Plan, Section 4(h) of those certain Stock Purchase Agreements by and among the Company, Nascent Asset Capital LLC and the other parties thereto dated November 19, 2015, June 23, 2016 and November 30, 2016, and all other market standoff, holdback, or similar agreements, transfer restrictions or provisions, applicable to the Common Stock or other Securities (the Company Transfer Restrictions ), the Company shall issue stop-transfer instructions to the transfer agent with respect to any transaction that would constitute a breach of, or default under, the Company Transfer Restrictions. During the Restricted Period, the Company shall enforce and not waive or amend, such Company Transfer Restrictions and stop transfer instructions unless the Company shall have obtained the prior written consent of the Representatives; provided that this Section 7(m) shall not prohibit the Company from effecting a waiver or amendment to permit a transfer of securities which is permissible under the terms of the Lock-up Agreements.
22
8. Covenants of the Sellers . Each Seller, severally and not jointly, covenants with each Underwriter as follows:
(a) Each Seller will deliver to each Underwriter (or its agent), prior to or at the Closing Date, a properly completed and executed Internal Revenue Service ( IRS ) Form W-9 or an IRS Form W-8, as appropriate, together with all required attachments to such form.
9. Expenses . Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company agrees to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Companys counsel, the Companys accountants and counsel for the Selling Shareholders in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the reasonable, documented cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 7(g) hereof, including filing fees and the reasonable, documented fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by FINRA (provided, that, the amount payable by the Company with respect to fees and disbursements of counsel for the Underwriters pursuant to subsections (iii) and (iv) shall not exceed $35,000), (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the NASDAQ Global Select Market and other national securities exchanges and foreign stock exchanges, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any road show undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the preparation or dissemination of any electronic road show, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and fifty percent (50%) of the cost of any aircraft chartered in connection with the road show (the remaining fifty percent (50%) of the cost of such aircraft to be paid by the Underwriters), (ix) the document production charges and expenses associated with printing this Agreement and (x) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section 9, Section 11 and the last paragraph of Section 13 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make.
23
The provisions of this Section shall not supersede or otherwise affect any agreement that the Sellers may otherwise have for the allocation of such expenses among themselves.
10. Covenants of the Underwriters . Each Underwriter severally covenants with the Company not to take any action that would result in the Company being required to file with the Commission under Rule 433(d) a free writing prospectus prepared by or on behalf of such Underwriter that otherwise would not be required to be filed by the Company thereunder, but for the action of the Underwriter.
11. Indemnity and Contribution . (a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show as defined in Rule 433(h) under the Securities Act (a road show), or the Prospectus or any amendment or supplement thereto, or any Written Testing-the-Waters Communication, 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 not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein (the Underwriter Information ).
(b) Each Selling Shareholder agrees, severally and not jointly, to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show or the Prospectus or any amendment or supplement thereto, or any Written Testing-the-Waters
24
Communication, 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 not misleading, (A) except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon any Underwriter Information and (B) only to the extent such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with the Selling Shareholder Information and, provided, further, that the aggregate liability of any Selling Shareholder pursuant to this subsection (b) and the contribution provisions of Section 11(f) below shall be limited to an amount equal to the aggregate Public Offering Price, less underwriting discounts and commissions, of the Shares sold by the Selling Shareholder under this Agreement (with respect to each Selling Shareholder, the Selling Shareholder Proceeds ).
(c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the Selling Shareholders, the directors and officers of the Company and each person, if any, who controls the Company or any Selling Shareholder within the meaning of either 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, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show or the Prospectus or any amendment or supplement thereto, 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 not misleading, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, any issuer free writing prospectus, road show or the Prospectus or any amendment or supplement thereto.
(d) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 11(a), 11(b) or 11(c), such person (the indemnified party ) shall promptly notify the person against whom such indemnity may be sought (the indemnifying party ) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party 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 party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel; (ii) the indemnifying party has failed
25
within a reasonable time to retain counsel reasonably satisfactory to the indemnified party; (iii) the indemnified party 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 party or (iv) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (1) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Underwriters, the directors, officers, employees and agents of each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act or who are affiliates of any Underwriter within the meaning of Rule 405 under the Securities Act, (2) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers and each person, if any, who controls the Company within the meaning of either such Section and (3) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Selling Shareholders and all persons, if any, who control any Selling Shareholder within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Underwriters, the directors, officers, employees and agents of each Underwriter and such control persons and affiliates of any Underwriters, such firm shall be designated in writing by the Representatives. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. In the case of any such separate firm for the Selling Shareholders and such control persons of any Selling Shareholders, such firm shall be designated in writing by the persons named as attorneys-in-fact for the Selling Shareholders under the Powers of Attorney. The indemnifying party 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 party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party 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 such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement (x) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and (y) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
26
(e) To the extent the indemnification provided for in Section 11(a), 11(b) or 11(c) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party 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 indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 11(e)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 11(e)(i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand 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 Sellers on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by each Seller and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Sellers on the one hand and the Underwriters on the other hand 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 Sellers or by the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters respective obligations to contribute pursuant to this Section 11 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. The liability of each Selling Shareholder under the contribution agreement contained in this paragraph shall be limited to an amount equal to the Selling Shareholder Proceeds.
(f) The Sellers and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 11 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 11(e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 11(e) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 11, (i) no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has
27
otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and (ii) no Selling Shareholder shall be required to contribute an amount in excess of the amount by which the Selling Shareholder Proceeds exceed the amount of any damages that such Selling Shareholder 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. The remedies provided for in this Section 11 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.
(g) The indemnity and contribution provisions contained in this Section 11 and the representations, warranties and other statements of the Company and the Selling Shareholders contained in this Agreement 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 Underwriter, the directors, officers, employees and agents of each Underwriter, any person controlling any Underwriter or any affiliate of any Underwriter, any Selling Shareholder or any person controlling any Selling Shareholder, or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares.
12. Termination . The Underwriters may terminate this Agreement by notice given by you to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, any of the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Market, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade or other relevant exchanges, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a material disruption in securities settlement, payment or clearance services in the United States or other relevant jurisdictions shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and which, singly or together with any other event specified in this clause (v), makes it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus or the Prospectus.
13. Effectiveness; Defaulting Underwriters . This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule II bears to the aggregate number of Firm Shares set forth opposite
28
the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 13 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on such date, and arrangements satisfactory to you, the Company and the Selling Shareholders for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Shareholders. In any such case either you or the relevant Sellers shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement, in the Time of Sale Prospectus, in the Prospectus or in any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares to be sold on such Option Closing Date or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of any Seller to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason any Seller shall be unable to perform its obligations under this Agreement, the Sellers will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder.
14. Entire Agreement . (a) This Agreement, together with any contemporaneous written agreements and any prior written agreements (to the extent not superseded by this Agreement) that relate to the offering of the Shares, represents the entire agreement between the Company and the Selling Shareholders, on the one hand, and the Underwriters, on the other, with respect to the preparation of any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, the conduct of the offering, and the purchase and sale of the Shares.
(b) The Company acknowledges that in connection with the offering of the Shares: (i) the Underwriters have acted at arms length, are not agents of, and owe no fiduciary duties to, the Company or any other person, (ii) the Underwriters owe the Company only those duties and obligations set forth in this Agreement and prior written agreements (to the extent not superseded by this Agreement), if any, and (iii) the Underwriters may have interests that differ from those of the Company. The Company waives to the full extent permitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Shares.
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15. Counterparts . This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
16. Applicable 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 internal laws of the State of New York.
17. Submission to Jurisdiction; Appointment of Agents for Service . (a) The Specified Selling Shareholder irrevocably submits to the non-exclusive jurisdiction of any New York State or United States Federal court sitting in The City of New York (the Specified Courts ) over any suit, action or proceeding arising out of or relating to this Agreement, the Prospectus, the Registration Statement or the offering of the Shares (each, a Related Proceeding ). The Specified Selling Shareholder irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any Related Proceeding brought in such a court and any claim that any such Related Proceeding brought in such a court has been brought in an inconvenient forum. To the extent that the Specified Selling Shareholder has or hereafter may acquire any immunity (on the grounds of sovereignty or otherwise) from the jurisdiction of any court or from any legal process with respect to itself or its property, the Specified Selling Shareholder irrevocably waives, to the fullest extent permitted by law, such immunity in respect of any such suit, action or proceeding.
(b) The Specified Selling Shareholder hereby irrevocably appoints the Company, with offices at 150 Winchester Circle, Los Gatos, California 95032, Attention: General Counsel, as its agent for service of process in any Related Proceeding and agrees that service of process in any such Related Proceeding may be made upon it at the office of such agent. The Specified Selling Shareholder waives, to the fullest extent permitted by law, any other requirements of or objections to personal jurisdiction with respect thereto. The Specified Selling Shareholder represents and warrants that such agent has agreed to act as the Specified Selling Shareholders agent for service of process, and the Specified Selling Shareholder agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect.
(c) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder into any currency other than United States dollars, the parties hereto agree, to the fullest extent permitted by law, that the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Underwriters could purchase United States dollars with such other currency in The City of New York on the business day preceding that on which final judgment is given. The obligation of the Specified Selling Shareholder with respect to any sum due from it to any Underwriter or any person controlling any Underwriter shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first business day
30
following receipt by such Underwriter or controlling person of any sum in such other currency, and only to the extent that such Underwriter or controlling person may in accordance with normal banking procedures purchase United States dollars with such other currency. If the United States dollars so purchased are less than the sum originally due to such Underwriter or controlling person hereunder, the Specified Selling Shareholder agrees as a separate obligation and notwithstanding any such judgment, to indemnify such Underwriter or controlling person against such loss. If the United States dollars so purchased are greater than the sum originally due to such Underwriter or controlling person hereunder, such Underwriter or controlling person agrees to pay to the Specified Selling Shareholder an amount equal to the excess of the dollars so purchased over the sum originally due to such Underwriter or controlling person hereunder.
18. Headings . The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement.
19. Notices. All communications hereunder shall be in writing and effective only upon receipt and if to the Underwriters shall be delivered, mailed or sent to you at Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department and at Citigroup Global Markets Inc. at 388 Greenwich Street, New York, New York 10013, Attention: General Counsel (facsimile: 1-646-291-1469); if to the Company or the Selling Shareholders shall be delivered, mailed or sent to Roku, Inc., 150 Winchester Circle, Los Gatos, California 95032, Attention: General Counsel.
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Very truly yours, | ||
ROKU, INC. | ||
By: |
|
|
Name: | ||
Title: |
[ Signature page to Underwriting Agreement ]
The Selling Shareholders
|
||
By: |
|
|
Attorney-in-Fact |
[ Signature page to Underwriting Agreement ]
[ Signature page to Underwriting Agreement ]
SCHEDULE I
Selling Shareholders |
Number of Firm
Shares To Be Purchased |
Maximum Number of
Additional Shares to Be Sold |
||||||
Menlo Entrepreneurs Fund X, L.P. |
[] | [] | ||||||
Menlo Ventures X, L.P. |
[] | [] | ||||||
MMEF X, L.P. |
[] | [] | ||||||
Sky Ventures Limited |
[] | [] | ||||||
|
|
|
|
|||||
Total: |
[] | [] | ||||||
|
|
|
|
I-1
SCHEDULE II
Underwriter |
Number of Firm Shares
To Be Purchased |
|||
Morgan Stanley & Co. LLC |
[] | |||
Citigroup Global Markets Inc. |
[] | |||
Allen & Company LLC |
[] | |||
RBC Capital Markets, LLC |
[] | |||
Needham & Company, LLC |
[] | |||
Oppenheimer & Co. Inc. |
[] | |||
William Blair & Company, L.L.C. |
[] | |||
|
|
|||
Total: |
[] | |||
|
|
II-1
SCHEDULE III
Time of Sale Prospectus
1. | Preliminary Prospectus issued [date] |
2. | Pricing Information: |
Firm Shares: |
[] | |
Additional Shares: |
[] | |
Public Offering Price: |
$[] per share |
III-1
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
, 2017
Morgan Stanley & Co. LLC
Citigroup Global Markets Inc.
As Representatives of the several Underwriters
listed on Schedule I to the
Underwriting Agreement referred to below
c/o Morgan Stanley & Co. LLC
1585 Broadway
New York, NY 10036
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, NY 10013
Ladies and Gentlemen:
The undersigned understands that Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. (collectively, the Representatives ) propose to enter into an Underwriting Agreement (the Underwriting Agreement ) with Roku, Inc., a Delaware corporation (the Company ), providing for the public offering (the Public Offering ) by the several Underwriters listed on Schedule I to the Underwriting Agreement, including the Representatives (the Underwriters ), of shares (the Shares ) of the Class A common stock, par value $0.0001 per share, of the Company (collectively with all of the Companys other classes of common stock, including the Companys Class B common stock, par value $0.0001 per share, the Common Stock ).
To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending on and including the 180th day after the date of the final prospectus (the Restricted Period ) relating to the Public Offering (the Prospectus ), (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, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the Exchange Act )), by the undersigned or any other securities so owned convertible into or exercisable or exchangeable for Common Stock (collectively, the Securities ) or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other Securities, in cash or otherwise. The foregoing sentence shall not apply:
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(a) | to sales of Common Stock by the undersigned to the Underwriters pursuant to the Underwriting Agreement; |
(b) | to transactions relating to shares of Common Stock or other Securities acquired in the Public Offering or in open market transactions after the completion of the Public Offering, provided that if the undersigned is an officer or director of the Company then this clause (b) shall not apply to any issuer-directed Shares; |
(c) | to transfers of shares of Common Stock or other Securities as a bona fide gift or charitable contribution in a transaction exempt under Section 16(b) of the Exchange Act; |
(d) | to transfers of shares of Common Stock or other Securities by will or intestate succession upon the death of the undersigned, including to the transferees nominee or custodian; |
(e) | to transfers of shares of Common Stock or other Securities to an immediate family member or any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned (for purposes of this lock-up agreement, immediate family shall mean any relationship by blood, marriage or adoption, not more remote than first cousin); |
(f) | to transfers or distributions of shares of Common Stock or any other Securities by a stockholder that is a trust to a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust; |
(g) | if the undersigned is a corporation, partnership, limited liability company, trust or other business entity, (1) to distributions of shares of Common Stock or other Securities to limited partners, members, stockholders or holders of similar equity interests in the undersigned (or in each case its nominee or custodian) or (2) to transfers of shares of Common Stock or other Securities to another corporation, partnership, limited liability company, trust or other business entity (or in each case its nominee or custodian) that is a direct or indirect subsidiary of the undersigned; |
(h) | to transfers of shares of Common Stock or other Securities by operation of law pursuant to a qualified domestic order or in connection with a divorce settlement; provided that any filing required by Section 16 of the Exchange Act shall clearly indicate in the footnotes thereto that such transfer is being made pursuant to the circumstances described in this clause (h) and such shares remain subject to this lock-up agreement; provided further that no other public announcement or filing shall be required or shall be voluntarily made during the Restricted Period; |
(i) | in connection with the disposition or transfer of shares of Common Stock to the Company upon the net or cashless exercise of (1) warrants outstanding as of the date of the Prospectus and described in the Prospectus or (2) stock options or other equity awards outstanding as of the date of the Prospectus and granted pursuant to an employee benefit plan described in the Prospectus (an Employee Benefit Plan ); provided that the underlying shares of Common Stock issued to the undersigned upon such exercise shall continue to be subject to this lock-up agreement; |
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(j) | to the exercise solely with cash of a stock option granted under an Employee Benefit Plan or stock purchase plan described in the Prospectus by the undersigned, and the receipt by the undersigned from the Company of shares of Common Stock upon such exercise, insofar as such option is outstanding as of the date of the Prospectus, provided that the underlying shares shall continue to be subject to the restrictions on transfer set forth in this lock-up agreement and provided , further that, if required, any public report or filing under Section 16 of the Exchange Act shall clearly indicate in the footnotes thereto that the filing relates to the exercise of a stock option, that no shares were sold by the reporting person and that the shares received upon exercise of the stock option are subject to a lock-up agreement with the Underwriters; |
(k) | to transfers to the Company of shares of Common Stock or other Securities in connection with the repurchase by the Company from the undersigned of shares of Common Stock or other Securities pursuant to a repurchase right arising upon the termination of the undersigneds employment with the Company; provided that such repurchase right is pursuant to contractual agreements with the Company; provided further that any filing required by Section 16 of the Exchange Act shall clearly indicate in the footnotes thereto that the such transfer is being made pursuant to the circumstances described in this clause (k); provided further that no other public announcement or filing shall be required or shall be voluntarily made during the Restricted Period; |
(l) | to transfers of shares of Common Stock or other Securities pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction involving a Change of Control (as defined below) of the Company which occurs after the consummation of the Public Offering, is open to all holders of the Companys capital stock and has been approved by the board of directors of the Company; provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, the Securities held by the undersigned shall remain subject to the provisions of this lock-up agreement (for purposes of this clause (l), Change of Control shall mean the consummation of any bona fide third party tender offer, merger, consolidation or other similar transaction the result of which is that any person (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of at least 50% of total voting power of the voting stock of the Company); or |
(m) | to the establishment or amendment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock; provided that (i) such plan does not provide for the transfer of Common Stock during the Restricted Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Restricted Period; |
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provided that:
(w) | in the case of any transfer or distribution pursuant to each of the clauses (c) through (h) above, each donee, trustee, distributee or transferee shall sign and deliver a lock-up letter to the Representatives substantially in the form of this letter; |
(x) | in the case of any transfer or distribution pursuant to each of the clauses (a) through (g) and (i) above, no filing under Section 16 of the Exchange Act, reporting a reduction in beneficial ownership of shares of Common Stock, shall be required or shall be voluntarily made during the Restricted Period; |
(y) | in the case of any transfer or distribution pursuant to each of clauses (c) through (g) above, such transfer or distribution shall not involve a disposition for value; and |
(z) | in the event of any transfer or distribution for which a public filing under Section 16 of the Exchange Act or any other public filing or announcement is permitted hereunder, the undersigned covenants and agrees to use commercially reasonable efforts to give the Representatives written notice at least one business day (which, for the avoidance of doubt, shall be at least a twenty-four (24) hour period) before such transaction and such filing or announcement. |
In addition, the undersigned agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the Restricted Period, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any other Security. The undersigned also agrees and consents to the entry of stop transfer instructions with the Companys transfer agent and registrar against the transfer of the undersigneds shares of Common Stock except in compliance with the foregoing restrictions.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Shares the undersigned may purchase in the Public Offering.
If the undersigned is an officer or director of the Company, (i) the Representatives agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, the Representatives will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representatives hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
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The undersigned understands that the Company and the Underwriters are relying upon this agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigneds heirs, legal representatives, successors and assigns.
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters. Notwithstanding anything to the contrary contained herein, this lock-up agreement will automatically terminate and the undersigned will be released from all of his, her or its obligations hereunder upon the earliest to occur, if any, of (i) the Company advises the Representatives in writing before the execution of the Underwriting Agreement that it has determined not to proceed with the Public Offering, (ii) the Company withdraws the registration statement related to the Public Offering before the execution of the Underwriting Agreement, (iii) the Underwriting Agreement is executed but is terminated (other than the provisions thereof which survive termination) prior to payment for and delivery of the shares of Common Stock to be sold thereunder or (iv) November 30, 2017, in the event that the Underwriting Agreement has not been executed by such date.
[ Signature page follows ]
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Very truly yours,
[ Signature Page to Lock-Up Agreement ]
EXHIBIT B
FORM OF WAIVER OF LOCK-UP
, 2017
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Roku, Inc. (the Company ) of shares of Class A common stock, $0.0001 par value (the Class A Common Stock ), of the Company and the lock-up agreement dated , 2017 (the Lock-up Agreement ), executed by you in connection with such offering, and your request for a [waiver] [release] dated , 2017, with respect to shares of Class A Common Stock (the Shares ).
Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Agreement, but only with respect to the Shares, effective , 2017; provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Agreement shall remain in full force and effect.
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cc: Company
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FORM OF PRESS RELEASE
Roku, Inc.
[Date]
Roku, Inc. (the Company ) announced today that Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., the lead book-running managers in the Companys recent public sale of shares of its Class A common stock, are [waiving][releasing] a lock-up restriction with respect to shares of the Companys Class A common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver][release] will take effect on , 2017, and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
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Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROKU, INC.
Anthony Wood hereby certifies that:
ONE: The date of filing the original Certificate of Incorporation of this company with the Secretary of State of the State of Delaware was February 1, 2008.
TWO: He is the duly elected and acting President and Chief Executive Officer of Roku, Inc., a Delaware corporation.
THREE: The Certificate of Incorporation of this company is hereby amended and restated to read as follows:
I.
The name of this company is Roku, Inc. (the Company or the Corporation).
II.
The address of the registered office of the Corporation in the State of Delaware is 251 Little Falls Drive, City of Wilmington, County of New Castle, 19808 and the name of the registered agent of the Corporation in the State of Delaware at such address is Corporation Service Company.
III.
The purpose of the Company is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law (DGCL).
IV.
A. The Company is authorized to issue three classes of stock to be designated, respectively, Class A Common Stock, Class B Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is 1,234,368,163 shares, 1,000,000,000 shares of which will be Class A Common Stock (the Class A Common Stock), 150,000,000 shares of which will be Class B Common Stock (the Class B Common Stock and together with the Class A Common Stock, the Common Stock) and 84,368,163 shares of which shall be Preferred Stock (the Preferred Stock). The Preferred Stock shall have a par value of $0.0001 per share and the Common Stock shall have a par value of $0.0001 per share.
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B. The number of authorized shares of Class A Common Stock or Class B Common Stock may be increased or decreased (but not below the number of shares of Class A Common Stock or Class B Common Stock then outstanding) by the affirmative vote of the holders of a majority of the stock of the Company entitled to vote (voting together as a single class on an as-if-converted basis).
C. The Preferred Stock may be issued from time to time in one or more series.
D. 23,020,000 of the authorized shares of Preferred Stock are hereby designated Series A Preferred Stock (the Series A Preferred).
E. 6,396,071 of the authorized shares of Preferred Stock are hereby designated Series B Preferred Stock (the Series B Preferred).
F. 9,240,560 of the authorized shares of Preferred Stock are hereby designated Series C-1 Preferred Stock (the Series C-1 Stock).
G. 8,950,467 of the authorized shares of Preferred Stock are hereby designated Series C-2 Preferred Stock (the Series C-2 Stock, and together with the Series C-1 Stock, the Series C Preferred).
H. 4,685,755 of the authorized shares of Preferred Stock are hereby designated Series D Preferred Stock (the Series D Preferred).
I. 11,160,733 of the authorized shares of Preferred Stock are hereby designated Series E Preferred Stock (the Series E Preferred).
J. 11,041,671 of the authorized shares of Preferred Stock are hereby designated Series F Preferred Stock (the Series F Preferred).
K. 3,206,239 of the authorized shares of Preferred Stock are hereby designated as Series G Preferred Stock (the Series G Preferred).
L. 6,666,667 of the authorized shares of Preferred Stock are hereby designated as Series H Preferred Stock (the Series H Preferred).
M. Upon the acceptance of this Amended and Restated Certificate of Incorporation (this Restated Certificate) for filing with the Secretary of State of the State of Delaware (the Effective Time):
1. Each share of Common Stock of the Company outstanding immediately prior to the Effective Time shall, without any further action by any stockholder, be reclassified as, and shall become, one share of Class B Common Stock. Any stock certificate that immediately prior to the Effective Time represented shares of the Companys Common Stock shall from and after the Effective Time be deemed to represent the same number of shares of Class B Common Stock, without the need for surrender or exchange thereof.
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2. Each six (6) shares of Common Stock issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent, be combined and converted into one (1) share of Common Stock of the Company. All shares of Common Stock (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Common Stock (after giving effect to the foregoing reverse stock split) as determined by the Companys Board of Directors (the Board ).
3. Each six (6) shares of Series A Preferred issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent, be combined and converted into one (1) share of Series A Preferred of the Company. All shares of Series A Preferred (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Series A Preferred (after giving effect to the foregoing reverse stock split) as determined by the Board.
4. Each six (6) shares of Series B Preferred issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent, be combined and converted into one (1) share of Series B Preferred of the Company. All shares of Series B Preferred (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Series B Preferred (after giving effect to the foregoing reverse stock split) as determined by the Board.
5. Each six (6) shares of Series C Preferred issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent, be combined and converted into one (1) share of Series C Preferred of the Company. All shares of Series C Preferred (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Series C Preferred (after giving effect to the foregoing reverse stock split) as determined by the Board.
6. Each six (6) shares of Series D Preferred issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent,
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be combined and converted into one (1) share of Series D Preferred of the Company. All shares of Series D Preferred (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Series D Preferred (after giving effect to the foregoing reverse stock split) as determined by the Board.
7. Each six (6) shares of Series E Preferred issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent, be combined and converted into one (1) share of Series E Preferred of the Company. All shares of Series E Preferred (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Series E Preferred (after giving effect to the foregoing reverse stock split) as determined by the Board.
8. Each six (6) shares of Series F Preferred issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent, be combined and converted into one (1) share of Series F Preferred of the Company. All shares of Series F Preferred (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Series F Preferred (after giving effect to the foregoing reverse stock split) as determined by the Board.
9. Each six (6) shares of Series G Preferred issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent, be combined and converted into one (1) share of Series G Preferred of the Company. All shares of Series G Preferred (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Series G Preferred (after giving effect to the foregoing reverse stock split) as determined by the Board.
10. Each six (6) shares of Series H Preferred issued and outstanding shall, automatically and without any action on the part of the respective holders thereof and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent, be combined and converted into one (1) share of Series H Preferred of the Company. All shares of Series H Preferred (including fractions thereof) held by a holder thereof shall be aggregated into the maximum number of resulting whole shares. For any remaining fraction of a share, the Company shall, in lieu of issuing a fractional share, pay cash to such holder equal to the product of such fraction multiplied by the fair market value of one share of Series H Preferred (after giving effect to the foregoing reverse stock split) as determined by the Board.
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N. The splits made pursuant to subsections 2-10 above are referred to herein as the Reverse Stock Split . Unless otherwise specifically noted in this Amended and Restated Certificate of Incorporation, all share numbers and prices per share have been adjusted to reflect the Reverse Stock Split.
O. The rights, preferences, privileges, restrictions and other matters relating to the Series A Preferred, Series B Preferred, Series C-1 Stock, Series C-2 Stock, Series D Preferred, Series E Preferred, Series F Preferred, Series G Preferred, and Series H Preferred (collectively, the Series Preferred) are as follows:
1. D IVIDEND R IGHTS .
(a) Subject to the right of any series of Preferred Stock that may from time to time come into existence, holders of Series Preferred, on a pari passu basis and in preference to the holders of Common Stock, shall be entitled to receive, when, as and if declared by the Board of Directors of the Company (the Board), but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of such series applicable Original Issue Price (as defined below) per annum on each outstanding share of Series Preferred. Such dividends shall be payable only when, as and if declared by the Board and shall be non-cumulative.
(b) The Original Issue Price of the Series A Preferred shall be $0.36312 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The Original Issue Price of the Series B Preferred shall be $0.938076 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The Original Issue Price of the Series C-1 Stock shall be $0.54109278 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The Original Issue Price of the Series C-2 Stock shall be $0.6493113 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The Original Issue Price of the Series D Preferred shall be $2.3784 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The Original Issue Price of the Series E Preferred shall be $4.35679248 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The Original Issue Price of the Series F Preferred shall be $5.43396 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The Original Issue Price of the Series G Preferred shall be $7.7973 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The Original Issue Price of the Series H Preferred shall be $9.1734 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof).
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(c) So long as any shares of Series Preferred are outstanding, the Company shall not pay or declare any dividend, whether in cash or property, or make any other distribution on the Common Stock, or purchase, redeem or otherwise acquire for value any shares of Common Stock until all dividends as set forth in Section 1(a) above on the Series Preferred shall have been paid or declared and set apart, except for:
(i) acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares at cost (or the lesser of cost or fair market value) upon termination of services to the Company;
(ii) acquisitions of Common Stock in exercise of the Companys right of first refusal to repurchase such shares; or
(iii) distributions to holders of Common Stock in accordance with Sections 3 and 4.
(d) In the event dividends are paid on any share of Common Stock, the Company shall pay an additional dividend on all outstanding shares of Series Preferred in a per share amount equal (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock.
(e) The provisions of Sections 1(c) and 1(d) shall not apply to a dividend payable solely in Common Stock to which the provisions of Section 5(f) hereof are applicable, or any repurchase of any outstanding securities of the Company that is approved by the Board.
(f) Repurchases of shares of Common Stock from stockholders upon termination of employment or service as a consultant or director may be made without regard to the preferential dividends arrears amount or any preferential rights amount (each as determined under applicable law).
2. V OTING R IGHTS .
(a) General Rights. Each holder of shares of the Series A Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred, the Series F Preferred, the Series G Preferred, and the Series H Preferred (collectively referred to herein as the Voting Preferred) shall be entitled to the number of votes equal to the number of shares of Class B Common Stock into which such shares of the Voting Preferred could be converted (pursuant to Section 5 hereof) immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent and shall have voting rights and powers equal to the voting rights and powers of the Class B Common Stock into which such shares are convertible and shall be entitled to notice of any stockholders meeting in accordance with the bylaws of the Company. Except as otherwise provided herein or as required by law, the Voting Preferred shall vote together with the Common Stock at any annual or special meeting of the stockholders and not as a separate class, and may act by written consent in the same manner as the Common Stock. Except as provided herein or as otherwise required by law, the Series B Preferred shall be nonvoting.
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(b) Election of Board of Directors.
(i) For so long as any shares of Series A Preferred remain outstanding, the holders of Series A Preferred, voting as a separate class, shall be entitled to elect two (2) members of the Board at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors.
(ii) For so long as any shares of Series C Preferred remain outstanding, the holders of Series C Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Board at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors.
(iii) For so long as any shares of Series D Preferred remain outstanding, the holders of Series D Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Board at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors.
(iv) For so long as any shares of Series E Preferred remain outstanding, the holders of Series E Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Board at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors.
(v) The holders of Common Stock and the Voting Preferred, voting together as a single class on an as-if-converted basis, shall be entitled to elect all remaining members of the Board at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors.
(vi) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled unless required by applicable law at the time of such election. During such time or times that applicable law requires cumulative voting, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder desires. No stockholder, however, shall be entitled to so cumulate such stockholders votes unless (A) the names of such candidate or candidates have been placed in nomination prior to the voting and (B) the stockholder has given notice at the meeting, prior to the voting, of such stockholders intention to cumulate such stockholders votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
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(vii) During such time or times that applicable law requires cumulative voting, one or more directors may be removed from office at any time without cause by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote for that director as provided above; provided, however , that unless the entire Board is removed, no individual director may be removed when the votes cast against such directors removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such directors most recent election were then being elected.
(c) Series B Preferred Protective Provisions . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least a majority of the then-outstanding Series B Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to take any of the following actions, including in each case by means of merger, consolidation or otherwise:
(i) Amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations) or the Bylaws or take any action that modifies any powers, rights, preferences or privileges of the Series B Preferred in a manner that affects the powers, rights, preferences or privileges of the Series B Preferred differently than the powers, rights, preferences or privileges of the Voting Preferred;
(ii) Redeem, repurchase, retire or acquire, directly or indirectly, any shares of capital stock of the Company other than: (A) the repurchase of capital stock by the Company permitted by Section 1(c)(i), (ii) and (iii) hereof; or (B) any redemption, repurchase, retirement or acquisition in connection with an Acquisition or Asset Transfer (as hereinafter defined).
(d) Series C Preferred Protective Provision . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least 66 2/3% of the then-outstanding Series C Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations) or take any other action in a manner that adversely affects the powers, rights, preferences or privileges of the Series C Preferred.
(e) Series D Preferred Protective Provision . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least a majority of the then-outstanding Series D Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations), whether directly or by amendment, merger or otherwise, or take any other action in a manner that adversely affects the powers, rights, preferences or privileges of the Series D Preferred differently than the powers, rights, preferences or privileges of any other series of Preferred Stock, including any amendment, modification, repeal or waiver of this Section 2(e).
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(f) Series E Protective Provisions . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least 66 2/3% of the then-outstanding Series E Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to take any of the following actions, including in each case by means of merger, consolidation or otherwise:
(i) Effect either (A) an Acquisition or Asset Transfer or (B) any voluntary dissolution or liquidation of the Company, in either case for a total aggregate consideration per share payable to the Series E Preferred equal to less than two (2) times the Original Issue Price of the Series E Preferred;
(ii) Create (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to the Series E Preferred;
(iii) Increase the authorized number of shares of Series E Preferred;
(iv) Amend, modify, add, repeal or waive any provision of this Section 2(f); or
(v) Amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations), whether directly or by amendment, merger or otherwise, in a manner that adversely affects the powers, rights, preferences or privileges of the Series E Preferred or take any other action in a manner that adversely affects the powers, rights, preferences or privileges of the Series E Preferred, provided, however , for the avoidance of doubt, the creation (by reclassification or otherwise) of any new class or series of shares having rights, preferences or privileges on a parity with the Series E Preferred shall not be considered an action that adversely affects powers, rights, preferences or privileges of the Series E Preferred.
(g) Series F Protective Provisions . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least 66 2/3% of the then-outstanding Series F Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to take any of the following actions, including in each case by means of merger, consolidation or otherwise:
(i) Effect either (A) an Acquisition or Asset Transfer or (B) any voluntary dissolution or liquidation of the Company, in either case for a total aggregate consideration per share payable to the Series F Preferred equal to less than the Original Issue Price of the Series F Preferred;
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(ii) Create (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to the Series F Preferred;
(iii) Amend, modify, add, repeal or waive any provision of this Section 2(g); or
(iv) Amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations), whether directly or by amendment, merger or otherwise, in a manner that adversely affects the powers, rights, preferences or privileges of the Series F Preferred or take any other action in a manner that adversely affects the powers, rights, preferences or privileges of the Series F Preferred, provided, however , for the avoidance of doubt, the creation (by reclassification or otherwise) of any new class or series of shares having rights, preferences or privileges on a parity with the Series F Preferred shall not be considered an action that adversely affects powers, rights, preferences or privileges of the Series F Preferred.
(h) Series G Protective Provisions . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least 66 2/3% of the then-outstanding Series G Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to take any of the following actions, including in each case by means of merger, consolidation or otherwise:
(i) Effect either (A) an Acquisition or Asset Transfer or (B) any voluntary dissolution or liquidation of the Company, in either case for a total aggregate consideration per share payable to the Series G Preferred equal to less than the Original Issue Price of the Series G Preferred;
(ii) Create (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to the Series G Preferred;
(iii) Amend, modify, add, repeal or waive any provision of this Section 2(h); or
(iv) Amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations), whether directly or by amendment, merger or otherwise, in a manner that adversely affects the powers, rights, preferences or privileges of the Series G Preferred or take any other action in a manner that adversely affects the powers, rights, preferences or privileges of the Series G Preferred, provided, however , for the avoidance of doubt, the creation (by reclassification or otherwise) of any new class or series of shares having rights, preferences or privileges on a parity with the Series G Preferred shall not be considered an action that affects powers, rights, preferences or privileges of the Series G Preferred.
(i) Series H Protective Provisions . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least 66 2/3% of the then-outstanding Series H Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to take any of the following actions, including in each case by means of merger, consolidation or otherwise:
(i) Effect either (A) an Acquisition or Asset Transfer or (B) any voluntary dissolution or liquidation of the Company, in either case for a total aggregate consideration per share payable to the Series H Preferred equal to less than the Original Issue Price of the Series H Preferred;
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(ii) Create (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to the Series H Preferred;
(iii) Amend, modify, add, repeal or waive any provision of this Section 2(i); or
(iv) Amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations), whether directly or by amendment, merger or otherwise, in a manner that adversely affects the powers, rights, preferences or privileges of the Series H Preferred or take any other action in a manner that adversely affects the powers, rights, preferences or privileges of the Series H Preferred, provided, however , for the avoidance of doubt, the creation (by reclassification or otherwise) of any new class or series of shares having rights, preferences or privileges on a parity with the Series H Preferred shall not be considered an action that affects powers, rights, preferences or privileges of the Series H Preferred.
(j) Series Protective Provision . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least a majority of the then-outstanding shares of a series of Preferred Stock, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations) or take any other action in a manner that adversely affects the powers, rights, preferences or privileges of such series of Preferred Stock differently than the powers, rights, preferences or privileges of any other series of Preferred Stock.
(k) Voting Preferred Protective Provisions .
(i) Majority Vote . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least a majority of the then-outstanding Voting Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to take any of the following actions, including in each case by means of merger, consolidation or otherwise:
(A) Amend, modify, add, repeal or waive any provision of this Amended and Restated Certificate of Incorporation (including any filing of a Certificate of Designations) or the Bylaws or take any action, whether by merger, consolidation or otherwise, that modifies any powers, rights, preferences or privileges of the Voting Preferred;
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(B) Redeem, repurchase, retire or acquire, directly or indirectly, any shares of capital stock of the Company (other than the repurchase of capital stock by the Company permitted by Section 1(c)(i), (ii) and (iii) and Section 1(e) hereof);
(C) Pay or declare any dividend on any shares of Common Stock or Preferred Stock (other than permitted by Section 1(c));
(D) Effect (A) an Acquisition or Asset Transfer or (B) any voluntary dissolution or liquidation of the Company;
(E) Increase or decrease in the authorized number of shares of Common Stock or Preferred Stock; or
(F) Create (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to or on a parity with the Preferred Stock.
(ii) 66 2/3% Vote . In addition to any other vote or consent required herein or by law, the vote or written consent of holders of at least 66 2/3% of the then-outstanding Voting Preferred, voting together as a single class on an as-if-converted basis, in the aggregate and given in writing or by vote at a meeting, and consenting or voting separately as a class, shall be required for the Company to take any of the following actions, including in each case by means of merger, consolidation or otherwise:
(A) Increase or decrease in the authorized number of members of the Board; or
(B) Amend, modify, add, repeal or waive any provision of Section 2(b) hereof, Section 2(k)(i) or this Section 2(k)(ii).
3. L IQUIDATION R IGHTS .
(a) Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary (a Liquidation Event), before any distribution or payment shall be made to the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred, Series G Preferred or Common Stock, subject to the right of any series of Preferred Stock that may from time to time come into existence, the holders of Series H Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution for each share of Series H Preferred held by them, on a pari passu basis, an amount per share of Series H Preferred equal to the Series H Preferred Original Issue Price, plus all declared and unpaid dividends on the Series H Preferred (the Series H Liquidation Preference). If, upon any such Liquidation Event, the assets of the Company shall be insufficient to make payment in full to all holders of Series H Preferred of the Series H Preferred Liquidation Preference set forth in this Section 3(a), then such assets (or consideration) shall be distributed among the holders of Series H Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled.
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(b) After payment of the full Series H Liquidation Preference as set forth in Section 3(a) above, before any distribution or payment shall be made to the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred or Common Stock, subject to the right of any series of Preferred Stock that may from time to time come into existence, the holders of Series G Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution for each share of Series G Preferred held by them, on a pari passu basis, an amount per share of Series G Preferred equal to the Series G Preferred Original Issue Price plus all declared and unpaid dividends on the Series G Preferred (the Series G Liquidation Preference). If, upon any such Liquidation Event, the assets of the Company shall be insufficient to make payment in full to all holders of Series G Preferred of the Series G Preferred Liquidation Preference set forth in this Section 3(b), then such assets (or consideration) shall be distributed among the holders of Series G Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled.
(c) After payment of the full Series H Liquidation Preference and Series G Liquidation Preference as set forth in Sections 3(a) and 3(b) above, before any distribution or payment shall be made to the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Common Stock, subject to the right of any series of Preferred Stock that may from time to time come into existence, the holders of Series F Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution for each share of Series F Preferred held by them, on a pari passu basis, an amount per share of Series F Preferred equal to the Series F Preferred Original Issue Price plus all declared and unpaid dividends on the Series F Preferred (the Series F Liquidation Preference). If, upon any such Liquidation Event, the assets of the Company shall be insufficient to make payment in full to all holders of Series F Preferred of the Series F Preferred Liquidation Preference set forth in this Section 3(c), then such assets (or consideration) shall be distributed among the holders of Series F Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled.
(d) After the payment of the full Series H Liquidation Preference, Series G Liquidation Preference and Series F Liquidation Preference as set forth in Sections 3(a), 3(b) and 3(c) above, before any distribution or payment shall be made to the holders of any Common Stock, subject to the right of any series of Preferred Stock that may from time to time come into existence, the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, and Series E Preferred (collectively, the Junior Preferred Stock) shall be entitled to be paid out of the assets of the Company legally available for distribution for each share of Junior Preferred Stock held by them, on a pari passu basis, an amount per share of Junior Preferred Stock equal to the applicable Original Issue Price plus all declared and unpaid dividends on the Junior Preferred Stock (the Junior Preferred Liquidation Preference). If, upon any such Liquidation Event, the assets of the Company shall be insufficient to make payment in full to all holders of Junior Preferred Stock of the Junior Preferred Liquidation Preference set forth in this Section 3(e), then such assets (or consideration) shall be distributed among the holders of Junior Preferred Stock at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled.
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(e) After the payment of the full Series H Liquidation Preference, Series G Liquidation Preference, Series F Liquidation Preference and the Junior Preferred Liquidation Preference as set forth in Sections 3(a), 3(b), 3(c) and 3(d) above, and any other distribution that may be required with respect to any series of Preferred Stock that may from time to time come into existence, the remaining assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock and Series Preferred on an as-if-converted to Common Stock basis.
(f) In the event of a Liquidation Event, Acquisition or Asset Transfer, if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the Additional Consideration), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the Initial Consideration) shall be allocated among the holders of capital stock of the Corporation in accordance with this Section 3 as if the Initial Consideration were the only consideration payable in connection with such Liquidation Event, Acquisition or Asset Transfer and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with this Section 3 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the avoidance of doubt, for the purposes of this Section 3(g), consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Liquidation Event, Acquisition or Asset Transfer shall be deemed to be Additional Consideration.
4. A SSET T RANSFER OR A CQUISITION R IGHTS .
(a) In the event that the Company is a party to an Acquisition or Asset Transfer (as hereinafter defined), then each holder of Series Preferred shall be entitled to receive, for each share of Series Preferred then held, out of the proceeds of such Acquisition or Asset Transfer, the amount of cash, securities or other property to which such holder would be entitled to receive in a Liquidation Event pursuant to Sections 3(a), 3(b), 3(c), 3(d) and 3(e) above.
(b) For the purposes of this Amended and Restated Certificate of Incorporation: (i) Acquisition shall mean (A) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, continue to hold a majority of the voting power of the surviving entity in substantially the same proportions (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization; or (B) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Companys voting power is transferred; provided that an Acquisition shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof; and (ii) Asset Transfer shall mean a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company.
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(c) In any Acquisition or Asset Transfer, if the consideration to be received is securities of a corporation or other property other than cash, its value will be deemed its fair market value as determined in good faith by the Board on the date such determination is made. Any securities shall be valued as follows:
(i) The value of securities not subject to investment letter or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a stockholders status as an affiliate or former affiliate) shall be:
(A) if traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty (30) day period (or portion thereof) ending three (3) days prior to the closing;
(B) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period (or portion thereof) ending three (3) days prior to the closing; and
(C) if there is no active public market, the value shall be the fair market value thereof, as determined by the Board.
(d) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholders status as an affiliate or former affiliate) shall be to make an appropriate discount from the value determined as above in Article IV.M.4(c)(i) above to reflect the approximate fair market value thereof, as determined by the Board.
(e) In the event the requirements of Article IV.M.4 are not complied with, this Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the requirements of this Article IV.M.4 have been complied with; or
(ii) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series Preferred shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Article IV.M.5(j) hereof.
5. C ONVERSION R IGHTS .
The Series Preferred shall be convertible only into shares of Class B Common Stock and references to conversion to Common Stock in this Section 5 shall refer to Class B Common Stock in the case of the Series Preferred. The holders of the Series Preferred shall have the following rights with respect to the conversion of the Series Preferred into shares of Class B Common Stock, as applicable (the Conversion Rights):
(a) Optional Conversion. Subject to and in compliance with the provisions of this Section 5, any shares of Series Preferred may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock. The number
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of shares of Common Stock to which a holder of Series Preferred shall be entitled upon conversion shall be the product obtained by multiplying the applicable Series Preferred Conversion Rate then in effect (determined as provided in Section 5(b)) by the number of shares, as applicable, of Series Preferred being converted.
(b) Series Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series Preferred (the Series Preferred Conversion Rate) shall be the quotient obtained by dividing the applicable Original Issue Price of the Series Preferred by the applicable Series Preferred Conversion Price, calculated as provided in Section 5(c).
(c) Series Preferred Conversion Price. The conversion price for each series of the Series Preferred shall initially be the applicable Original Issue Price of the Series Preferred (the Series Preferred Conversion Price). Such initial Series Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 5. All references to the Series Preferred Conversion Price herein shall mean the Series Preferred Conversion Price as so adjusted.
(d) Mechanics of Conversion. Each holder of Series Preferred who desires to convert the same into shares of Common Stock pursuant to this Section 5 shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Series Preferred, and shall give written notice to the Company at such office that such holder elects to convert the same. Such notice shall state the number of shares of Series Preferred being converted. Thereupon, the Company 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 and shall promptly pay (i) in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stocks fair market value determined by the Board as of the date of such conversion), any declared and unpaid dividends on the shares of Series Preferred being converted and (ii) in cash (at the Common Stocks fair market value determined by the Board as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Series Preferred. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of Series Preferred 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.
(e) Adjustment for Stock Splits and Combinations. If at any time or from time to time on or after the date that the first share of Series H Preferred is issued (the Original Issue Date) the Company effects a subdivision of the outstanding Common Stock, the applicable Series Preferred Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if at any time or from time to time after the Original Issue Date the Company combines the outstanding shares of Common Stock into a smaller number of shares, the applicable Series Preferred Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 5(e) shall become effective at the close of business on the date the subdivision or combination becomes effective.
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(f) Adjustment for Common Stock Dividends and Distributions. If at any time or from time to time on or after the Original Issue Date the Company pays to holders of Common Stock a dividend or other distribution in additional shares of Common Stock, the applicable Series Preferred Conversion Price then in effect shall be decreased as of the time of such issuance, as provided below:
(i) The applicable Series Preferred Conversion Price shall be adjusted by multiplying the applicable Series Preferred Conversion Price then in effect by a fraction equal to:
(A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance, and
(B) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution;
(ii) If the Company fixes a record date to determine which holders of Common Stock are entitled to receive such dividend or other distribution, the applicable Series Preferred Conversion Price shall be fixed as of the close of business on such record date and the number of shares of Common Stock shall be calculated immediately prior to the close of business on such record date; and
(iii) If such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable Series Preferred Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Series Preferred Conversion Price shall be adjusted pursuant to this Section 5(f) to reflect the actual payment of such dividend or distribution.
(g) Adjustment for Reclassification, Exchange, Substitution, Reorganization, Merger or Consolidation. If at any time or from time to time on or after the Original Issue Date the Common Stock issuable upon the conversion of the Series Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, merger, consolidation or otherwise (other than an Acquisition or Asset Transfer as defined in Section 4 or a subdivision or combination of shares or stock dividend provided for elsewhere in this Section 5), in any such event each holder of Series Preferred shall then have the right to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, merger, consolidation or other change by holders of the maximum number of shares of Common Stock into which such shares of Series Preferred could have been converted immediately prior to such recapitalization, reclassification, merger, consolidation or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of Series Preferred after the capital reorganization to the end that the provisions of this Section 5 (including adjustment of the applicable Series Preferred Conversion Price then in effect and the number of shares issuable upon conversion of the Series Preferred) shall be applicable after that event and be as nearly equivalent as practicable.
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(h) Sale of Shares Below Series Preferred Conversion Price.
(i) If at any time or from time to time on or after the Original Issue Date the Company issues or sells, or is deemed by the express provisions of this Section 5(h) to have issued or sold, Additional Shares of Common Stock (as defined below), other than as provided in Section 5(e), 5(f) or 5(g) above, for an Effective Price (as defined below) less than the then-effective applicable Series Preferred Conversion Price (a Qualifying Dilutive Issuance), then and in each such case, the then existing applicable Series Preferred Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the applicable Series Preferred Conversion Price in effect immediately prior to such issuance or sale by a fraction equal to:
(A) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the Aggregate Consideration (as defined below) received or deemed received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such then-existing applicable Series Preferred Conversion Price, and
(B) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued.
For the purposes of this Section 5(h)(i), the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock outstanding, (B) the number of shares of Common Stock into which the then outstanding shares of Series Preferred could be converted if fully converted on the day immediately preceding the given date, and (C) the number of shares of Common Stock which are issuable upon the exercise or conversion of all other rights, options and convertible securities outstanding on the day immediately preceding the given date.
(ii) No adjustment shall be made to the applicable Series Preferred Conversion Price in an amount less than $0.00000001 per share. Any adjustment required by this Section 5(h) shall be rounded to the nearest $0.00000001 per share. Any adjustment otherwise required by this Section 5(h) that is not required to be made due to the preceding two sentences shall be included in any subsequent adjustment to the applicable Series Preferred Conversion Price.
(iii) For the purpose of making any adjustment required under this Section 5(h), the aggregate consideration received by the Company for any issue or sale of securities (the Aggregate Consideration) shall be defined as: (A) to the extent it consists of cash, be computed at the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable
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by the Company, (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 (as defined below) 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 Company 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.
(iv) For the purpose of the adjustment required under this Section 5(h), if the Company issues or sells (x) Preferred Stock or other stock, options, warrants, purchase rights or other securities exercisable for or convertible into, Additional Shares of Common Stock (such convertible stock or securities being herein referred to as Convertible Securities) or (y) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such Additional Shares of Common Stock is less than the applicable Series Preferred Conversion Price, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities plus:
(A) in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options; and
(B) in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses.
(C) If the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further, that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities.
(D) No further adjustment of the applicable Series Preferred Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock or the exercise of any such rights or options or the conversion of any such Convertible
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Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the applicable Series Preferred Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the applicable Series Preferred Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Series Preferred.
(v) For the purpose of making any adjustment to the Conversion Price of the Series Preferred required under this Section 5(h), Additional Shares of Common Stock shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 5(h) (including shares of Common Stock subsequently reacquired or retired by the Company), other than:
(A) shares of Common Stock issued upon conversion of the Series Preferred;
(B) up to one hundred ninety-nine million fifty-nine thousand five hundred eighty-six (199,059,586) shares of Class B Common Stock and/or options, warrants or other Class B Common Stock purchase rights and the Common Stock issued pursuant to such options, warrants or other rights (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the filing date hereof) after the Original Issue Date to employees, officers or directors of, or consultants or advisors to, the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board; provided, however , that such amount shall be increased to reflect any shares of Class B Common Stock (i) not issued pursuant to the rights, agreements, option or warrants (Unexercised Options) as a result of the termination of such Unexercised Options or (ii) reacquired by the Company from employees, directors or consultants at cost (or the lesser of cost or fair market value) pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company;
(C) shares of Common Stock issued pursuant to the exercise of Convertible Securities outstanding as of the Original Issue Date;
(D) shares of Common Stock or Convertible Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition, strategic alliance or similar business combination approved by the Board;
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(E) shares of Common Stock or Convertible Securities issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution approved by the Board;
(F) shares of Common Stock or Convertible Securities issued to third-party service providers in exchange for or as partial consideration for services rendered to the Company as approved by the Board;
(G) any Common Stock or Convertible Securities issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, manufacturing, marketing or distribution arrangements or (ii) technology transfer or development arrangements; provided that the issuance of shares therein has been approved by the Board; and
(H) shares of Common Stock or Convertible Securities issued pursuant to Section 5(k)(ii) below.
References to Common Stock in the subsections of this clause (v) above shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 5(h). 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 Company under this Section 5(h), into the Aggregate Consideration received, or deemed to have been received by the Company for such issue under this Section 5(h), for such Additional Shares of Common Stock. In the event that the number of shares of Additional Shares of Common Stock or the Effective Price cannot be ascertained at the time of issuance, such Additional Shares of Common Stock shall be deemed issued immediately upon the occurrence of the first event that makes such number of shares or the Effective Price, as applicable, ascertainable.
(vi) In the event that the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock in a Qualifying Dilutive Issuance (the First Dilutive Issuance), then in the event that the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock in a Qualifying Dilutive Issuance other than the First Dilutive Issuance as a part of the same transaction or series of related transactions as the First Dilutive Issuance (a Subsequent Dilutive Issuance), then and in each such case upon a Subsequent Dilutive Issuance the applicable Series Preferred Conversion Price shall be reduced to the applicable Series Preferred Conversion Price that would have been in effect had the First Dilutive Issuance and each Subsequent Dilutive Issuance all occurred on the closing date of the First Dilutive Issuance.
(vii) Notwithstanding anything to the contrary contained herein, any downward adjustment of the Series Preferred Conversion Price of the Series D Preferred may be waived, either prospectively or retroactively and either generally or in a particular instance, only with the vote or written consent of holders of at least a majority of the then-outstanding shares of Series D Preferred Stock, voting together as a single class on an as-if-converted basis.
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(viii) Notwithstanding anything to the contrary contained herein, any downward adjustment of the Series Preferred Conversion Price of the Series E Preferred may be waived, either prospectively or retroactively and either generally or in a particular instance, only with the vote or written consent of holders of at least 66 2/3% of the then-outstanding shares of Series E Preferred Stock, voting together as a single class on an as-if-converted basis.
(ix) Notwithstanding anything to the contrary contained herein, any downward adjustment of the Series Preferred Conversion Price of the Series F Preferred may be waived, either prospectively or retroactively and either generally or in a particular instance, only with the vote or written consent of holders of at least 66 2/3% of the then-outstanding shares of Series F Preferred Stock, voting together as a single class on an as-if-converted basis.
(x) Notwithstanding anything to the contrary contained herein, any downward adjustment of the Series Preferred Conversion Price of the Series G Preferred may be waived, either prospectively or retroactively and either generally or in a particular instance, only with the vote or written consent of holders of at least 66 2/3% of the then-outstanding shares of Series G Preferred Stock, voting together as a single class on an as-if-converted basis
(xi) Notwithstanding anything to the contrary contained herein, any downward adjustment of the Series Preferred Conversion Price of the Series H Preferred may be waived, either prospectively or retroactively and either generally or in a particular instance, only with the vote or written consent of holders of at least 66 2/3% of the then-outstanding shares of Series H Preferred Stock, voting together as a single class on an as-if-converted basis.
(i) Certificate of Adjustment. In each case of an adjustment or readjustment of the applicable Series Preferred Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Series Preferred, if the Series Preferred is then convertible pursuant to this Section 5, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and shall, upon request, 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 Preferred so requesting at the holders address as shown in the Companys books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (ii) the applicable Series Preferred Conversion Price at the time in effect, (iii) the number of Additional Shares of Common Stock and (iv) the type and amount, if any, of other property which at the time would be received upon conversion of the Series Preferred. Failure to request or provide such notice shall have no effect on any such adjustment.
(j) Notices of Record Date. Upon (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition (as defined in Section 4) or other capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the
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Company with or into any other corporation, or any Asset Transfer (as defined in Section 4), or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of Series Preferred at least ten (10) days prior to (x) the record date, if any, specified therein; or (y) if no record date is specified, the date upon which such action is to take effect (or, in either case, such shorter period approved by the holders of a majority of the outstanding Series Preferred) a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up.
(k) Automatic Conversion.
(i) Each share of Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred (together the Prior Preferred) shall automatically be converted into shares of Class B Common Stock, based on the then-effective applicable Series Preferred Conversion Price, upon the earlier of (A) at any time upon the affirmative election of the holders of at least a majority of the outstanding shares of the Prior Preferred, voting together as a single class on an as-if-converted basis, or (B) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Class A Common Stock or Class B Common Stock for the account of the Company in which gross cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least $80,000,000 (a Qualified IPO). Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 5(d).
(ii) Each share of Series E Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series Preferred Conversion Price of the Series E Preferred or based on the calculation described in item (B) below, upon the earlier of (A) at any time upon the affirmative election of the holders of at least 66 2/3% of the outstanding shares of the Series E Preferred, voting together as a single class on an as-if-converted basis, or (B) immediately upon the closing of a Qualified IPO, provided, however , if the offering price to the public in the Qualified IPO per share of Common Stock is equal to less than two (2) times the then-effective Series Preferred Conversion Price of the Series E Preferred, then upon the closing of the Qualified IPO, each share of Series E Preferred shall automatically be converted into the number of shares of Common Stock with a value, based on the offering price to the public, of two (2) times the then-effective Series Preferred Conversion Price of the Series E Preferred. Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 5(d).
(iii) Each share of Series F Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series Preferred Conversion Price of the Series F Preferred, at any time, upon the earlier of (A) the affirmative
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election of the holders of at least 66 2/3% of the outstanding shares of the Series F Preferred, voting together as a single class on an as-if-converted basis or (B) the closing of a Qualified IPO where the offering price to the public is at least equal to the then applicable Series Preferred Conversion Price of the Series F Preferred. Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 5(d).
(iv) Each share of Series G Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series Preferred Conversion Price of the Series G Preferred, at any time, upon the earlier of (A) the affirmative election of the holders of at least 66 2/3% of the outstanding shares of the Series G Preferred, voting together as a single class on an as-if-converted basis or (B) the closing of a Qualified IPO where the offering price to the public is at least equal to the then applicable Series Preferred Conversion Price of the Series G Preferred. Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 5(d).
(v) Each share of Series H Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series Preferred Conversion Price of the Series H Preferred, at any time, upon the earlier of (A) the affirmative election of the holders of at least 66 2/3% of the outstanding shares of the Series H Preferred, voting together as a single class on an as-if-converted basis or (B) the closing of a Qualified IPO where the offering price to the public is at least equal to the then applicable Series Preferred Conversion Price of the Series H Preferred. Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 5(d).
(vi) Upon the occurrence of any of the events specified in Sections 5(k)(i), 5(k)(ii), 5(k)(iii), 5(k)(iv) or 5(k)(v) above, the outstanding shares of such series of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however , that the Company 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 Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. 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 Series Preferred surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section 5(d).
(l) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the
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issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock (as determined by the Board) on the date of conversion.
(m) Reservation of Stock Issuable Upon Conversion. The Company 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 Preferred, 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 Preferred. 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 Preferred, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
(n) Notices. Any notice required by the provisions of this Section 5 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company.
(o) Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series Preferred so converted were registered.
6. N O R EISSUANCE O F S ERIES P REFERRED .
No share or shares of Series Preferred acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued.
P. Except as provided above, the rights, preferences, privileges, restrictions and other matters relating to the Class A Common Stock and Class B Common Stock are as follows:
1. Definitions. For purposes of this Article IV.N, the following definitions shall apply:
(a) Family Member shall mean with respect to any Qualified Stockholder who is a natural person, the spouse, parents, grandparents, lineal descendants, siblings and lineal descendants of siblings (in each case whether by blood relation or adoption) of such Qualified Stockholder.
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(b) Final Conversion Date means 5:00 p.m. in New York City, New York on the earlier to occur following the IPO of (i) the first Trading Day falling on or after the date on which the outstanding shares of Class B Common Stock represent less than ten percent (10%) of the aggregate number of shares of the then outstanding Class A Common Stock and Class B Common Stock or (ii) the date specified by affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Class B Common Stock, voting as a single class.
(c) Founder means Anthony Wood.
(d) IPO means the Companys first firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Class A Common Stock where the Class A Common Stock and Class B Common Stock are each a covered security as described in Section 18(b) of the Securities Act of 1933, as amended.
(e) Permitted Entity shall mean, with respect to a Qualified Stockholder , any corporation, partnership or limited liability company in which such Qualified Stockholder directly, or indirectly through one or more Permitted Transferees, owns shares, partnership interests or membership interests, as applicable, with sufficient Voting Control in the corporation, partnership or limited liability company, as the case may be, or otherwise has legally enforceable rights, such that the Qualified Stockholder retains sole dispositive power and exclusive Voting Control with respect to all shares of Class B Common Stock held of record by such corporation, partnership or limited liability company, as the case may be.
(f) Permitted Transfer shall mean, and be restricted to, any Transfer of a share of Class B Common Stock:
(i) by a Qualified Stockholder that is a natural person, to the trustee of a Permitted Trust of such Qualified Stockholder;
(ii) by a Permitted Trust of a Qualified Stockholder, to the Qualified Stockholder or the trustee of any other Permitted Trust of such Qualified Stockholder;
(iii) by a Qualified Stockholder to any Permitted Entity of such Qualified Stockholder; or
(iv) by a Permitted Entity of a Qualified Stockholder to the Qualified Stockholder or 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 for the benefit of a Qualified Stockholder or Family Members of the Qualified Stockholder, if such Transfer does not involve any payment of cash, securities, property or other consideration (other than an interest in such trust) to the Qualified Stockholder, a trust under the terms of which such Qualified Stockholder has retained a qualified interest within the meaning of §2702(b)(1) of
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the Internal Revenue Code and/or a reversionary interest, in each case so long as the Qualified Stockholder has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust.
(i) Qualified Stockholder shall mean (i) the registered holder of a share of Class B Common Stock immediately prior to the IPO; (ii) the initial registered holder of any shares of Class B Common Stock that are originally issued by the Company after the IPO (including, without limitation, upon conversion of the Series Preferred or upon exercise of options or warrants); and (iii) a Permitted Transferee.
(j) 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 Article IV:
(i) the granting of a revocable proxy to officers or directors of the Company 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 Company, (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;
(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; or
(iv) entering into a support or similar voting agreement (with or without granting a proxy) in connection with a Liquidation Event, Acquisition or Asset Transfer.
A Transfer shall also be deemed to have occurred with respect to a share of Class B Common Stock beneficially held by (i) a Permitted Transferee on the date that such Permitted Transferee ceases to meet the qualifications to be a Permitted Transferee of the Qualified Stockholder who effected the Transfer of such shares to such Permitted Transferee, or (ii) an entity that is a Qualified Stockholder, if there occurs a Transfer on a cumulative basis, from and
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after the acceptance of this Amended and Restated Certificate of Incorporation for filing with the Secretary of State of the State of Delaware (the Effective Time), of a majority of the voting 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, as of the Effective Time, holders of voting securities of any such entity or Parent of such entity. 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.
(k) 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.
2. Rights Relating To Dividends, Subdivisions and Combinations.
(a) Subject to the prior rights of holders of all classes and series of stock at the time outstanding having prior rights as to dividends, the holders of the Class A Common Stock and Class B Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Company legally available therefor, such dividends as may be declared from time to time by the Board. Any dividends paid to the holders of shares of Class A Common Stock and Class B Common Stock shall be paid pro rata, on an equal priority, pari passu basis, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of the applicable class of Common Stock treated adversely, voting separately as a class.
(b) The Company shall not declare or pay any dividend or make any other distribution to the holders of Class A Common Stock or Class B Common Stock payable in securities of the Company unless the same dividend or distribution with the same record date and payment date shall be declared and paid on all shares of Common Stock; provided, however, that (i) dividends or other distributions payable in shares of Class A Common Stock or rights to acquire shares of Class A Common Stock may be declared and paid to the holders of Class A Common Stock without the same dividend or distribution being declared and paid to the holders of the Class B Common Stock if, and only if, a dividend payable in shares of Class B Common Stock, or rights to acquire shares of Class B Common Stock, as applicable, are declared and paid to the holders of Class B Common Stock at the same rate and with the same record date and payment date; and (ii) dividends or other distributions payable in shares of Class B Common Stock or rights to acquire shares Class B Common Stock may be declared and paid to the holders of Class B Common Stock without the same dividend or distribution being declared and paid to the holders of the Class A Common Stock if, and only if, a dividend payable in shares of Class A Common Stock, or rights to acquire shares of Class A Common Stock, as applicable, are declared and paid to the holders of Class A Common Stock at the same rate and with the same record date and payment date.
(c) If the Company in any manner subdivides or combines the outstanding shares of Class A Common Stock or Class B Common Stock, then the outstanding shares of all Common Stock will be subdivided or combined in the same proportion and manner.
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3. Voting Rights.
(a) Class A Common Stock. Each holder of shares of Class A Common Stock shall be entitled to one (1) vote for each share thereof held.
(b) Class B Common Stock. Each holder of shares of Class B Common Stock shall be entitled to ten (10) votes for each share thereof held.
(c) Class B Common Stock Protective Provisions. Following the IPO, so long as any shares of Class B Common Stock remain outstanding, the Company shall not, without the approval by vote or written consent of the holders of a majority of the voting power of the Class B Common Stock then outstanding, voting together as a single class, directly or indirectly, or whether by amendment, or through merger, recapitalization, consolidation or otherwise:
(i) amend, alter, or repeal any provision of this Amended and Restated Certificate of Incorporation or the Bylaws of the Company (including any filing of a Certificate of Designation), that modifies the voting, conversion or other powers, preferences, or other special rights or privileges, or restrictions of the Class B Common Stock; or
(ii) reclassify any outstanding shares of Class A Common Stock of the Company into shares having rights as to dividends or liquidation that are senior to the Class B Common Stock or the right to more than one (1) vote for each share thereof.
(d) General. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock, Class A Common Stock and Class B Common Stock shall vote together and not as separate series or classes.
4. Liquidation Rights.
In the event of a Liquidation Event, Acquisition or Asset Transfer, and subject to Article IV.N.3 of this Certificate of Incorporation, the assets distributed to the Common Stock shall be distributed on an equal priority, pro rata basis to the holders of Class A Common Stock and Class B Common Stock, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class; provided, however , for the avoidance of doubt, compensation pursuant to any employment, consulting, severance or other compensatory arrangement to be paid to or received by a person who is also a holder of Class A Common Stock or Class B Common Stock does not constitute consideration or a distribution to stockholders in respect of the Class A Common Stock or Class B Common Stock.
5. Optional Conversion.
(a) Optional Conversion of the Class B Common Stock.
(i) At the option of the holder thereof, each share of Class B Common Stock shall be convertible, at any time or from time to time following the closing of the IPO, into one fully paid and nonassessable share of Class A Common Stock as provided herein.
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(ii) Each holder of Class B Common Stock who elects to convert the same into shares of Class A Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Class B Common Stock, and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein the number of shares of Class B Common Stock being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Class A 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 Class B Common Stock to be converted, and the person entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Class A Common Stock on such date. If a conversion election under this Section 5(a)(ii) is made in connection with an underwritten public offering of the Companys securities pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of the holder tendering shares of Class B Common Stock for conversion, be conditioned upon the closing with the underwriters of the sale of the Companys securities pursuant to such offering, in which event the holders making such elections who are entitled to receive Class A Common Stock upon conversion of their Class B Common Stock shall not be deemed to have converted such shares of Class B Common Stock until immediately after to the closing of such sale of the Companys securities in the offering.
6. Automatic Conversion.
(a) Automatic Conversion of the Class B Common Stock. Following the closing of the IPO, each share of Class B Common Stock shall automatically be converted into one fully paid and nonassessable share of Class A Common Stock upon a Transfer, other than a Permitted Transfer, of such share of Class B Common Stock. Such conversion shall occur 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 Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Class A Common Stock issuable upon such conversion unless the certificates evidencing such shares of Class B Common Stock are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Class B Common Stock, the holders of Class B Common Stock so converted shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Class A 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 Class A Common Stock into which the shares of Class B Common Stock surrendered were convertible on the date on which such automatic conversion occurred.
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(b) Conversion Upon Death. At any time following the closing of the IPO, each share of Class B Common Stock held of record by a natural person, other than a Founder or a Permitted Transferee of such Founder, shall automatically, without any further action, convert into one fully paid and nonassessable share of Class A Common Stock upon the death of such stockholder. At any time following the closing of the IPO, each share of Class B Common Stock held of record by a Founder or a Permitted Transferee of such Founder shall automatically, without any further action, convert into one fully paid and nonassessable share of Class A Common Stock nine (9) months after the date of the death of such Founder.
7. Final Conversion. On the Final Conversion Date, each one (1) issued share of Class B Common Stock shall automatically, without any further action, convert into one (1) share of Class A Common Stock. Following the Final Conversion Date, the Company may no longer issue any additional shares of Class B Common Stock.
8. Reservation of Stock Issuable Upon Conversion.
The Company shall at all times following the closing of the IPO reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of the Class B Common Stock, as applicable, such number of its shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock; and if at any time following the closing of the IPO the number of authorized but 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, as applicable, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Class A Common Stock to such numbers of shares as shall be sufficient for such purpose.
V.
A. The liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent under applicable law.
B. To the fullest extent permitted by applicable law, the Company is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Company (and any other persons to which applicable law permits the Company 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 such applicable law. If applicable law is amended after approval by the stockholders of this Article V to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director to the Company shall be eliminated or limited to the fullest extent permitted by applicable law as so amended.
C. Any repeal or modification of this Article V shall only be prospective and shall not affect the rights under this Article V in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability.
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D. The Company renounces, to the fullest extent permitted by law, any interest or expectancy of the Company in, or in being offered an opportunity to participate in, any Excluded Opportunity. An Excluded Opportunity is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Company who is not an employee of the Company or any of its subsidiaries or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries, (collectively, Covered Persons), unless in either case such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Persons capacity as a director of the Company.
VI.
For the management of the business and for the conduct of the affairs of the Company, and in further definition, limitation and regulation of the powers of the Company, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the Company shall be vested in its Board. The number of directors which shall constitute the whole Board shall be fixed by the Board in the manner provided in the Bylaws, subject to any restrictions which may be set forth in this Amended and Restated Certificate of Incorporation.
B. The Board is expressly empowered to adopt, amend or repeal the Bylaws of the Company, subject to any restrictions that may be set forth in this Amended and Restated Certificate of Incorporation. The stockholders shall also have the power to adopt, amend or repeal the Bylaws of the Company, subject to any restrictions that may be set forth in this Amended and Restated Certificate of Incorporation; provided, however , that, in addition to any vote of the holders of any class or series of stock of the Company required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Company.
C. The directors of the Company need not be elected by written ballot unless the Bylaws so provide.
D. Unless the Company consents in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Company to the Company or the Companys stockholders, (iii) any action asserting a claim arising under any provision of the Delaware General Corporation Law, the certificate of incorporation, or the bylaws of the Company, or (iv) any action asserting a claim governed by the internal-affairs doctrine. Any person or entity that acquires any interest in shares of capital stock of the Company will be deemed to have notice of and consented to the provisions of this section.
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E. Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in any security of the Corporation shall be deemed to have notice of and consented to the provisions of this Amended and Restated Certificate of Incorporation..
* * * *
FOUR: This Amended and Restated Certificate of Incorporation has been duly approved by the Board.
FIVE: This Amended and Restated Certificate of Incorporation was approved by the holders of the requisite number of shares of said Corporation in accordance with Section 228 of the DGCL. This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL by the stockholders of the Company.
[Signature Page Follows]
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I N W ITNESS W HEREOF , Roku, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by its President and Chief Executive Officer this 15 th day of September, 2017.
R OKU , I NC . | ||
Signature: | /s/ Anthony Wood | |
Print Name: Anthony Wood | ||
Title: President and Chief Executive Officer |
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROKU, INC.
Anthony Wood hereby certifies that:
ONE: The date of filing the original Certificate of Incorporation of this company with the Secretary of State of the State of Delaware was February 1, 2008.
TWO: He is the duly elected and acting President and Chief Executive Officer of Roku, Inc., a Delaware corporation.
THREE: The Certificate of Incorporation of this company is hereby amended and restated to read as follows:
I.
The name of this company is Roku, Inc. (the Company or the Corporation).
II.
The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, 19808 and the name of the registered agent of the Corporation in the State of Delaware at such address is Corporation Service Company.
III.
The purpose of the Company is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law (DGCL).
IV.
A. The Company is authorized to issue three classes of stock to be designated, respectively, Class A Common Stock, Class B Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is 1,160,000,000 shares, 1,000,000,000 shares of which will be Class A Common Stock (the Class A Common Stock), 150,000,000 shares of which will be Class B Common Stock (the Class B Common Stock and together with the Class A Common Stock, the Common Stock) and 10,000,000 shares of which shall be Preferred Stock (the Preferred Stock). The Preferred Stock shall have a par value of $0.0001 per share and the Common Stock shall have a par value of $0.0001 per share.
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B. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Company is hereby expressly authorized to provide for the issue of all or any of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. The Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.
C. The number of authorized shares of Preferred Stock, Class A Common Stock or 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 a majority of the voting power of all of the outstanding shares of stock of the Company entitled to vote thereon, without a separate vote of the holders of the Preferred Stock, or of any series thereof, Class A Common Stock or Class B Common Stock unless a vote of any such holders is required pursuant to the terms of any Certificate of Designation filed with respect to any series of Preferred Stock.
D. Except as provided above, the rights, preferences, privileges, restrictions and other matters relating to the Class A Common Stock and Class B Common Stock are as follows:
1. Definitions. For purposes of this Amended and Restated Certificate of Incorporation, the following definitions shall apply:
(a) Acquisition shall mean (A) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, continue to hold a majority of the voting power of the surviving entity in substantially the same proportions (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization; or (B) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Companys voting power is transferred; provided that an Acquisition shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof.
(b) Asset Transfer shall mean a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company.
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(c) Family Member shall mean with respect to any Qualified Stockholder who is a natural person, the spouse, parents, grandparents, lineal descendants, siblings and lineal descendants of siblings (in each case whether by blood relation or adoption) of such Qualified Stockholder.
(d) Final Conversion Date means 5:00 p.m. in New York City, New York on the earlier to occur following the IPO of (i) the first Trading Day falling on or after the date on which the outstanding shares of Class B Common Stock represent less than ten percent (10%) of the aggregate number of shares of the then outstanding Class A Common Stock and Class B Common Stock or (ii) the date specified by affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Class B Common Stock, voting as a single class.
(e) Founder means Anthony Wood.
(f) IPO means the Companys first firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Class A Common Stock where the Class A Common Stock and Class B Common Stock are each a covered security as described in Section 18(b) of the Securities Act of 1933, as amended.
(g) Liquidation Event shall mean any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, any Asset Transfer or any Acquisition.
(h) Permitted Entity shall mean, with respect to a Qualified Stockholder , any corporation, partnership or limited liability company in which such Qualified Stockholder directly, or indirectly through one or more Permitted Transferees, owns shares, partnership interests or membership interests, as applicable, with sufficient Voting Control in the corporation, partnership or limited liability company, as the case may be, or otherwise has legally enforceable rights, such that the Qualified Stockholder retains sole dispositive power and exclusive Voting Control with respect to all shares of Class B Common Stock held of record by such corporation, partnership or limited liability company, as the case may be.
(i) Permitted Transfer shall mean, and be restricted to, any Transfer of a share of Class B Common Stock:
(i) by a Qualified Stockholder that is a natural person, to the trustee of a Permitted Trust of such Qualified Stockholder;
(ii) by a Permitted Trust of a Qualified Stockholder, to the Qualified Stockholder or the trustee of any other Permitted Trust of such Qualified Stockholder;
(iii) by a Qualified Stockholder to any Permitted Entity of such Qualified Stockholder; or
(iv) by a Permitted Entity of a Qualified Stockholder to the Qualified Stockholder or any other Permitted Entity of such Qualified Stockholder.
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(j) Permitted Transferee shall mean a transferee of shares of Class B Common Stock received in a Transfer that constitutes a Permitted Transfer.
(k) Permitted Trust shall mean a bona fide trust for the benefit of a Qualified Stockholder or Family Members of the Qualified Stockholder, if such Transfer does not involve any payment of cash, securities, property or other consideration (other than an interest in such trust) to the Qualified Stockholder, a trust under the terms of which such Qualified Stockholder has retained a qualified interest within the meaning of §2702(b)(1) of the Internal Revenue Code and/or a reversionary interest, in each case so long as the Qualified Stockholder has sole dispositive power and exclusive Voting Control with respect to the shares of Class B Common Stock held by such trust.
(l) Qualified Stockholder shall mean (i) the registered holder of a share of Class B Common Stock immediately prior to the IPO; (ii) the initial registered holder of any shares of Class B Common Stock that are originally issued by the Company after the IPO (including, without limitation, upon conversion of the Series Preferred or upon exercise of options or warrants); and (iii) a Permitted Transferee.
(m) 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 Article IV:
(i) the granting of a revocable proxy to officers or directors of the Company 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 Company, (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;
(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; or
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(iv) entering into a support or similar voting agreement (with or without granting a proxy) in connection with a Liquidation Event.
A Transfer shall also be deemed to have occurred with respect to a share of Class B Common Stock beneficially held by (i) a Permitted Transferee on the date that such Permitted Transferee ceases to meet the qualifications to be a Permitted Transferee of the Qualified Stockholder who effected the Transfer of such shares to such Permitted Transferee, or (ii) an entity that is a Qualified Stockholder, if there occurs a Transfer on a cumulative basis, from and after the acceptance of this Amended and Restated Certificate of Incorporation for filing with the Secretary of State of the State of Delaware (the Effective Time), of a majority of the voting 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, as of the Effective Time, holders of voting securities of any such entity or Parent of such entity. 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.
(n) 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.
2. Rights Relating To Dividends, Subdivisions and Combinations.
(a) Subject to the prior rights of holders of all classes and series of stock at the time outstanding having prior rights as to dividends, the holders of the Class A Common Stock and Class B Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Company legally available therefor, such dividends as may be declared from time to time by the Board. Any dividends paid to the holders of shares of Class A Common Stock and Class B Common Stock shall be paid pro rata, on an equal priority, pari passu basis, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of the applicable class of Common Stock treated adversely, voting separately as a class.
(b) The Company shall not declare or pay any dividend or make any other distribution to the holders of Class A Common Stock or Class B Common Stock payable in securities of the Company unless the same dividend or distribution with the same record date and payment date shall be declared and paid on all shares of Common Stock; provided, however, that (i) dividends or other distributions payable in shares of Class A Common Stock or rights to acquire shares of Class A Common Stock may be declared and paid to the holders of Class A Common Stock without the same dividend or distribution being declared and paid to the holders of the Class B Common Stock if, and only if, a dividend payable in shares of Class B Common Stock, or rights to acquire shares of Class B Common Stock, as applicable, are declared and paid to the holders of Class B Common Stock at the same rate and with the same record date and payment date; and (ii) dividends or other distributions payable in shares of Class B Common Stock or rights to acquire shares Class B Common Stock may be declared and paid to the holders of Class B Common Stock without the same dividend or distribution being declared and paid to the holders of the Class A Common Stock if, and only if, a dividend payable in shares of Class A Common Stock, or rights to acquire shares of Class A Common Stock, as applicable, are declared and paid to the holders of Class A Common Stock at the same rate and with the same record date and payment date.
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(c) If the Company in any manner subdivides or combines the outstanding shares of Class A Common Stock or Class B Common Stock, then the outstanding shares of all Common Stock will be subdivided or combined in the same proportion and manner.
3. Voting Rights.
(a) Class A Common Stock. Each holder of shares of Class A Common Stock shall be entitled to one (1) vote for each share thereof held.
(b) Class B Common Stock. Each holder of shares of Class B Common Stock shall be entitled to ten (10) votes for each share thereof held.
(c) Class B Common Stock Protective Provisions. So long as any shares of Class B Common Stock remain outstanding, the Company shall not, without the approval by vote or written consent of the holders of a majority of the voting power of the Class B Common Stock then outstanding, voting together as a single class, directly or indirectly, or whether by amendment, or through merger, recapitalization, consolidation or otherwise:
(i) amend, alter, or repeal any provision of this Amended and Restated Certificate of Incorporation or the Bylaws of the Company (including any filing of a Certificate of Designation), that modifies the voting, conversion or other powers, preferences, or other special rights or privileges, or restrictions of the Class B Common Stock; or
(ii) reclassify any outstanding shares of Class A Common Stock of the Company into shares having rights as to dividends or liquidation that are senior to the Class B Common Stock or the right to more than one (1) vote for each share thereof.
(d) General. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock, Class A Common Stock and Class B Common Stock shall vote together and not as separate series or classes.
4. Liquidation Rights.
In the event of a Liquidation Event, upon the completion of the distributions required with respect to each series of Preferred Stock that may then be outstanding, the remaining assets of the Company legally available for distribution to stockholders shall be distributed on an equal priority, pro rata basis to the holders of Class A Common Stock and Class B Common Stock, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class; provided, however , for the avoidance of doubt, compensation pursuant to any employment, consulting, severance or other compensatory arrangement to be paid to or received by a person who is also a holder of Class A Common Stock or Class B Common Stock does not constitute consideration or a distribution to stockholders in respect of the Class A Common Stock or Class B Common Stock.
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5. Optional Conversion.
(a) Optional Conversion of the Class B Common Stock.
(i) At the option of the holder thereof, each share of Class B Common Stock shall be convertible, at any time or from time to time, into one fully paid and nonassessable share of Class A Common Stock as provided herein.
(ii) Each holder of Class B Common Stock who elects to convert the same into shares of Class A Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Class B Common Stock, and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein the number of shares of Class B Common Stock being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Class A 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 Class B Common Stock to be converted, and the person entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Class A Common Stock on such date. If a conversion election under this Section 5(a)(ii) is made in connection with an underwritten public offering of the Companys securities pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of the holder tendering shares of Class B Common Stock for conversion, be conditioned upon the closing with the underwriters of the sale of the Companys securities pursuant to such offering, in which event the holders making such elections who are entitled to receive Class A Common Stock upon conversion of their Class B Common Stock shall not be deemed to have converted such shares of Class B Common Stock until immediately after to the closing of such sale of the Companys securities in the offering.
6. Automatic Conversion.
(a) Automatic Conversion of the Class B Common Stock. Each share of Class B Common Stock shall automatically be converted into one fully paid and nonassessable share of Class A Common Stock upon a Transfer, other than a Permitted Transfer, of such share of Class B Common Stock. Such conversion shall occur 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 Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Class A Common Stock issuable upon such conversion unless the certificates evidencing such shares of Class B Common Stock are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Class B Common Stock, the holders of Class B Common Stock so converted shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Class A Common Stock. Thereupon, there
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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 Class A Common Stock into which the shares of Class B Common Stock surrendered were convertible on the date on which such automatic conversion occurred.
(b) Conversion Upon Death. Each share of Class B Common Stock held of record by a natural person, other than a Founder or a Permitted Transferee of such Founder, shall automatically, without any further action, convert into one fully paid and nonassessable share of Class A Common Stock upon the death of such stockholder. Each share of Class B Common Stock held of record by a Founder or a Permitted Transferee of such Founder shall automatically, without any further action, convert into one fully paid and nonassessable share of Class A Common Stock nine (9) months after the date of the death of such Founder.
7. Final Conversion. On the Final Conversion Date, each one (1) issued share of Class B Common Stock shall automatically, without any further action, convert into one (1) share of Class A Common Stock. Following the Final Conversion Date, the Company may no longer issue any additional shares of Class B Common Stock.
8. Redemption. The Common Stock is not redeemable.
9. Reservation of Stock Issuable Upon Conversion.
The Company shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of the Class B Common Stock, as applicable, such number of its shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock; and if at any time the number of authorized but 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, as applicable, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Class A Common Stock to such numbers of shares as shall be sufficient for such purpose.
V.
For the management of the business and for the conduct of the affairs of the Company, and in further definition, limitation and regulation of the powers of the Company, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:
A. Board of Directors.
1. Generally. The management of the business and the conduct of the affairs of the Company shall be vested in its Board of Directors. The number of directors that shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the authorized number of directors constituting the Board of Directors.
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2. Election.
(a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. The Board of Directors is authorized to assign members of the Board of Directors already in office to such classes at the time the classification becomes effective. At the first annual meeting of stockholders following such initial classification of the Board of Directors, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following such initial classification of the Board of Directors, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following such initial classification of the Board of Directors, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.
(b) At any time that applicable law prohibits a classified board as described in Section A.2.(a) of this Article V, all directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. The directors of the Company need not be elected by written ballot unless the Bylaws so provide.
(c) No stockholder entitled to vote at an election for directors may cumulate votes to which such stockholder is entitled unless required by applicable law at the time of such election. During such time or times that applicable law requires cumulative voting, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholders votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholders intention to cumulate such stockholders votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
(d) Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
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3. Removal of Directors. Subject to any limitations imposed by applicable law, removal shall be as provided in Section 141(k) of the DGCL.
4. Vacancies. Subject to any limitations imposed by applicable law and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders and except as otherwise provided by applicable law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified.
B. Stockholder Actions. No action shall be taken by the stockholders of the Company except at an annual or special meeting of stockholders called in accordance with the Bylaws and no action shall be taken by the stockholders by written consent or electronic transmission. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Company shall be given in the manner provided in the Bylaws of the Company.
C. Bylaws. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Company. Any adoption, amendment or repeal of the Bylaws of the Company by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Company; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Company required by law or by this Amended and Restated Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class.
VI.
A. The liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent under applicable law.
B. To the fullest extent permitted by applicable law, the Company is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and other agents of the Company (and any other persons to which applicable law permits the Company 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 such applicable law. If applicable law is amended after approval by the stockholders of this Article VI to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director to the Company shall be eliminated or limited to the fullest extent permitted by applicable law as so amended.
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C. Any repeal or modification of this Article VI shall only be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability.
D. Unless the Company consents in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Companys stockholders; (iii) any action asserting a claim arising under any provision of the DGCL, the Certificate of Incorporation or the Bylaws of the Company; or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity that acquires any interest in shares of capital stock of the Company will be deemed to have notice of and to have consented to the provisions of this section VI.D.
E. Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in any security of the Corporation shall be deemed to have notice of and consented to the provisions of this Amended and Restated Certificate of Incorporation.
VII.
A. The Company reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B. of this Article VII, and all rights conferred upon the stockholders herein are granted subject to this reservation.
B. Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Company required by law or by this Amended and Restated Certificate of Incorporation or any certificate of designation filed with respect to a series of Preferred Stock, the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI, and VII.
* * * *
FOUR: This Amended and Restated Certificate of Incorporation has been duly approved by the Board.
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FIVE: This Amended and Restated Certificate of Incorporation was approved by the holders of the requisite number of shares of said Corporation in accordance with Section 228 of the DGCL. This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL by the stockholders of the Company.
[Signature Page Follows]
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I N W ITNESS W HEREOF , Roku, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by its President and Chief Executive Officer this day of October, 2017.
R OKU , I NC . | ||
Signature: | /s/ Anthony Wood | |
Print Name: Anthony Wood | ||
Title: President and Chief Executive Officer |
Exhibit 3.4
AMENDED AND RESTATED BYLAWS
OF
ROKU, INC.
(A DELAWARE CORPORATION)
AMENDED AND RESTATED BYLAWS
OF
ROKU, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office . The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The Board of Directors may adopt a corporate seal. If adopted, the corporate seal shall consist of a die bearing the name of the corporation and the inscription, Corporate Seal-Delaware. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law ( DGCL ).
Section 5. Annual Meeting .
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may properly come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporations notice of meeting of stockholders (with respect to business other than nominations); (ii) brought specifically by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving the stockholders notice provided for in Section 5(b) below, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5. For the avoidance of doubt, clause (iii) above shall be the exclusive means for a
stockholder to make nominations and submit other business (other than matters properly included in the corporations notice of meeting of stockholders and proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the 1934 Act )) before an annual meeting of stockholders.
(b) At an annual meeting of the stockholders, only such business shall be conducted as is a proper matter for stockholder action under Delaware law and as shall have been properly brought before the meeting.
(1) For nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a), the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(3) and must update and supplement such written notice on a timely basis as set forth in Section 5(c). Such stockholders notice shall set forth: (A) as to each nominee such stockholder proposes to nominate at the meeting: (1) the name, age, business address and residence address of such nominee, (2) the principal occupation or employment of such nominee, (3) the class and number of shares of each class of capital stock of the corporation which are owned of record and beneficially by such nominee, (4) the date or dates on which such shares were acquired and the investment intent of such acquisition and (5) such other information concerning such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved), or that is otherwise required to be disclosed pursuant to Section 14 of the 1934 Act and the rules and regulations promulgated thereunder (including such persons written consent to being named as a nominee and to serving as a director if elected); and (B) the information required by Section 5(b)(4). The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such proposed nominee.
(2) Other than proposals sought to be included in the corporations proxy materials pursuant to Rule 14(a)-8 under the 1934 Act, for business other than nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a), the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(3), and must update and supplement such written notice on a timely basis as set forth in Section 5(c). Such stockholders notice shall set forth: (A) as to each matter such stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest (including any anticipated benefit of such business to any Proponent (as defined below) other than solely as a result of its ownership of the corporations capital stock, that is material to any Proponent individually, or to the Proponents in the aggregate) in such business of any Proponent; and (B) the information required by Section 5(b)(4).
(3) To be timely, the written notice required by Section 5(b)(1) or 5(b)(2) must be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the ninetieth (90 th ) day nor earlier than the close of business on the one hundred twentieth (120 th ) day prior to the first anniversary of the preceding years annual meeting; provided, however, that, subject to the last sentence of this Section 5(b)(3), in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding years annual meeting, notice by the stockholder to be timely must be so received not earlier than the close of business on the one hundred twentieth (120 th ) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90 th ) day prior to such annual meeting or the tenth (10 th ) day following the day on which public announcement of the date of
such meeting is first made. In no event shall an adjournment or a postponement of an annual meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholders notice as described above.
(4) The written notice required by Section 5(b)(1) or 5(b)(2) shall also set forth, as of the date of the notice and as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (each, a Proponent and collectively, the Proponents ): (A) the name and address of each Proponent, as they appear on the corporations books; (B) the class, series and number of shares of the corporation that are owned beneficially and of record by each Proponent; (C) a description of any agreement, arrangement or understanding (whether oral or in writing) with respect to such nomination or proposal between or among any Proponent and any of its affiliates or associates, and any others (including their names) acting in concert, or otherwise under the agreement, arrangement or understanding, with any of the foregoing; (D) a representation that the Proponents are holders of record or beneficial owners, as the case may be, of shares of the corporation entitled to vote at the meeting and intend to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice (with respect to a notice under Section 5(b)(1)) or to propose the business that is specified in the notice (with respect to a notice under Section 5(b)(2)); (E) a representation as to whether the Proponents intend to deliver a proxy statement and form of proxy to holders of a sufficient number of holders of the corporations voting shares to elect such nominee or nominees (with respect to a notice under Section 5(b)(1)) or to carry such proposal (with respect to a notice under Section 5(b)(2)); (F) to the extent known by any Proponent, the name and address of any other stockholder supporting the proposal on the date of such stockholders notice; and (G) a description of all Derivative Transactions (as defined below) by each Proponent during the previous twelve (12) month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions.
(c) A stockholder providing written notice required by Section 5(b)(1) or (ii) shall update and supplement such notice in writing, if necessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of (i) the record date for the meeting and (ii) the date that is five (5) business days prior to the meeting and, in the event of any adjournment or postponement thereof, five (5) business days prior to such adjourned or postponed meeting. In the case of an update and supplement pursuant to clause (i) of this Section 5(c), such update and supplement shall be received by the Secretary at the principal executive offices of the corporation not later than five (5) business days after the record date for the meeting. In the case of an update and supplement pursuant to clause (ii) of this Section 5(c), such update and supplement shall be received by the Secretary at the principal executive offices of the corporation not later than two (2) business days prior to the date for the meeting, and, in the event of any adjournment or postponement thereof, two (2) business days prior to such adjourned or postponed meeting.
(d) Notwithstanding anything in Section 5(b)(3) to the contrary, in the event that the number of directors in an Expiring Class is increased and there is no public announcement of the appointment of a director to such class, or, if no appointment was made, of the vacancy in such class, made by the corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with Section 5(b)(3), a stockholders notice required by this Section 5 and which complies with the requirements in Section 5(b)(1), other than the timing requirements in Section 5(b)(3), shall also be considered timely, but only with respect to nominees for any new positions in such Expiring Class created by such increase, if it shall be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10 th ) day following the day on which such public announcement is first made by the corporation. For purposes of this section, an Expiring Class shall mean a class of directors whose term shall expire at the next annual meeting of stockholders.
(e) A person shall not be eligible for election or re-election as a director unless the person is nominated either in accordance with clause (ii) of Section 5(a), or in accordance with clause (iii) of Section 5(a). Except as otherwise required by law, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, or the Proponent does not act in accordance with the representations in Sections 5(b)(4)(D) and 5(b)(4)(E), to declare that such proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded, notwithstanding that proxies in respect of such nominations or such business may have been solicited or received.
(f) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders meeting, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to proposals and/or nominations to be considered pursuant to Section 5(a)(iii).
(g) For purposes of Sections 5 and 6,
(1) affiliates and associates shall have the meanings set forth in Rule 405 under the Securities Act of 1933, as amended (the 1933 Act);
(2) Derivative Transaction means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, any Proponent or any of its affiliates or associates, whether record or beneficial: (A) the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the corporation, (B) which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the corporation, (C) the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or (D) which provides the right to vote or increase or decrease the voting power of, such Proponent, or any of its affiliates or associates, with respect to any securities of the corporation, which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proponent in the securities of the corporation held by any general or limited partnership, or any limited liability company, of which such Proponent is, directly or indirectly, a general partner or managing member; and
(3) public announcement shall mean disclosure in a press release reported by the Dow Jones Newswires, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
Section 6. Special Meetings .
(a) Special meetings of the stockholders of the corporation may be called, for any purpose as is a proper matter for stockholder action under Delaware law, by (i) the Chairperson of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).
(b) The Board of Directors shall determine the time and place, if any, of such special meeting. Upon determination of the time and place, if any, of the meeting, the Secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7. No business may be transacted at such special meeting otherwise than specified in the notice of meeting.
(c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in this paragraph, who shall be entitled to vote at the meeting and who delivers written notice to the Secretary of the corporation setting forth the information required by Section 5(b)(1). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder of record may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporations notice of meeting, if written notice setting forth the information required by Section 5(b)(1) of these Bylaws shall be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the later of the ninetieth (90 th ) day prior to such meeting or the tenth (10 th ) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The stockholder shall also update and supplement such information as required under Section 5(c). In no event shall an adjournment or a postponement of a special meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholders notice as described above.
(d) Notwithstanding the foregoing provisions of this Section 6, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder with respect to matters set forth in this Section 6. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to nominations for the election to the Board of Directors to be considered pursuant to Section 6(c) of these Bylaws.
Section 7. Notice of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his or her attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the voting power of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairperson of the meeting or by vote of the holders of a majority of voting power of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute or by applicable stock exchange rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of the voting power of the shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by statute, by applicable stock exchange rules or by the Certificate of Incorporation or these Bylaws, a majority of the voting power of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute, by applicable stock exchange rules or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairperson of the meeting or by the vote of the holders of a majority of the voting power of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his or her act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.
Section 13. Action Without Meeting . No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent or by electronic transmission.
Section 14. Organization .
(a) At every meeting of stockholders, the Chairperson of the Board of Directors, or, if a Chairperson has not been appointed or is absent, the Chief Executive Officer, or, if the Chief Executive Officer is absent, the President, or, if the President is absent, a chairperson of the meeting designated by the Board of Directors, or, if the Board of Directors does not designate such chairperson, a chairperson chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairperson. The Secretary, or, in his or her absence, an Assistant Secretary directed to do so by the Chief Executive Officer or the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairperson of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairperson shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office . The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
Section 16. Powers . The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. (a) Classes of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the initial public offering pursuant to an effective registration statement under the 1933 Act, covering the offer and sale of Class A Common Stock of the corporation to the public (the Initial Public Offering ), the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. The Board of Directors is authorized to assign members of the Board of Directors already in office to such classes at the time the classification becomes effective. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Section 17, each director shall serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Section 18. Vacancies. Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock or as otherwise provided by applicable law, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, and not by the stockholders, provided, however , that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.
Section 19. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time. If no such specification is made, the Secretary, in his or her discretion, may either (a) require confirmation from the director prior to deeming the resignation effective, in which case the resignation will be deemed effective upon receipt of such confirmation, or (b) deem the resignation effective at the time of delivery of the resignation to the Secretary. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
Section 20. Removal.
(a) Subject to the rights of holders of any series of Preferred Stock to elect additional directors under specified circumstances, neither the Board of Directors nor any individual director may be removed without cause.
(b) Subject to any limitation imposed by applicable law, any individual director or directors may only be removed from office with cause by the affirmative vote of the holders of a majority of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors, voting together as a single class.
Section 21. Meetings
(a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors.
(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairperson of the Board, the Chief Executive Officer or a majority of the authorized number of directors.
(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four
(24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, postage prepaid at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though it had been transacted at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 22. Quorum and Voting .
(a) Unless the Certificate of Incorporation requires a greater number, and except with respect to questions related to indemnification arising under Section 44 for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees .
(a) Committees. The Board of Directors may, from time to time, appoint such committees as may be permitted by law. Such committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees.
(b) Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Section 25 may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(c) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
Section 26. Duties of Chairperson of the Board of Directors. The Chairperson of the Board of Directors, if appointed and when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairperson of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
Section 27. Organization . At every meeting of the directors, the Chairperson of the Board of Directors, or, if a Chairperson has not been appointed or is absent, the Chief Executive Officer (if a director), or, if a Chief Executive Officer is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairperson of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary or other officer, director or other person directed to do so by the person presiding over the meeting, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 28. Officers Designated . The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairperson, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer and the Treasurer. The Board of Directors may also appoint one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
Section 29. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
(b) Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors (if a director), unless the Chairperson of the Board of Directors has been appointed and is present. Unless an officer has been appointed Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. To the extent that a Chief Executive Officer has been appointed and no President has been appointed, all references in these Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
(c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors (if a director), unless the Chairperson of the Board of Directors, or the Chief Executive Officer has been appointed and is present. Unless another officer has been appointed Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
(d) Duties of Vice Presidents. A Vice President may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. A Vice President shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or, if the Chief Executive Officer has not been appointed or is absent, the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The Chief Executive Officer, or if no Chief Executive Officer is then serving, the President may direct any Assistant Secretary or other officer to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President shall designate from time to time. To the extent that a Chief Financial Officer has been appointed and no Treasurer has been appointed, all references in these Bylaws to the Treasurer shall be deemed references to the Chief Financial Officer. The President may direct the Treasurer, if any, or any Assistant Treasurer, or the controller or any assistant controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each controller and assistant controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President shall designate from time to time.
(g) Duties of Treasurer. Unless another officer has been appointed Chief Financial Officer of the corporation, the Treasurer shall be the chief financial officer of the corporation and shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, and, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President and Chief Financial Officer (if not Treasurer) shall designate from time to time.
Section 30. Delegation of Authority . The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 31. Resignations . Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
Section 32. Removal . Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or by the Chief Executive Officer or by other superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 33. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 34. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairperson of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 35. Form and Execution of Certificates . The shares of the corporation shall be represented by certificates, or shall be uncertificated if so provided by resolution or resolutions of the Board of Directors. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation represented by certificate shall be entitled to have a certificate signed by or in the name of the corporation by the Chairperson of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.
Section 36. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owners legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 37. Transfers.
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
Section 38. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 39. Registered Stockholders . The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 40. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 36), may be signed by the Chairperson of the Board of Directors, the Chief Executive Officer, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 41. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
Section 42. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 43. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 44. Indemnification of Directors, Officers, Employees and Other Agents.
(a) Directors and executive officers . The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, executive officers shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d).
(b) Other Officers, Employees and Other Agents. The corporation shall have the power to indemnify (including the power to advance expenses in a manner consistent with subsection (c)) its other officers, employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except executive officers to such officers or other persons as the Board of Directors shall determine.
(c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or executive officer in his or her capacity as a director or executive officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an undertaking ), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a final adjudication ) that such indemnitee is not entitled to be indemnified for such expenses under this section or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this section, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this section to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. To the extent permitted by law, the claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his or her conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this section or otherwise shall be on the corporation.
(e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.
(f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or executive officer or officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this section.
(h) Amendments. Any repeal or modification of this section shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
( i ) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this section that shall not have been invalidated, or by any other applicable law. If this section shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:
(1) The term proceeding shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term expenses shall be broadly construed and shall include, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(4) References to a director , executive officer , officer , employee , or agent of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as referred to in this section.
ARTICLE XII
NOTICES
Section 45. Notices .
(a) Notice to Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by United States mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.
(b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a) or as otherwise provided in these Bylaws. If such notice is not delivered personally, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) Notice to Person with Whom Communication is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
(f) Notice to Stockholders Sharing an Address. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within sixty (60) days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation.
ARTICLE XIII
AMENDMENTS
Section 46. Amendments. Subject to the limitations set forth in Section 44(h) of these Bylaws or the provisions of the Certificate of Incorporation, the Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation. The stockholders also shall have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.
Exhibit 4.1 |
RK INCORPORATED UNDER THE CUSIP 77543R 10 2 LAWS OF THE STATE SEE REVERSE FOR CERTAIN OF DELAWARE DEFINITIONS AND LEGENDS This certifies that BY: AMERICAN COUNTERSIGNED is the record holder of STOCK AND FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK, $0.0001 PAR VALUE PER SHARE, OF (BROOKLYN, ROKU, INC. transferable on the books of the corporation in person or by duly authorized attorney upon surrender of this Certificate properly TRANSFER NY) & endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. REGISTERED: WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. TRUST Dated: AUTHORIZED AND KU, INTRANSFERCOMPANY, O C. R POR R AT C O E LLC CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER SIGNATURE REGISTRAR AGENT SEAL FEBRUARY 1,
The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporations Secretary at the principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE CORPORATION WILL REQUIRE A BOND INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM | | as tenants in common | UNIF GIFT MIN ACT | | Custodian | |||||||
TEN ENT | | as tenants by the entireties | (Cust) (Minor) | |||||||||
JT TEN | | as joint tenants with right of | under Uniform Gifts to Minors | |||||||||
survivorship and not as tenants | Act | |||||||||||
in common | (State) | |||||||||||
COM PROP | | as community property | UNIF TRF MIN ACT | | Custodian (until age ) | |||||||
(Cust) | ||||||||||||
under Uniform Transfers | ||||||||||||
(Minor) | ||||||||||||
to Minors Act | ||||||||||||
(State) |
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________________________________________ hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
shares of the capital stock represented by within Certificate, and do hereby irrevocably constitute and appoint
attorney-in-fact to transfer the said stock on the books of the within named Corporation with full power of the substitution in the premises.
Dated
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Signature(s) Guaranteed: |
NOTICE: THESIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. |
By |
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE. SIGNATURE GUARANTEES MUST NOT BE DATED. |
Exhibit 5.1
John T. McKenna
+1 650 843 5059
jmckenna@cooley.com
September 18, 2017
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
Ladies and Gentlemen:
We have acted as counsel to Roku, Inc., a Delaware corporation (the Company ), in connection with the filing by the Company of a Registration Statement (No. 333-220318) on Form S-1 (the Registration Statement ) with the Securities and Exchange Commission, including a related prospectus filed with the Registration Statement (the Prospectus ), covering an underwritten public offering of (i) up to 18,018,200 shares of the Companys Class A common stock, par value $0.0001 ( Shares ), which includes 10,350,000 Shares to be sold by the Company (including up to 1,350,000 Shares that may be sold by the Company upon exercise of an over-allotment option to be granted to the underwriters) (collectively, the Company Shares ) and (ii) 7,668,200 Shares to be sold by the selling stockholders identified in such Registration Statement (including up to 1,000,200 Shares that may be sold by the selling stockholders upon the exercise of an option to purchase additional Shares to be granted to the underwriters) (collectively, the Stockholder Shares ).
In connection with this opinion, we have (i) examined and relied upon (a) the Registration Statement and Prospectus, (b) the Companys Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, as currently in effect as of the date hereof and (c) the originals or copies certified to our satisfaction of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below and (ii) assumed that the Company Shares will be sold at a price and on terms authorized by the Board of Directors of the Company, or the Pricing Committee thereof, in accordance with Section 153 of the General Corporation Law of the State of Delaware (the DGCL ) and that the Stockholder Shares have been issued upon the conversion of shares of the Companys Class B common stock, par value $0.0001, which will be issued upon the conversion of outstanding shares of the Companys preferred stock, par value $0.0001 immediately prior to the closing of this public offering.
We have assumed the genuineness and authenticity of all documents submitted to us as originals, and the conformity to originals of all documents submitted to us as copies and the due execution and delivery of all documents where due execution and delivery are a prerequisite to the effectiveness thereof (except we have not assumed the due execution and delivery by the Company of any such documents). As to certain factual matters, we have relied upon a certificate of an officer of the Company and have not sought independently to verify such matters. Our opinion is expressed only with respect to the DGCL.
On the basis of the foregoing, and in reliance thereon, we are of the opinion that: (i) the Company Shares, when sold and issued against payment therefore in accordance with the Registration Statement and the Prospectus, will be validly issued, fully paid and non-assessable and (ii) the Stockholder Shares have been validly issued and are fully paid and non-assessable.
3175 HANOVER STREET, PALO ALTO, CA 94304-1130 T: (650) 843-5000 F: (650) 849-7400 WWW.COOLEY.COM
Roku, Inc.
September 18, 2017
Page Two
We consent to the reference to our firm under the caption Legal Matters in the Prospectus included in the Registration Statement and to the filing of this opinion as an exhibit to the Registration Statement.
Sincerely,
C OOLEY LLP
By: |
/s/ John T. McKenna |
|
John T. McKenna |
3175 HANOVER STREET, PALO ALTO, CA 94304-1130 T: (650) 843-5000 F: (650) 849-7400 WWW.COOLEY.COM
Exhibit 10.5
R OKU , I NC .
2017 E QUITY I NCENTIVE P LAN
A DOPTED BY THE B OARD OF D IRECTORS : S EPTEMBER 12, 2017
A PPROVED BY THE S TOCKHOLDERS : S EPTEMBER 14, 2017
IPO D ATE /E FFECTIVE D ATE : , 2017
1. | G ENERAL . |
(a) Successor to and Continuation of Prior Plan. The Plan is the successor to and continuation of the Roku, Inc. 2008 Equity Incentive Plan (the Prior Plan ). From and after 12:01 a.m. Pacific time on the Effective Date, no additional stock awards will be granted under the Prior Plan. All Awards granted on or after 12:01 a.m. Pacific Time on the Effective Date will be granted under this Plan. All stock awards granted under the Prior Plan will remain subject to the terms of the Prior Plan.
(i) From and after 12:01 a.m. Pacific time on the Effective Date, with respect to the aggregate number of shares of Class B common stock subject, at such time, to outstanding stock awards granted under the Prior Plan that (1) expire or terminate for any reason prior to exercise; (2) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; or (3) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award (such shares the Returning Shares ) will immediately be added to the Share Reserve as shares of Common Stock (as further described in Section 3(a) below) as and when such a share becomes a Returning Share, up to the maximum number set forth in Section 3(a) below.
(b) Eligible Award Recipients. Employees, Directors and Consultants are eligible to receive Awards.
(c) Available Awards. The Plan provides for the grant of the following Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards.
(d) Purpose. The Plan, through the grant of Awards, is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate, and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock.
2. | A DMINISTRATION . |
(a) Administration by Board. The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees, as provided in Section 2(c).
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(b) Powers of Board. The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine: (A) who will be granted Awards; (B) when and how each Award will be granted; (C) what type of Award will be granted; (D) the provisions of each Award (which need not be identical), including when a person will be permitted to exercise or otherwise receive cash or Common Stock under the Award; (E) the number of shares of Common Stock subject to, or the cash value of, an Award; and (F) the Fair Market Value applicable to a Stock Award.
(ii) To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for administration of the Plan and Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in any Award Agreement or in the written terms of a Performance Cash Award, in a manner and to the extent it will deem necessary or expedient to make the Plan or Award fully effective.
(iii) To settle all controversies regarding the Plan and Awards granted under it.
(iv) To accelerate, in whole or in part, the time at which an Award may be exercised or vest (or the time at which cash or shares of Common Stock may be issued in settlement thereof).
(v) To suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or an Award Agreement, suspension or termination of the Plan will not impair a Participants rights under the Participants then-outstanding Award without the Participants written consent, except as provided in subsection (viii) below.
(vi) To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or to make the Plan or Awards granted under the Plan compliant with the requirements for Incentive Stock Options or exempt from, or compliant with, the requirements for nonqualified deferred compensation under Section 409A of the Code, subject to the limitations, if any, of applicable law. If required by applicable law or listing requirements, and except as provided in Section 9(a) relating to Capitalization Adjustments, the Company will seek stockholder approval of any amendment of the Plan that (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D) materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (E) materially extends the term of the Plan, or (F) materially expands the types of Awards available for issuance under the Plan. Except as provided in the Plan (including subsection (viii) below) or an Award Agreement, no amendment of the Plan will impair a Participants rights under an outstanding Award unless (1) the Company requests the consent of the affected Participant, and (2) such Participant consents in writing.
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(vii) To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 162(m) of the Code regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees, (B) Section 422 of the Code regarding incentive stock options or (C) Rule 16b-3.
(viii) To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided, however, that a Participants rights under any Award will not be impaired by any such amendment unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, (1) a Participants rights will not be deemed to have been impaired by any such amendment if the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially impair the Participants rights, and (2) subject to the limitations of applicable law, if any, the Board may amend the terms of any one or more Awards without the affected Participants consent (A) to maintain the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code; (B) to change the terms of an Incentive Stock Option, if such change results in impairment of the Award solely because it impairs the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code; (C) to clarify the manner of exemption from, or to bring the Award into compliance with, Section 409A of the Code; or (D) to comply with other applicable laws or listing requirements.
(ix) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Awards.
(x) To adopt such rules, procedures and sub-plans related to the operation and administration of the Plan as are necessary or appropriate under local laws and regulations to permit participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States (provided that Board approval will not be necessary for immaterial modifications to the Plan or any Award Agreement made to ensure or facilitate compliance with the laws or regulations of the relevant foreign jurisdiction).
(xi) To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any outstanding Stock Award; (B) the cancellation of any outstanding Stock Award and the grant in substitution therefor of a new (1) Option or SAR, (2) Restricted Stock Award, (3) Restricted Stock Unit Award, (4) Other Stock Award, (5) cash and/or (6) other valuable consideration determined by the Board, in its sole discretion, with any such substituted award (x) covering the same or a different number of shares of Common Stock as the cancelled Stock Award and (y) granted under the Plan or another equity or compensatory plan of the Company; or (C) any other action that is treated as a repricing under generally accepted accounting principles.
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(c) Delegation to Committee.
(i) General. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee, as applicable). Any delegation of administrative powers will be reflected in resolutions, not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(ii) Section 162(m) and Rule 16b-3 Compliance. The Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3.
(d) Delegation to an Officer. The Board may delegate to one (1) or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Stock Awards) and, to the extent permitted by applicable law, the terms of such Awards, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however , that the Board resolutions regarding such delegation will specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Any such Stock Awards will be granted on the form of Stock Award Agreement most recently approved for use by the Committee or the Board, unless otherwise provided in the resolutions approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Fair Market Value pursuant to Section 13(y)(iii) below.
(e) Effect of Boards Decision. All determinations, interpretations and constructions made by the Board in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.
3. | S HARES S UBJECT TO THE P LAN . |
(a) Share Reserve.
(i) Subject to Section 9(a) relating to Capitalization Adjustments, and the following sentence regarding the annual increase, the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards will not exceed 40,000,000 shares, which number is the sum of (i) 12,000,000 shares plus (ii) the Returning Shares, if any, which become available for grant under this Plan from time to time, up to a maximum of 28,000,000 Returning Shares (such aggregate number of shares described in (A) and (B) above, the Share Reserve ). In addition, the Share Reserve will automatically increase on January 1st of each calendar year,
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beginning on January 1 in the calendar year following the calendar year in which the IPO Date occurs and ending on (and including) January 1, 2027 (each, an Evergreen Date ) in an amount equal to five percent (5%) of the total number of shares of Capital Stock outstanding on the last day of the preceding year. Notwithstanding the foregoing, the Board may act prior to the Evergreen Date of a given year to provide that there will be no increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of shares of Common Stock than would otherwise occur pursuant to the preceding sentence.
(i) For clarity, the Share Reserve in this Section 3(a) is a limitation on the number of shares of Common Stock that may be issued pursuant to the Plan. As a single share may be subject to grant more than once (e.g., if a share subject to a Stock Award is forfeited, it may be made subject to grant again as provided in Section 3(b) below), the Share Reserve is not a limit on the number of Stock Awards that can be granted.
(ii) Shares may be issued in connection with a merger or acquisition as permitted by NASDAQ Listing Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable rule, and such issuance will not reduce the number of shares available for issuance under the Plan.
(b) Reversion of Shares to the Share Reserve. If a Stock Award or any portion thereof (i) expires or otherwise terminates without all of the shares covered by such Stock Award having been issued or (ii) is settled in cash ( i.e. , the Participant receives cash rather than stock), such expiration, termination or settlement will not reduce (or otherwise offset) the number of shares of Common Stock that may be available for issuance under the Plan. If any shares of Common Stock issued pursuant to a Stock Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a Stock Award or as consideration for the exercise or purchase price of a Stock Award will again become available for issuance under the Plan.
(c) Incentive Stock Option Limit. Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options will be 200,000,000 shares of Common Stock.
(d) Section 162(m) Limitations . Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code, the following limitations shall apply.
(i) A maximum of 2,000,000 shares of Common Stock subject to Options, SARs and Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the Fair Market Value on the date the Stock Award is granted may be granted to any one Participant during any one calendar year.
5.
(ii) A maximum of 2,000,000 shares of Common Stock subject to Performance Stock Awards may be granted to any one Participant during any one calendar year (whether the grant, vesting or exercise is contingent upon the attainment during the Performance Period of the Performance Goals).
(iii) A maximum of U.S. $5,000,000 may be granted as a Performance Cash Award to any one Participant during any one calendar year.
If a Performance Stock Award is in the form of an Option, it will count only against the Performance Stock Award limit. If a Performance Stock Award could be paid out in cash, it will count only against the Performance Stock Award limit.
(e) Limitation on Compensation of Non-Employee Directors. The maximum number of shares of Common Stock subject to Stock Awards granted under this Plan or otherwise during any one year to any Non-Employee Director, taken together with any cash fees paid by the Company to such Non-Employee Director during such year for service on the Board, will not exceed U.S. $1,000,000 in total value (calculating the value of any such Stock Awards based on the grant date fair value of such Stock Awards for financial reporting purposes).
(f) Source of Shares. The stock issuable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market or otherwise.
4. | E LIGIBILITY . |
(a) Eligibility for Specific Stock Awards . Incentive Stock Options may be granted only to employees of the Company or a parent corporation or subsidiary corporation thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants; provided, however , that Stock Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service only to any parent of the Company, as such term is defined in Rule 405 of the Securities Act, unless (i) the stock underlying such Stock Awards is treated as service recipient stock under Section 409A of the Code (for example, because the Stock Awards are granted pursuant to a corporate transaction such as a spin off transaction), (ii) the Company, in consultation with its legal counsel, has determined that such Stock Awards are otherwise exempt from Section 409A of the Code, or (iii) the Company, in consultation with its legal counsel, has determined that such Stock Awards comply with the distribution requirements of Section 409A of the Code.
(b) Ten Percent Stockholders. A Ten Percent Stockholder will not be granted an Incentive Stock Option unless the exercise price of such Option is at least 110% of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five years from the date of grant.
5. | P ROVISIONS R ELATING TO O PTIONS AND S TOCK A PPRECIATION R IGHTS . |
Each Option or SAR will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate
6.
certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some portion or all of the Option fails to qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion thereof) will be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical; provided, however , that each Award Agreement will conform to (through incorporation of provisions hereof by reference in the applicable Award Agreement or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option or SAR will be exercisable after the expiration of ten years from the date of its grant or such shorter period specified in the Award Agreement.
(b) Exercise Price. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise or strike price of each Option or SAR will be not less than 100% of the Fair Market Value of the Common Stock subject to the Option or SAR on the date the Award is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise or strike price lower than 100% of the Fair Market Value of the Common Stock subject to the Award if such Award is granted pursuant to an assumption of or substitution for another option or stock appreciation right pursuant to a Corporate Transaction and in a manner consistent with the provisions of Section 409A of the Code and, if applicable, Section 424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents.
(c) Purchase Price for Options. The purchase price of Common Stock acquired pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use a particular method of payment. The permitted methods of payment are as follows:
(i) by cash, check, bank draft or money order payable to the Company;
(ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;
(iii) by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;
(iv) if an Option is a Nonstatutory Stock Option, by a net exercise arrangement pursuant to which the Company will reduce the number of shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however , that the Company will accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued. Shares
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of Common Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are used to pay the exercise price pursuant to the net exercise, (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or
(v) in any other form of legal consideration that may be acceptable to the Board and specified in the applicable Award Agreement.
(d) Exercise and Payment of a SAR. To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such SAR. The appreciation distribution payable on the exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the SAR) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant is vested under such SAR, and with respect to which the Participant is exercising the SAR on such date, over (B) the aggregate strike price of the number of Common Stock equivalents with respect to which the Participant is exercising the SAR on such date. The appreciation distribution may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Award Agreement evidencing such SAR.
(e) Transferability of Options and SARs. The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as the Board will determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options and SARs will apply:
(i) Restrictions on Transfer. An Option or SAR will not be transferable except by will or by the laws of descent and distribution (or pursuant to subsections (ii) and (iii) below), and will be exercisable during the lifetime of the Participant only by the Participant. The Board may permit transfer of the Option or SAR in a manner that is not prohibited by applicable laws or regulations. Except as explicitly provided in the Plan, neither an Option nor a SAR may be transferred for consideration.
(ii) Domestic Relations Orders. Subject to the approval of the Board or a duly authorized Officer, an Option or SAR may be transferred pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulations Section 1.421-1(b)(2) or comparable non-U.S. law. If an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(iii) Beneficiary Designation. Subject to the approval of the Board or a duly authorized Officer, a Participant may, by delivering written notice to the Company or to any third party designated by the Company, in a form approved by the Company (or the designated broker), designate a third party who, upon the death of the Participant, will thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, upon the death of the Participant, the executor or administrator of the Participants estate or the Participants legal heirs will be entitled
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to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. However, the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation would be inconsistent with the provisions of applicable laws.
(f) Vesting Generally. The total number of shares of Common Stock subject to an Option or SAR may vest and become exercisable in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions governing the minimum number of shares of Common Stock as to which an Option or SAR may be exercised.
(g) Termination of Continuous Service. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participants Continuous Service terminates (other than for Cause and other than upon the Participants death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Award as of the date of termination of Continuous Service) within the period of time ending on the earlier of (i) the date which occurs three (3) months following the termination of the Participants Continuous Service (or such longer or shorter period specified in the applicable Award Agreement), and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR (as applicable) within the applicable time frame, the Option or SAR will terminate.
(h) Extension of Termination Date. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if the exercise of an Option or SAR following the termination of the Participants Continuous Service (other than for Cause and other than upon the Participants death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option or SAR will terminate on the earlier of (i) the expiration of a total period of time (that need not be consecutive) equal to the applicable post termination exercise period after the termination of the Participants Continuous Service during which the exercise of the Option or SAR would not be in violation of such registration requirements, and (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement. In addition, unless otherwise provided in a Participants Award Agreement, if the sale of any Common Stock received upon exercise of an Option or SAR following the termination of the Participants Continuous Service (other than for Cause) would violate the Companys insider trading policy, then the Option or SAR will terminate on the earlier of (i) the expiration of the period of months (that need not be consecutive) equal to the applicable post-termination exercise period after the termination of the Participants Continuous Service during which the sale of the Common Stock received upon exercise of the Option or SAR would not be in violation of the Companys insider trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement.
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(i) Disability of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participants Continuous Service terminates as a result of the Participants Disability, the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date which occurs 12 months following such termination of Continuous Service (or such longer or shorter period specified in the Award Agreement), and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate.
(j) Death of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if (i) a Participants Continuous Service terminates as a result of the Participants death, or (ii) the Participant dies within the period (if any) specified in the Award Agreement for exercisability after the termination of the Participants Continuous Service for a reason other than death, then the Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participants estate, by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participants death, but only within the period ending on the earlier of (i) the date 18 months following the date of death (or such longer or shorter period specified in the Award Agreement), and (ii) the expiration of the term of such Option or SAR as set forth in the Award Agreement. If, after the Participants death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR (as applicable) will terminate.
(k) Termination for Cause. Except as explicitly provided otherwise in the applicable Award Agreement or other written agreement between the Participant and the Company, if a Participants Continuous Service is terminated for Cause, the Option or SAR will terminate immediately upon such Participants termination of Continuous Service, and the Participant will be prohibited from exercising his or her Option or SAR from and after the date of such termination of Continuous Service. If a Participants Continuous Service is suspended pending an investigation of the existence of Cause, all of the Participants rights under the Option or SAR will also be suspended during the investigation period.
(l) Non-Exempt Employees . If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the U.S. Fair Labor Standards Act of 1938, as amended, the Option or SAR will not be first exercisable for any shares of Common Stock until at least six months following the date of grant of the Option or SAR (although the Award may vest prior to such date). Consistent with the provisions of the U.S. Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Participants retirement (as such term may be defined in the Participants Award Agreement in another agreement between the Participant and the Company, or, if no such definition, in accordance with the Companys then current employment policies and guidelines), the vested portion of any Options and SARs may be exercised earlier than six months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an
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Option or SAR will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the U.S. Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under any other Stock Award will be exempt from the employees regular rate of pay, the provisions of this Section 5(l) will apply to all Stock Awards and are hereby incorporated by reference into such Stock Award Agreements.
6. | P ROVISIONS OF S TOCK A WARDS OTHER THAN O PTIONS AND SAR S . |
(a) Restricted Stock Awards. Each Restricted Stock Award Agreement will be in such form and will contain such terms and conditions as the Board will deem appropriate. To the extent consistent with the Companys bylaws, at the Boards election, shares of Common Stock may be (x) held in book entry form subject to the Companys instructions until any restrictions relating to the Restricted Stock Award lapse; or (y) evidenced by a certificate, which certificate will be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical. Each Restricted Stock Award Agreement will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting. Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participants Continuous Service. If a Participants Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.
(iv) Transferability. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement will be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board will determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.
(v) Dividends. A Restricted Stock Award Agreement may provide that any dividends paid on Restricted Stock will be subject to the same vesting and forfeiture restrictions as apply to the shares subject to the Restricted Stock Award to which they relate.
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(b) Restricted Stock Unit Awards. Each Restricted Stock Unit Award Agreement will be in such form and will contain such terms and conditions as the Board will deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical. Each Restricted Stock Unit Award Agreement will conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:
(i) Consideration. At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting. At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.
(iii) Payment . A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
(iv) Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.
(v) Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all of the same terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.
(vi) Termination of Participant s Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participants termination of Continuous Service.
(c) Performance Awards.
(i) Performance Stock Awards . A Performance Stock Award is a Stock Award (covering a number of shares not in excess of that set forth in Section 3(d) above) that is payable (including that may be granted, may vest or may be exercised) contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may but need not require the Participants completion of a specified period of Continuous
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Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee (or, if not required for compliance with Section 162(m) of the Code, the Board), in its sole discretion. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards.
(ii) Performance Cash Awards . A Performance Cash Award is a cash award (for a dollar value not in excess of that set forth in Section 3(d) above) that is payable contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. At the time of grant of a Performance Cash Award, the length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee (or, if not required for compliance with Section 162(m) of the Code, the Board), in its sole discretion. The Board may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property.
(iii) Board Discretion . The Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for a Performance Period.
(iv) Section 162(m) Compliance . Unless otherwise permitted in compliance with the requirements of Section 162(m) of the Code with respect to an Award intended to qualify as performance-based compensation thereunder, the Committee will establish the Performance Goals applicable to, and the formula for calculating the amount payable under, the Award no later than the earlier of (A) the date 90 days after the commencement of the applicable Performance Period, and (B) the date on which 25% of the Performance Period has elapsed, and in any event at a time when the achievement of the applicable Performance Goals remains substantially uncertain. Prior to the payment of any compensation under an Award intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee will certify the extent to which any Performance Goals and any other material terms under such Award have been satisfied (other than in cases where such Performance Goals relate solely to the increase in the value of the Common Stock). Notwithstanding satisfaction of, or completion of any Performance Goals, the number of shares of Common Stock, Options, cash or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Performance Goals may be reduced by the Committee on the basis of such further considerations as the Committee, in its sole discretion, will determine.
(d) Other Stock Awards . Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than 100% of the Fair Market Value of the Common Stock at the time of grant) may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board will have sole and complete authority
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to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards.
7. | C OVENANTS OF THE C OMPANY . |
(a) Availability of Shares. The Company will keep available at all times the number of shares of Common Stock reasonably required to satisfy then-outstanding Stock Awards.
(b) Compliance with Law. The Company will seek to obtain from each regulatory commission or agency, as necessary, such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise or vesting of the Stock Awards; provided, however , that this undertaking will not require the Company to register under the Securities Act the Plan or other securities or applicable laws, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts and at a reasonable cost, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary or advisable for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any liability for failure to issue and sell Common Stock upon exercise or vesting of such Stock Awards unless and until such authority is obtained. A Participant will not be eligible for the grant of an Award or the subsequent issuance of cash or Common Stock pursuant to the Award if such grant or issuance would be in violation of any applicable law.
(c) No Obligation to Notify or Minimize Taxes. The Company will have no duty or obligation to any Participant to advise such holder as to the time or manner or tax treatment of exercising such Stock Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of an Award or a possible period in which the Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of an Award to the holder of such Award.
8. | M ISCELLANEOUS . |
(a) Use of Proceeds from Sales of Common Stock. Proceeds from the sale of shares of Common Stock pursuant to Stock Awards will constitute general funds of the Company.
(b) Corporate Action Constituting Grant of Awards. Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Award Agreement or related grant documents as a result of a clerical error in the papering of the Award Agreement or related grant documents, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement or related grant documents.
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(c) Stockholder Rights. No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to an Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of shares of Common Stock under, the Award pursuant to its terms, and (ii) the issuance of the Common Stock subject to such Award has been entered into the books and records of the Company.
(d) No Employment or Other Service Rights. Nothing in the Plan, any Award Agreement or any other instrument executed thereunder or in connection with any Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or will affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state or foreign jurisdiction in which the Company or the Affiliate is domiciled or incorporated, as the case may be. Furthermore, to the extent the Company is not the employer of a Participant, the grant of an Award will be not establish an employment or other service relationship between the Company and the Participant.
(e) Change in Time Commitment. In the event a Participants regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee or takes an extended leave of absence) after the date of grant of any Award to the Participant, the Board has the right in its sole discretion to (x) make a corresponding reduction in the number of shares or cash amount subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.
(f) Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds U.S. $100,000 (or such other limit established in the Code) or otherwise does not comply with the rules governing Incentive Stock Options, the Options or portions thereof that exceed such limit (according to the order in which they were granted) or otherwise do not comply with such rules will be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).
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(g) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Award, (i) to give written assurances satisfactory to the Company as to the Participants knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that such Participant is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Award for the Participants own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative if (A) the issuance of the shares upon the exercise or acquisition of Common Stock under the Award has been registered under a then currently effective registration statement under the Securities Act, or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
(h) Withholding Obligations. Unless prohibited by the terms of an Award Agreement, the Company may, in its sole discretion, satisfy any U.S. and non-U.S. federal, state or local tax withholding obligation relating to an Award by any of the following means or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Stock Award; provided, however, that (A) no shares of Common Stock are withheld with a value exceeding the maximum amount of tax that may be required to be withheld by law (or such other amount as may be permitted while still avoiding classification of the Stock Award as a liability for financial accounting purposes) ), and (B) with respect to an Award held by any Participant who is subject to the filing requirements of Section 16 of the Exchange Act, any such share withholding must be specifically approved by the Compensation Committee as the applicable method that must be used to satisfy the tax withholding obligation or such share withholding procedure must otherwise satisfy the requirements for an exempt transaction under Section 16(b) of the Exchange Act; (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant; (v) by means of a cashless exercise pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board, or (vi) by such other method as may be set forth in the Award Agreement.
(i) Electronic Delivery . Any reference herein to a written agreement or document will include any agreement or document delivered electronically, filed publicly at www.sec.gov (or any successor website thereto) or posted on the Companys intranet (or other shared electronic medium controlled by the Company to which the Participant has access).
(j) Deferrals. To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an
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employee or otherwise providing services to the Company. The Board is authorized to make deferrals of Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participants termination of Continuous Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.
(k) Compliance with Section 409A of the Code. Unless otherwise expressly provided for in an Award Agreement, the Plan and Award Agreements will be interpreted to the greatest extent possible in a manner that makes the Plan and the Awards granted hereunder exempt from Section 409A of the Code, and, to the extent not so exempt, in compliance with Section 409A of the Code. If the Board determines that any Award granted hereunder is not exempt from and is therefore subject to Section 409A of the Code, the Award Agreement evidencing such Award will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code, and to the extent an Award Agreement is silent on terms necessary for compliance, such terms are hereby incorporated by reference into the Award Agreement. Notwithstanding anything to the contrary in this Plan (and unless the Award Agreement specifically provides otherwise), if the shares of Common Stock are publicly traded, and if a Participant holding an Award that constitutes deferred compensation under Section 409A of the Code is a specified employee for purposes of Section 409A of the Code, no distribution or payment of any amount that is due because of a separation from service (as defined in Section 409A of the Code without regard to alternative definitions thereunder) will be issued or paid before the date that is six months following the date of such Participants separation from service or, if earlier, the date of the Participants death, unless such distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be paid in a lump sum on the day after such six month period elapses, with the balance paid thereafter on the original schedule.
(l) Clawback/Recovery . All Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Companys securities are listed or as is otherwise required by the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired shares of Common Stock or other cash or property upon the occurrence of an event constituting Cause. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for good reason or constructive termination (or similar term) under any agreement with the Company or an Affiliate.
9. | A DJUSTMENTS UPON C HANGES IN C OMMON S TOCK ; O THER C ORPORATE E VENTS . |
(a) Capitalization Adjustments . In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c), (iii) the class(es) and maximum number of securities that may be awarded to any person pursuant to Sections 3(d), and (iv) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board will make such adjustments, and its determination will be final, binding and conclusive.
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(b) Dissolution or Liquidation . Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a forfeiture condition or the Companys right of repurchase) will terminate immediately prior to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the Companys repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service; provided, however , that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c) Corporate Transaction. The following provisions will apply to Stock Awards in the event of a Corporate Transaction unless otherwise provided in the Stock Award Agreement or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise expressly provided by the Board at the time of grant of a Stock Award. In the event of a Corporate Transaction, then, notwithstanding any other provision of the Plan, the Board may take one or more of the following actions with respect to Stock Awards, contingent upon the closing or completion of the Corporate Transaction:
(i) arrange for the surviving corporation or acquiring corporation (or the surviving or acquiring corporations parent company) to assume or continue the Stock Award or to substitute a similar stock award for the Stock Award (including, but not limited to, an award to acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate Transaction);
(ii) arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to the Stock Award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporations parent company);
(iii) accelerate the vesting, in whole or in part, of the Stock Award (and, if applicable, the time at which the Stock Award may be exercised) to a date prior to the effective time of such Corporate Transaction as the Board determines (or, if the Board does not determine such a date, to the date that is five days prior to the effective date of the Corporate Transaction), which exercise is contingent upon the effectiveness of such Corporate Transaction with such Stock Award terminating if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction; provided, however , that the Board may require Participants to complete and deliver to the Company a notice of exercise before the effective date of a Corporate Transaction
(iv) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Stock Award;
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(v) cancel or arrange for the cancellation of the Stock Award, to the extent not vested or not exercised prior to the effective time of the Corporate Transaction, in exchange for such cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and
(vi) make a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the per share amount (or value of property per share) payable to holders of Common Stock in connection with the Transaction, over (B) the per share exercise price under the applicable Stock Award, multiplied by the number of shares subject to the Stock Award. For clarity, this payment may be zero (U.S. $0) if the amount per share (or value of property per share) payable to the holders of the Common Stock is equal to or less than the exercise price of the Stock Award. In addition, any escrow, holdback, earnout or similar provisions in the definitive agreement for the Transaction may apply to such payment to the holder of the Stock Award to the same extent and in the same manner as such provisions apply to the holders of Common Stock.
The Board need not take the same action or actions with respect to all Stock Awards or portions thereof or with respect to all Participants. The Board may take different actions with respect to the vested and unvested portions of a Stock Award.
(d) Change in Control. A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.
10. | T ERMINATION OR S USPENSION OF THE P LAN . |
The Board may suspend or terminate the Plan at any time. No Incentive Stock Options may be granted after the tenth anniversary of the earlier of (i) the Adoption Date, or (ii) the date the Plan is approved by the stockholders of the Company. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
11. | E XISTENCE OF THE P LAN ; T IMING OF F IRST G RANT OR E XERCISE . |
The Plan will come into existence on the Adoption Date; provided, however , no Award may be granted prior to the IPO Date (that is, the Effective Date). In addition, no Stock Award will be exercised (or, in the case of a Restricted Stock Award, Restricted Stock Unit Award, Performance Stock Award, or Other Stock Award, will be granted) and no Performance Cash Award will be settled unless and until the Plan has been approved by the stockholders of the Company, which approval will be within 12 months after the Adoption Date.
12. | C HOICE OF L AW . |
The law of the State of Delaware will govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that states conflict of laws rules.
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13. | D EFINITIONS . As used in the Plan, the following definitions will apply to the capitalized terms indicated below: |
(a) Adoption Date means the date the Plan is adopted by the Board.
(b) Affiliate means, at the time of determination, any parent or subsidiary of the Company as such terms are defined in Rule 405 of the Securities Act. The Board will have the authority to determine the time or times at which parent or subsidiary status is determined within the foregoing definition.
(c) Award means a Stock Award or a Performance Cash Award.
(d) Award Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of an Award.
(e) Board means the Board of Directors of the Company.
(f) Capital Stock means each and every class of common stock of the Company, regardless of the number of votes per share.
(g) Capitalization Adjustment means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Adoption Date without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, reverse stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.
(h) Cause will have the meaning ascribed to such term in any written agreement between the Participant and the Company defining such term and, in the absence of such agreement, such term means, with respect to a Participant, the occurrence of any of the following events: (i) such Participants commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States, any state thereof, or any applicable foreign jurisdiction; (ii) such Participants attempted commission of, or participation in, a fraud or act of dishonesty against the Company or any Affiliate; (iii) such Participants intentional, material violation of any contract or agreement between the Participant and the Company or any Affiliate or of any statutory duty owed to the Company or any Affiliate; (iv) such Participants unauthorized use or disclosure of the Companys or any Affiliates confidential information or trade secrets; or (v) such Participants gross misconduct. The determination that a termination of the Participants Continuous Service is either for Cause or without Cause shall be made by the Company in its sole discretion. Any determination by the Company that the Continuous Service of a Participant was terminated by reason of dismissal without Cause for the purposes of outstanding Stock Awards held by such Participant shall have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose.
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(i) Change in Control means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than 60% of the combined voting power of the Companys then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Companys securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities, (C) on account of the acquisition of securities of the Company by any individual who is, on the IPO Date, either an executive officer or a Director (either, an IPO Investor ) and/or any entity in which an IPO Investor has a direct or indirect interest (whether in the form of voting rights or participation in profits or capital contributions) of more than 60% (collectively, the IPO Entities ) or on account of the IPO Entities continuing to hold shares that come to represent more than 60% of the combined voting power of the Companys then outstanding securities as a result of the conversion of any class of the Companys securities into another class of the Companys securities having a different number of votes per share pursuant to the conversion provisions set forth in the Companys Amended and Restated Certificate of Incorporation; or (D) solely because the level of Ownership held by any Exchange Act Person (the Subject Person ) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur;
(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than 60% of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than 60% of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction; provided, however , that a merger, consolidation or similar transaction will not constitute a Change in Control under this prong of the definition if the outstanding voting securities representing more than 60% of the combined voting power of the surviving Entity or its parent are owned by the IPO Entities;
(iii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than 60% of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the
21.
same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; provided, however , that a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries will not constitute a Change in Control under this prong of the definition if the outstanding voting securities representing more than 60% of the combined voting power of the acquiring Entity or its parent are owned by the IPO Entities; or
(iv) individuals who, on the date the Plan is adopted by the Board, are members of the Board (the Incumbent Board ) cease for any reason to constitute at least a majority of the members of the Board; provided, however , that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the Incumbent Board.
Notwithstanding the foregoing or any other provision of the Plan, the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company and the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant will supersede the foregoing definition with respect to Awards subject to such agreement; provided, however , that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition will apply. To the extent required for compliance with Section 409A of the Code, in no event will a Change in Control be deemed to have occurred if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulations Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). The Board may, in its sole discretion and without a Participants consent, amend the definition of Change in Control to conform to the definition of Change in Control under Section 409A of the Code, and the regulations thereunder.
(j) Code means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.
(k) Committee means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).
(l) Common Stock means, as of the IPO Date, the Class A common stock of the Company, having one vote per share.
(m) Company means Roku, Inc., a Delaware corporation.
(n) Consultant means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a Consultant for purposes of the Plan. Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form S-8 Registration Statement under the Securities Act is available to register either the offer or the sale of the Companys securities to such person.
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(o) Continuous Service means that the Participants service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participants service with the Company or an Affiliate, will not terminate a Participants Continuous Service; provided, however , that if the Entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Board, in its sole discretion, such Participants Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or to a Director will not constitute an interruption of Continuous Service. To the extent permitted by law, the Board or the chief executive officer of the Company, in that partys sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence will be treated as Continuous Service for purposes of vesting in an Award only to such extent as may be provided in the Companys leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law. In addition, to the extent required for exemption from or compliance with Section 409A of the Code, the determination of whether there has been a termination of Continuous Service will be made, and such term will be construed, in a manner that is consistent with the definition of separation from service as defined under Treasury Regulation Section 1.409A-1(h) (without regard to any alternative definition thereunder).
(p) Corporate Transaction means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) a sale or other disposition of all or substantially all, as determined by the Board, in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii) a sale or other disposition of more than 50% of the outstanding securities of the Company;
(iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
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If required for compliance with Section 409A of the Code, in no event will a Corporate Transaction be deemed to have occurred if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder).
(q) Covered Employee will have the meaning provided in Section 162(m)(3) of the Code.
(r) Director means a member of the Board.
(s) Disability means, with respect to a Participant, the inability of such Participant 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 that has lasted or can be expected to last for a continuous period of not less than 12 months, as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
(t) Effective Date means the IPO Date.
(u) Employee means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an Employee for purposes of the Plan.
(v) Entity means a corporation, partnership, limited liability company or other entity.
(w) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(x) Exchange Act Person means any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that Exchange Act Person will not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Companys then outstanding securities.
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(y) Fair Market Value means, as of any date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded on any established market, the Fair Market Value of a share of Common Stock will be, unless otherwise determined by the Board, the closing sales price for such stock as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the date of determination, as reported in a source the Board deems reliable.
(ii) Unless otherwise provided by the Board, if there is no closing sales price for the Common Stock on the date of determination, then the Fair Market Value will be the closing selling price on the last preceding date for which such quotation exists.
(iii) In the absence of such markets for the Common Stock, the Fair Market Value will be determined by the Board in good faith and in a manner that complies with Sections 409A and 422 of the Code.
(z) Incentive Stock Option means an option granted pursuant to Section 5 of the Plan that is intended to be, and qualifies as, an incentive stock option within the meaning of Section 422 of the Code.
(aa) IPO Date means the date of the underwriting agreement between the Company and the underwriter(s) managing the initial public offering of the Common Stock, pursuant to which the Common Stock is priced for the initial public offering.
(bb) Non-Employee Director means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ( Regulation S-K )), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a non-employee director for purposes of Rule 16b-3.
(cc) Nonstatutory Stock Option means any Option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock Option.
(dd) Officer means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
(ee) Option means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.
(ff) Option Agreement means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.
(gg) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(hh) Other Stock Award means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 6(d).
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(ii) Other Stock Award Agreement means a written agreement between the Company and a holder of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each Other Stock Award Agreement will be subject to the terms and conditions of the Plan.
(jj) Outside Director means a Director who either (i) is not a current employee of the Company or an affiliated corporation (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an affiliated corporation who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an affiliated corporation, and does not receive remuneration from the Company or an affiliated corporation, either directly or indirectly, in any capacity other than as a Director, or (ii) is otherwise considered an outside director for purposes of Section 162(m) of the Code.
(kk) Own, Owned, Owner, Ownership means a person or Entity will be deemed to Own, to have Owned, to be the Owner of, or to have acquired Ownership of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
(ll) Parent means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.
(mm) Participant means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.
(nn) Performance Cash Award means an award of cash granted pursuant to the terms and conditions of Section 6(c)(ii).
(oo) Performance Criteria means the one or more criteria that the Board or Committee (as applicable) will select for purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that will be used to establish such Performance Goals may be based on any one of, or combination of, the following as determined by the Board or Committee (as applicable): (1) earnings (including earnings per share and net earnings); (2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes, depreciation and amortization; (4) total stockholder return; (5) return on equity or average stockholders equity; (6) return on assets, investment, or capital employed; (7) stock price; (8) margin (including gross margin); (9) income (before or after taxes); (10) operating income; (11) operating income after taxes; (12) pre-tax profit; (13) operating cash flow; (14) sales or revenue targets; (15) increases in revenue or product revenue; (16) expenses and cost reduction goals; (17) improvement in or attainment of working capital levels; (18) economic value added (or an equivalent metric); (19) market share; (20) cash flow; (21) cash flow per share; (22) share price performance; (23) debt reduction; (24) implementation or completion of projects or processes; (25) subscriber satisfaction; (26) stockholders equity; (27) capital expenditures;
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(28) debt levels; (29) operating profit or net operating profit; (30) workforce diversity; (31) growth of net income or operating income; (32) billings; (33) the number of subscribers, including but not limited to unique subscribers; (34) employee retention; and (35) to the extent that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board.
(pp) Performance Goals means, for a Performance Period, the one or more goals established by the Board or Committee (as applicable) for the Performance Period based upon the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise by the Board or Committee (as applicable) (i) in the Award Agreement at the time the Award is granted or (ii) in such other document setting forth the Performance Goals at the time the Performance Goals are established, the Board or Committee (as applicable) will appropriately make adjustments in the method of calculating the attainment of Performance Goals for a Performance Period as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of items that are unusual in nature or occur infrequently as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a Performance Period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and the award of bonuses under the Companys bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; and (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles. In addition, the Board or Committee (as applicable) retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for such Performance Period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement or the written terms of a Performance Cash Award.
(qq) Performance Period means the period of time selected by the Board or Committee (as applicable) over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participants right to and the payment of a Stock Award or a Performance Cash Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Board or Committee (as applicable).
(rr) Performance Stock Award means a Stock Award granted under the terms and conditions of Section 6(c)(i).
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(ss) Plan means this Roku, Inc. 2017 Equity Incentive Plan, as it may be amended.
(tt) Restricted Stock Award means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).
(uu) Restricted Stock Award Agreement means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement will be subject to the terms and conditions of the Plan.
(vv) Restricted Stock Unit Award means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(b).
(ww) Restricted Stock Unit Award Agreement means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement will be subject to the terms and conditions of the Plan.
(xx) Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
(yy) Securities Act means the Securities Act of 1933, as amended.
(zz) Stock Appreciation Right or SAR means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 5.
(aaa) Stock Appreciation Right Agreement means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement will be subject to the terms and conditions of the Plan.
(bbb) Stock Award means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock Award.
(ccc) Stock Award Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement will be subject to the terms and conditions of the Plan.
(ddd) Subsidiary means, with respect to the Company, (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%.
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(eee) Ten Percent Stockholder means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Affiliate.
29.
Exhibit 10.6
ROKU, I NC .
S TOCK O PTION G RANT N OTICE
(2017 E QUITY I NCENTIVE P LAN )
Roku, Inc. (the Company ), pursuant to its 2017 Equity Incentive Plan (the Plan ), hereby grants to Optionholder an option to purchase the number of shares of the Companys Common Stock set forth below. This option is subject to all of the terms and conditions as set forth in this stock option grant notice (this Stock Option Grant Notice ), in the Option Agreement, , including any special terms and conditions for Optionholders country set forth in the appendix attached to the Option Agreement as Exhibit A (the Appendix and, together with the Option Agreement, the Agreement ), the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Option Agreement will have the same definitions as in the Plan or the Agreement. If there is any conflict between the terms herein and the Plan, the terms of the Plan will control.
Optionholder: | ||||||||
Date of Grant: | ||||||||
Vesting Commencement Date: | ||||||||
Number of Shares Subject to Option: | ||||||||
Exercise Price (Per Share): | ||||||||
Total Exercise Price: | ||||||||
Expiration Date: |
Type of Grant: | ☐ | Incentive Stock Option 1 |
☐ Nonstatutory Stock Option |
|||
Exercise Schedule: | ☐ | Same as Vesting Schedule |
☐ Early Exercise Permitted |
|||
Vesting Schedule: | [ ] | |||||
Payment: | By one or a combination of the following items (described in the Option Agreement): | |||||
☐ | By cash, check, bank draft, wire transfer or money order payable to the Company | |||||
☐ | Pursuant to a Regulation T Program if the shares are publicly traded | |||||
☐ | By delivery of already-owned shares if the shares are publicly traded | |||||
☐ | If and only to the extent this option is a Nonstatutory Stock Option, and subject to the Companys consent at the time of exercise, by a net exercise arrangement |
Additional Terms/Acknowledgements: Optionholder acknowledges receipt of, and understands and agrees to all of the terms and conditions set forth in, this Stock Option Grant Notice, the Agreement and the Plan. Optionholder acknowledges and agrees that this Stock Option Grant Notice and the Agreement may not be modified, amended or revised except as provided in the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Agreement, and the Plan set forth the entire understanding between Optionholder and the Company regarding this option award
1 | If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option. |
and supersede all prior oral and written agreements, promises and/or representations on that subject with the exception of (i) options previously granted and delivered to Optionholder, (ii) any compensation recovery policy that is adopted by the Company or is otherwise required by applicable law and (iii) any written employment or severance arrangement that would provide for vesting acceleration of this option upon the terms and conditions set forth therein.
By accepting this option, Optionholder consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
R OKU , I NC . | O PTIONHOLDER : | |||||||
By: | ||||||||
Signature | Signature | |||||||
Title: | Date: | |||||||
Date: |
A TTACHMENTS : Agreement, 2017 Equity Incentive Plan, Notice of Exercise and Early Exercise Stock Purchase Agreement
2.
A TTACHMENT I
O PTION A GREEMENT
(I NCENTIVE S TOCK O PTION OR N ONSTATUTORY S TOCK O PTION )
Pursuant to your Stock Option Grant Notice ( Stock Option Grant Notice ) and this Option Agreement, including any special terms and conditions for your country set forth in the appendix attached hereto as Exhibit A (the Appendix and, together with the Option Agreement, this Agreement ), Roku, Inc. (the Company ) has granted you an option under its 2017 Equity Incentive Plan (the Plan ) to purchase the number of shares of the Companys Common Stock indicated in your Stock Option Grant Notice at the exercise price indicated in your Stock Option Grant Notice. The option is granted to you effective as of the date of grant set forth in the Stock Option Grant Notice (the Date of Grant ). If there is any conflict between the terms in this Agreement and the Plan, the terms of the Plan will control. Capitalized terms not explicitly defined in this Agreement or in the Stock Option Grant Notice but defined in the Plan will have the same definitions as in the Plan.
The details of your option, in addition to those set forth in the Stock Option Grant Notice and the Plan, are as follows:
1. V ESTING . Your option will vest as provided in your Stock Option Grant Notice. Vesting will cease upon the termination of your Continuous Service, as described in Section 8 below.
2. N UMBER OF S HARES AND E XERCISE P RICE . The number of shares of Common Stock subject to your option and your exercise price per share in your Stock Option Grant Notice will be adjusted for Capitalization Adjustments.
3. E XERCISE R ESTRICTION FOR N ON -E XEMPT E MPLOYEES . If you are an Employee eligible for overtime compensation under the U.S. Fair Labor Standards Act of 1938, as amended (that is, a Non-Exempt Employee ), and except as otherwise provided in the Plan, you may not exercise your option until you have completed at least six (6) months of Continuous Service measured from the Date of Grant, even if you have already been an employee for more than six (6) months. Consistent with the provisions of the Worker Economic Opportunity Act, you may exercise your option as to any vested portion prior to such six (6) month anniversary in the case of (i) your death or disability, (ii) a Corporate Transaction in which your option is not assumed, continued or substituted, (iii) a Change in Control or (iv) your termination of Continuous Service on your retirement (as defined in the Companys benefit plans).
4. E XERCISE PRIOR TO V ESTING (E ARLY E XERCISE ). If permitted in your Stock Option Grant Notice ( i.e. , the Exercise Schedule indicates Early Exercise Permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the unvested portion of your option; provided , however , that:
(a) a partial exercise of your option will be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that have not vested as of the date of exercise will be subject to the purchase option in favor of the Company as described in the Companys form of Early Exercise Stock Purchase Agreement;
(c) you will enter into the Companys form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and
(d) if your option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the shares of Common Stock with respect to which your option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) will be treated as Nonstatutory Stock Options.
5. I NCENTIVE S TOCK O PTION L IMITATION . If your option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the shares of Common Stock with respect to which your option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) will be treated as Nonstatutory Stock Options.
6. M ETHOD OF P AYMENT . You must pay the full amount of the exercise price for the shares you wish to exercise. You may pay the exercise price in cash or by check, bank draft, wire transfer or money order payable to the Company or in any other manner permitted by your Stock Option Grant Notice , which may include one or more of the following:
(a) Provided that at the time of exercise the Common Stock is publicly traded, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. This manner of payment is also known as a broker-assisted exercise, same day sale, or sell to cover.
(b) Provided that at the time of exercise the Common Stock is publicly traded, by delivery to the Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances or security interests, and whose Fair Market Value is equal to the aggregate exercise price on the date of exercise. Delivery for these purposes, in the sole discretion of the Company at the time you exercise your option, will include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. You may not exercise your option by delivery to the Company of Common Stock if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Companys stock.
7. W HOLE S HARES . You may exercise your option only for whole shares of Common Stock.
8. C OMPLIANCE . In no event may you exercise your option unless the shares of Common Stock issuable upon exercise are then registered under the Securities Act or, if not registered, the Company has determined that your exercise and the issuance of the shares would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with all other applicable laws and regulations governing your option, including any U.S. and non-U.S. state, federal and local laws, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations (including any restrictions on exercise required for compliance with Treas. Reg. 1.401(k)-1(d)(3), if applicable).
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9. T ERM . You may not exercise your option before the Date of Grant or after the expiration of the options term. The term of your option expires, subject to the provisions of Section 5(h) of the Plan, upon the earliest of the following:
(a) immediately upon the termination of your Continuous Service for Cause;
(b) three (3) months after the termination of your Continuous Service for any reason other than Cause, your Disability, or your death (except as otherwise provided in Section 8(d) below); provided , however , that if during any part of such three-month period your option is not exercisable solely because of the condition set forth in the section above relating to Compliance, your option will not expire until the earlier of the Expiration Date or until it has been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; provided further , that if (i) you are a Non-Exempt Employee, (ii) your Continuous Service terminates within six (6) months after the Date of Grant, and (iii) you have vested in a portion of your option at the time of your termination of Continuous Service, your option will not expire until the earlier of (x) the later of (A) the date that is seven (7) months after the Date of Grant, and (B) the date that is three (3) months after the termination of your Continuous Service, and (y) the Expiration Date;
(c) twelve (12) months after the termination of your Continuous Service due to your Disability (except as otherwise provided in Section 9(d)) below;
(d) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates for any reason other than Cause;
(e) the Expiration Date indicated in your Stock Option Grant Notice; and
(f) the day before the tenth (10th) anniversary of the Date of Grant.
If your option is an Incentive Stock Option, note that to obtain the U.S. federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the Date of Grant and ending on the day three (3) months before the date of your options exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates.
For purposes of your option, your Continuous Service will be considered terminated (regardless of the reason of termination, whether or not later found to be invalid or in breach of employment or other laws or rules in the jurisdiction where you are providing services or the terms of your employment or service agreement, if any) effective as of the date that you cease to actively provide services to the Company or any Affiliate and will not be extended by any notice period ( e.g. , employment or service would not include any contractual notice period or any period of garden leave or similar period mandated under employment or other laws in the jurisdiction where you are employed or providing services or the terms of your employment or service agreement, if any). The Board shall have exclusive discretion to determine when you are no longer actively employed or providing services for purposes of the Plan (including whether you still may be considered to be providing services while on a leave of absence).
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10. E XERCISE .
(a) You may exercise the vested portion of your option (and the unvested portion of your option if your Stock Option Grant Notice so permits) during its term by (i) delivering a Notice of Exercise (in a form designated by the Company) or completing such other documents and/or procedures designated by the Company for exercise and (ii) paying the exercise price and any applicable Tax-Related Items (as defined in Section 12 below) to the Companys Secretary, stock plan administrator, or such other person as the Company may designate, together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any Tax-Related Items.
(c) If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the Date of Grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that you will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale with respect to any shares of Common Stock or other securities of the Company held by you, for a period of one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act or such longer period as the underwriters or the Company will request to facilitate compliance with FINRA Rule 2241 or any successor or similar rules or regulation (the Lock-Up Period ); provided , however , that nothing contained in this section will prevent the exercise of a repurchase option, if any, in favor of the Company during the Lock-Up Period. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. You also agree that any transferee of any shares of Common Stock (or other securities) of the Company held by you will be bound by this Section 10(d). The underwriters of the Companys stock are intended third party beneficiaries of this Section 10(d) and will have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
11. T RANSFERABILITY . Except as otherwise provided in this Section 11, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.
(a) Certain Trusts. Upon receiving written permission from the Board or its duly authorized designee, you may transfer your option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the Code and applicable U.S. state law, or comparable non-U.S. laws) while the option is held in the trust. You and the trustee must enter into transfer and other agreements required by the Company.
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(b) Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your option pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulation 1.421-1(b)(2), or comparable non-U.S. law, that contains the information required by the Company to effectuate the transfer. You are encouraged to discuss the proposed terms of any division of this option with the Company prior to finalizing the domestic relations order or marital settlement agreement to help ensure the required information is contained within the domestic relations order or marital settlement agreement. If this option is an Incentive Stock Option, this option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(c) Beneficiary Designation. Upon receiving written permission from the Board or its duly authorized designee, you may, by delivering written notice to the Company, in a form approved by the Company and any broker designated by the Company to handle option exercises, designate a third party who, on your death, will thereafter be entitled to exercise this option and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, your executor or administrator of your estate or your legal heirs will be entitled to exercise this option and receive, on behalf of your estate, the Common Stock or other consideration resulting from such exercise.
12. R ESPONSIBILITY FOR T AXES .
(a) You acknowledge that, regardless of any action the Company or, if different, your employer (the Employer ) takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax related items related to your participation in the Plan and legally applicable to you ( Tax-Related Items ), the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer, if any. You further acknowledge that the Company and the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of your option, including, but not limited to, the grant, vesting or exercise of your option, the subsequent sale of shares of Common Stock acquired pursuant to such exercise and the issuance of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of your option to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. You acknowledge and agree that you will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates for Tax-Related Items arising from your option. In particular, you acknowledge that this option is exempt from Section 409A of the Code only if the exercise price per share specified in the Grant Notice is at least equal to the fair market value per share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the option. Further, if you are subject to Tax-Related Items in more than one jurisdiction, you acknowledge that the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to the relevant taxable or tax withholding event, as applicable, you agree to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the Company and/or the Employer, or their respective agents, at their discretion, to satisfy their withholding obligations with regard to all Tax-Related Items by: (i) withholding from your wages or other cash compensation paid to you by the Company and/or the Employer, (ii) withholding from the proceeds of the sale of shares of Common Stock acquired at exercise of your option and sold either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization without further consent); and/or (iii) if this option is a Nonstatutory Stock Option, withholding a number of shares of Common Stock that are otherwise deliverable to you upon exercise.
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(c) Depending on the withholding method, the Company or the Employer may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case you may receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding a number of shares of Common Stock, for tax purposes, you are deemed to have been issued the full number of shares of Common Stock, notwithstanding that a number of the shares of Common Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) You agree to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means previously described. You acknowledge and agree that the Company may refuse to honor the exercise and refuse to issue or deliver the shares of Common Stock, or the proceeds of the sale of the shares of Common Stock, if you fail to comply with your obligations in connection with the Tax-Related Items.
13. N ATURE OF G RANT . In accepting your option, you acknowledge, understand and agree that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted under the Plan;
(b) the grant of this option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of options (whether on the same or different terms), or benefits in lieu of options, even if options have been granted in the past;
(c) all decisions with respect to future options or other grants, if any, will be at the sole discretion of the Company;
(d) you are voluntarily participating in the Plan;
(e) this option and the shares of Common Stock subject to this option, and the income and value of same, are not intended to replace any pension rights or compensation;
(f) the future value of the shares of Common Stock underlying the option is unknown, indeterminable, and cannot be predicted with certainty;
(g) if the underlying shares of Common Stock do not increase in value, the option will have no value;
(h) if you exercise the option and acquire shares of Common Stock, the value of such shares of Common Stock may increase or decrease in value, even below the exercise price
(i) no claim or entitlement to compensation or damages shall arise from forfeiture of this option resulting from the termination of your Continuous Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or rendering services or the terms of your employment or service agreement, if any), and in consideration of the grant of this option, you irrevocably agree not to institute any claim against the Company or any Affiliate,
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(j) unless otherwise provided in the Plan or by the Company in its discretion, the option and the benefits evidenced by this Agreement do not create any entitlement to have the option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of Common Stock;
(k) unless otherwise agreed with the Company, this option and any shares of Common Stock acquired under the Plan, and the income and value of same, are not granted as consideration for, or in connection with, the service you may provide as a director of an Affiliate; and
(l) the following provisions apply only if you are employed or rendering services outside the United States:
(i) neither the Company, the Employer nor any other Affiliate shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the option or of any amounts due to you pursuant to the exercise of the option or the subsequent sale of any shares of Common Stock acquired upon exercise;
(ii) this option and the shares of Common Stock subject to this option, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments.
14. N O A DVICE R EGARDING G RANT . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common Stock. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan.
15. D ATA P RIVACY . 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, Employer, the Company and any other Affiliate for the exclusive purpose of implementing, administering and managing your participation in the Plan.
You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name, home address, email address and telephone number, email address, date of birth, social insurance, passport 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 of stock awarded, canceled, vested, unvested or outstanding in your favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
You understand that Data will be transferred to [Insert Applicable 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 (the Designated Broker). You understand that the recipients of Data may be located in the United States or elsewhere, and that the recipients country (e.g., the United States) may have different data privacy laws and protections than your country. You understand that if you reside outside the United States, you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the Company, the Designated Broker and any 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 Data, in electronic or other form, for the sole
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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 if you reside outside the United States, 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 with the Company or any Affiliate will not be affected; the only consequence of refusing or withdrawing your consent is that the Company would not be able to grant options or other equity awards to you 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.
16. R IGHT OF R EPURCHASE . The Company will have the right to repurchase all of the shares of Common Stock you acquire pursuant to the exercise of your option upon termination of your Continuous Service for Cause. Such repurchase will be at the exercise price you paid to acquire the shares and will be effected pursuant to such other terms and conditions, and at such time, as the Company will determine.
17. O PTION NOT A S ERVICE C ONTRACT . Your option is not an employment or service contract, and nothing in your option will be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Employer, or of the Employer to continue your employment. In addition, nothing in your option will obligate the Company or an Affiliate, their respective stockholders, boards of directors, officers or employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate. Finally, the grant of the option shall not be interpreted as forming an employment or service contract with the Company.
18. N OTICES . Any notices provided for in your option or the Plan will be given in writing (including electronically) and will be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this option by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this option, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
19. G OVERNING P LAN D OCUMENT . Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. If there is any conflict between the provisions of your option and those of the Plan, the provisions of the Plan will control. In addition, your option (and any compensation paid or shares issued under your option) is subject to recoupment in accordance with The DoddFrank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. No recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntarily terminate employment upon a resignation for good reason, or for a constructive termination or any similar term under any plan of or agreement with the Company.
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20. O THER D OCUMENTS . You hereby acknowledge receipt of and the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Companys policy permitting certain individuals to sell shares only during certain window periods and the Companys insider trading policy, in effect from time to time.
21. V OTING R IGHTS . You will not have voting or any other rights as a shareholder of the Company with respect to the shares to be issued pursuant to this option until such shares are issued to you. Upon such issuance, you will obtain full voting and other rights as a shareholder of the Company. Nothing contained in this option, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.
22. S EVERABILITY . If all or any part of this Option Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
23. L ANGUAGE . If you have received this Agreement, or any other document related to this option and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control. You acknowledge that you are sufficiently proficient in English to understand the terms and conditions of this Agreement.
24. I NSIDER T RADING R ESTRICTIONS /M ARKET A BUSE L AWS . You acknowledge that you may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions, including the United States and your country of residence, which may affect your ability to acquire or sell the shares of Common Stock or rights to the shares of Common Stock under the Plan during such times as you are considered to have inside information regarding the Company (as defined by the laws in your country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. You acknowledge that it is your responsibility to comply with any applicable restrictions, and you are advised to speak to your personal advisor on this matter.
25. F OREIGN A SSES /A CCOUNT AND T AX R EPORTING , E XCHANGE C ONTROLS . Your country may have certain foreign asset, account and/or tax reporting requirements and exchange controls which may affect your ability to acquire or hold shares of Common Stock under the Plan or cash received from participating in the Plan (including from any dividends received or sale proceeds arising from the sale of shares of Common Stock) in a brokerage or bank account outside your country. You understand that you may be required to report such accounts, assets or transactions to the tax or other authorities in your country. You also may be required to repatriate sale proceeds or other funds received as a result of participation in the Plan to your country through a designated bank or broker and/or within a certain time after receipt. In addition, you may be subject to tax payment and/or reporting obligations in connection with any income realized under the Plan and/or from the sale of shares of Common Stock. You acknowledge that you are responsible for complying with all such requirements, and that you should consult personal legal and tax advisors, as applicable, to ensure compliance.
26. A PPENDIX . Notwithstanding any provisions in this Option Agreement, your option shall be subject to the special terms and conditions for your country set forth in the Appendix attached hereto as Exhibit A . Moreover, if you relocate to one of the countries included therein, the 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 Option Agreement.
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27. I MPOSITION OF O THER R EQUIREMENTS . The Company reserves the right to impose other requirements on your participation in the Plan, and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
28. G OVERNING L AW /V ENUE . The interpretation, performance and enforcement of this Agreement will be governed by the law of the State of Delaware without regard to that states conflicts of laws rules. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, including its Exhibit, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts within Santa Clara County, State of California, and no other courts, where this grant is made and/or to be performed.
29. M ISCELLANEOUS .
(a) The rights and obligations of the Company under your option will be transferable to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Companys successors and assigns.
(b) You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your option.
(c) You acknowledge and agree that you have reviewed your option in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your option, and fully understand all provisions of your option.
(d) All obligations of the Company under the Plan and this Agreement will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
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This Option Agreement will be deemed to be signed by you upon the signing by you or
otherwise by your acceptance of the Grant Notice to which it is attached.
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E XHIBIT A
A PPENDIX TO O PTION A GREEMENT
S PECIAL T ERMS AND C ONDITIONS FOR E MPLOYEES OUTSIDE THE U NITED S TATES
Capitalized terms used but not defined in this Appendix have the meanings set forth in the Plan and/or in the Option Agreement.
Terms and Conditions
This Appendix includes additional terms and conditions that govern the option granted to you under the Plan if you reside and/or work in one of the countries listed below. If you are a citizen or resident (or are considered as such for local law purposes) of a country other than the country in which you are currently residing and/or working, or if you relocate to another country after the grant of the option, the Company shall, in its discretion, determine to what extent the special terms and conditions contained herein shall be applicable to you.
Notifications
This Appendix may also include information regarding exchange controls and certain other issues of which you should be aware with respect to participation in the Plan. The information is based on the securities, exchange control, and other laws in effect in the respective countries as of August 2017. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the information in this Appendix as the only source of information relating to the consequences of your participation in the Plan because the information may be out of date at the time the you exercise your option or you sell shares of Common Stock acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to your particular situation, and the Company is not in a position to assure you of a particular result. Accordingly, you are advised to seek appropriate professional advice as to how the relevant laws in your country may apply to your situation.
Finally, if you are a citizen or resident (or are considered as such for local law purposes) of a country other than the country in which you are currently residing and/or working, or if you relocate to another country after the grant of the option, the notifications contained herein may not be applicable to you in the same manner.
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C HINA
Terms and Conditions
The following provisions apply to Participants who are subject to exchange control regulations in the Peoples Republic of China (China), including the requirements imposed by the State Administration of Foreign Exchange (SAFE), as determined by the Company in its sole discretion:
Restriction on Exercise . You will not be permitted to exercise your option and obtain any shares of Common Stock unless and until the necessary approvals for the Plan have been obtained from SAFE and remain in place, as determined by the Company in its sole discretion. Further, the Company is under no obligation to issue shares of Common Stock if the Company has not or does not obtain SAFE approval or if any such SAFE approval subsequently becomes invalid or ceases to be in effect by the time you exercise your option.
Method of Payment. This provision supplements Sections 6 and 12 of the Option Agreement:
Notwithstanding anything to the contrary in the Option Agreement or the Plan, due to exchange control laws in China, you will be required to exercise you option using the cashless sell-all exercise method pursuant to which all shares subject to the exercised option will be sold immediately upon exercise and the proceeds of sale, less the exercise price, any Tax-Related Items and brokers fees or commissions, will be remitted to the you in accordance with any applicable exchange control laws and regulations. The Company reserves the right to provide additional methods of exercise depending on the development of local law.
Exchange Control Requirements . Due to exchange control requirements in China, you understand and agree that you will not be permitted to transfer any shares of Common Stock acquired under the Plan out of the account established for you with the Designated Broker and that you will be required to immediately repatriate to China any cash proceeds from the sale of the shares of Common Stock you acquire under the Plan as well as any cash dividends paid on such shares. You further understand that such repatriation of cash proceeds will need to be effectuated through a special exchange control account established by the Company, the Employer or any other Affiliate in China, and you hereby consent and agree that any proceeds from the sale of shares of Common Stock or the receipt of any cash dividends may be transferred to such special account prior to being delivered to you.
The proceeds may be paid to you in U.S. dollars or local currency at the Companys discretion. In the event the proceeds are paid to you in U.S. dollars, you understand that you will be required to set up a U.S. dollar bank account in China and provide the bank account details to the Employer and/or the Company, so that the proceeds may be deposited into this account. If the proceeds are paid to you in local currency, you agree to bear any currency fluctuation risk between the time the shares of Common Stock are sold or cash dividends are paid and the time the proceeds are distributed to you through any such special account.
You agree to comply with any other requirements that may be imposed by the Company in the future in order to facilitate compliance with exchange control requirements in China.
Post-Termination Exercise Period. This provision modifies Section 9 of the Option Agreement:
Notwithstanding the post-termination exercise periods set forth in Section 9 of the Option Agreement, to comply with local exchange control requirements, you will be required to exercise the option within the lesser of (i) the period set forth in Section 9 of the Option Agreement, and (ii) three (3) months after termination of your Continuous Service, regardless of the reason for termination. The Company reserves the right to allow for a longer exercise period depending on the development of local law.
12.
Notifications
Exchange Control Information . Chinese residents must report to SAFE all details of foreign financial assets and liabilities, as well as details of any economic transactions conducted with non-Chinese residents, either directly or through financial institutions.
D ENMARK
Terms and Conditions
Danish Stock Option Act. By accepting this option, you acknowledge that you received an Employer Statement, translated into Danish, which is being provided to comply with the Danish Stock Option Act. To the extent more favorable and required to comply with the Danish Stock Option Act, the terms set forth in the Employer Statement will apply to your option.
Notifications
Securities/Tax Reporting Information. If you establish a brokerage or bank account holding shares outside Denmark, you must report this safety-deposit account to the Danish Tax Administration. For this purpose, you must file a Form V (Erklaering V) with the Danish Tax Administration. The Form V must be signed by you and may be signed by the applicable broker or bank where the account is held. By signing the Form V, the broker or bank undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the shares in the account. By signing the Form V, you authorize the Danish Tax Administration to examine the account. In the likely event that the Form V is not also signed by the broker or bank either because of refusal on the part of the broker and/or bank or due to the laws of the country in question, you are solely responsible for providing certain details regarding the foreign brokerage or bank account and shares deposited therein to the Danish Tax Administration as part of your annual income tax return.
In addition, if you open a brokerage account (or a deposit account with a U.S. bank) outside of Denmark, the brokerage account (or bank account) will be treated as a deposit account because cash can be held in the account. In such case, you must also file a Form K (Erklaering K) with the Danish Tax Administration. The Form K must be signed both by you and by the applicable broker or bank where the account is held, unless an exemption from the broker/bank signature requirement is granted by the Danish Tax Administration. It is possible to seek the exemption on the Form K, which you should do at the time you submit the Form K. By signing the Form K, you (and the broker/bank, to the extent the exemption is not granted) undertake an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the content of the account. By signing the Form K, you authorize the Danish Tax Administration to examine the account. In the likely event that the Form K is not also signed by the broker or bank either because of refusal on the part of the broker and/or bank or due to the laws of the country in question, you are solely responsible for providing certain details regarding the foreign brokerage or bank account and cash deposited therein to the Danish Tax Administration as part of your annual income tax return.
Foreign Asset/Account Reporting Information. If you establish an account holding shares or cash outside of Denmark, you must report the account to the Danish Tax Administration. The form which should be used to make the report can be obtained from a local bank. These obligations are separate from and in addition to the obligations described above.
13.
SPECIAL NOTICE FOR EMPLOYEES IN DENMARK
EMPLOYER STATEMENT
Pursuant to Section 3(1) of the Act on Stock Options in employment relations (the Stock Option Act ), you are entitled to receive the following information regarding the options granted to you by Roku, Inc. (the Company ) under the Roku, Inc. 2017 Equity Incentive Plan (the Plan ) in a written statement.
This statement contains information applicable to your participation in the Plan, as required under the Stock Option Act, while the other terms and conditions of your options are described in detail in the Plan and the Option Agreement (the Agreement ), both of which have been made available to you. Capitalized terms used but not defined herein shall have the same meanings given to them in the Plan or the Agreement, as applicable.
Section 1 of the Stock Option Act provides that the Stock Option Act only applies to employees. Employees are defined in section 2 of the Stock Option Act as persons who receive remuneration for their personal services in an employment relationship. Persons, including managers, who are not regarded as employees under the Stock Option Act, will not be subject to the Stock Option Act. If you are not an employee within the meaning of the Stock Option Act, the Company therefore has no obligation to issue an employer information statement to you and you will not be able to rely on this statement for legal purposes, since only the terms and conditions set out in the Plan apply.
1. | Date of grant |
The date of grant of your options is the date that the Board or Committee approved a grant for you and determined it would be effective, which is set forth in the Agreement.
2. | Terms or conditions for option grant |
The grant of options under the Plan is made at the sole discretion of the Company. Employees, Directors and Consultants of the Company and its Affiliates, are eligible to receive grants under the Plan. The Board has broad discretion to determine who will receive options and to set the terms and conditions of the options. The Company may decide, in its sole discretion, not to make any grants of options to you in the future. Under the terms of the Plan and the Agreement, you have no entitlement or claim to receive future grants of options.
3. | Exercise date or period |
The options will vest and become exercisable over a period of time (as set forth in the Agreement), subject to your Continuous Service through the applicable vesting date and other conditions set forth in the Plan and Agreement, and subject to Section 5 of this statement.
4. | Exercise Price |
During the exercise period, the options can be exercised to purchase shares of common stock of the Company at a price per share not less than the fair market value of the stock on the date the option is granted, as determined in accordance with the Plan.
14.
5. | Your rights upon termination of employment |
The treatment of your options upon termination of employment will be determined under Sections 4 and 5 of the Stock Option Act unless the terms contained in the Plan and the Agreement are more favorable to you than Sections 4 and 5 of the Stock Option Act. If the terms contained in the Plan and the Agreement are more favorable to you, then such terms will govern the treatment of your option upon termination of employment.
6. | Financial aspects of participating in the Plan |
The grant of stock options has no immediate financial consequences for you. The value of the options is not taken into account when calculating holiday allowances, pension contributions or other statutory consideration calculated on the basis of salary.
Shares of stock are financial instruments and investing in stock will always have financial risk. The future value of Company shares is unknown and cannot be predicted with certainty.
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
U.S.A.
15.
SÆRLIG MEDDELELSE TIL MEDARBEJDERE I DANMARK
ARBEJDSGIVERERKLÆRING
I henhold til § 3, stk. 1, i lov om brug af køberet eller tegningsret mv. i ansættelsesforhold ( Aktieoptionsloven ) er du berettiget til i en skriftlig erklæring at modtage følgende oplysninger om de aktieoptioner, som du tildeles af Roku, Inc. ( Selskabet ) i henhold til Roku, Inc.s 2017 Equity Incentive Plan ( Planen ).
Denne erklæring indeholder, i henhold til Aktieoptionsloven, de oplysninger, der er gældende for din deltagelse i Planen, mens de øvrige kriterier og betingelser for dine aktieoptioner er beskrevet nærmere i Planen og i Option Agreement ( Aftalen ), som begge er stillet til rådighed for dig. Begreber, der står med stort begyndelsesbogstav i denne arbejdsgivererklæring, men som ikke er defineret heri, har den betydning, der er defineret i Planen, hhv. Aftalen.
I henhold til Aktieoptionslovens § 1 finder loven kun anvendelse for lønmodtagere. Lønmodtagere er defineret i Aktieoptionslovens § 2 som personer, der modtager vederlag for personligt arbejde i tjenesteforhold.
Personer, herunder direktører, som ikke anses for at være lønmodtagere i Aktieoptionslovens forstand, er ikke omfattet af Aktieoptionsloven. Hvis du ikke er lønmodtager i Aktieoptionslovens forstand, er Selskabet derfor ikke forpligtet til at udstede en arbejdsgivererklæring til dig, og du vil ikke i juridisk henseende kunne henholde dig til denne arbejdsgivererklæring, da alene Planens vilkår er gældende.
1. | Tildelingstidspunkt |
Tidspunktet for tildelingen af dine aktieoptioner er den dag, hvor Bestyrelsen eller Komitéen godkendte din tildeling og besluttede, at den skulle træde i kraft. Tidspunktet fremgår af Aftalen.
2. | Vilkår og betingelser for optionstildelingen |
Aktieoptioner, der er omfattet af Planen, tildeles udelukkende efter Selskabets skøn. Tildeling kan i henhold til Planen ske til Medarbejdere, Bestyrelsesmedlemmer og Konsulenter i Selskabet og dets Tilknyttede Selskaber. Bestyrelsen har vide beføjelser til at bestemme, hvem der skal modtage optioner og til at fastsætte betingelserne herfor. Selskabet kan frit vælge fremover ikke at tildele dig aktieoptioner. I henhold til bestemmelserne i Planen og Aftalen har du ikke hverken ret til eller krav på fremover at få tildelt aktieoptioner.
3. | Udnyttelsestidspunkt eller -periode |
Aktieoptionerne modnes over en periode (som anført i Aftalen), forudsat at du på det relevante modningstidspunkt opfylder betingelsen om Fortsat Ansættelse og de øvrige betingelser i Planen og i Aftalen, og med forbehold for pkt. 5 i denne erklæring.
4. | Udnyttelseskurs |
I udnyttelsesperioden kan aktieoptionerne udnyttes til at købe ordinære aktier i Selskabet til en kurs, som ikke kan være lavere end markedskursen for de ordinære aktier på tildelingstidspunktet, som opgjort i overensstemmelse med Planen.
16.
5. | Din retsstilling i forbindelse med fratræden |
Dine aktieoptioner vil i tilfælde af din fratræden blive behandlet i overensstemmelse med Aktieoptionslovens §§ 4 og 5, medmindre bestemmelserne i Planen og Aftalen er mere fordelagtige for dig end Aktieoptionslovens §§ 4 og 5. Hvis bestemmelserne i Planen og Aftalen er mere fordelagtige for dig, vil det være disse bestemmelser, der er gældende for, hvordan din aktieoption behandles i forbindelse med din fratræden.
6. | Økonomiske aspekter ved deltagelse i Planen |
Tildelingen af aktieoptioner har ingen umiddelbare økonomiske konsekvenser for dig. Værdien af aktieoptionerne indgår ikke i beregningen af feriepenge, pensionsbidrag eller øvrige lovbestemte, vederlagsafhængige ydelser.
Aktier er finansielle instrumenter, og investering i aktier vil altid være forbundet med en økonomisk risiko. Den fremtidige værdi af Selskabets aktier kendes ikke og kan ikke forudsiges med sikkerhed.
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
U.S.A.
17.
G ERMANY
Notifications
Exchange Control Information. Cross-border payments in excess of 12,500 must be reported monthly to the German Federal Bank ( Bundesbank ). In case of payments in connection with securities (including proceeds realized upon the sale of shares of Common Stock or the receipt of dividends), the report must be made by the 5th day of the month following the month in which the payment was received. The report must be filed electronically and the form of report ( Allgemeine Meldeportal Statistik ) can be accessed via the Bundesbanks website ( www.bundesbank.de ), in both German and English. You are responsible for making this report.
N ETHERLANDS
There are no country-specific terms.
U NITED K INGDOM
Terms and Conditions
Responsibility for Taxes. The following supplements Section 12 of the Option Agreement:
Without limitation to Section 12 of the Option Agreement, you agree that you are liable for all Tax-Related Items and hereby covenant to pay all such Tax-Related Items, as and when requested by the Company or the Employer or by Her Majestys Revenue & Customs ( HRMC ) (or any other tax authority or any other relevant authority). You also hereby agree to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC on your behalf (or any other tax authority or any other relevant authority).
Notwithstanding the foregoing, if you are an executive officer or director (within the meaning of Section 13(k) of the Exchange Act), you acknowledge that you may not be able to indemnify the Company or the Employer for the amount of any income tax not collected from or paid by you, as it may be considered a loan. In this case, the amount of any income tax not collected within ninety (90) days of the end of the U.K. tax year in which the event giving rise to the Tax-Related Item(s) occurs may constitute a benefit to you on which additional income tax and national insurance contributions may be payable. You acknowledge that you will be responsible for reporting and paying any income tax due on this additional benefit directly to the HMRC under the self-assessment regime and for paying the Company or the Employer, as applicable, for the value of any national insurance contributions due on this additional benefit, which may also be recovered from you at any time by any of the means referred to in Section 12 of the Option Agreement.
Joint Election. As a condition of participation in the Plan, you agree to accept any liability for secondary Class 1 National Insurance contributions that may be payable by the Company or the Employer (or any successor to the Company or the Employer) in connection with the option and any event giving rise to Tax-Related Items (the Employer NICs ). The Employer NICs may be collected by the Company or the Employer using any of the methods described in the Plan or in Section 12 of the Option Agreement.
Without prejudice to the foregoing, you agree to execute a joint election with the Company and/or the Employer (a Joint Election ), the form of such Joint Election being formally approved by HMRC, and any other consent or elections required by the Company or the Employer in respect of the Employer NICs liability. You further agree to execute such other elections as may be required by any successor to the Company and/or the Employer for the purpose of continuing the effectiveness of your Joint Election.
18.
ATTACHMENT II
2017 E QUITY I NCENTIVE P LAN
A TTACHMENT III
NOTICE OF EXERCISE
R OKU , I NC .
150 W INCHESTER C IRCLE
L OS G ATOS , CA 95032
Date of Exercise:
This constitutes notice to Roku, Inc. (the Company ) under my stock option that I elect to purchase the below number of shares of Common Stock of the Company (the Shares ) for the exercise price set forth below.
Type of option (check one): |
Incentive | ☐ | Nonstatutory | ☐ | ||||
Stock option dated: |
||||||||
Number of Shares as to which option is exercised: |
||||||||
Certificates to be issued in name of: |
||||||||
Total exercise price: |
$ | $ | ||||||
Cash payment delivered herewith: |
$ | $ | ||||||
Regulation T Program (cashless exercise 1 ): |
$ | $ | ||||||
Value of Shares delivered herewith 2 : |
$ | $ | ] |
By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the Roku, Inc. 2017 Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the Shares issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such Shares are issued upon exercise of this option.
1 | Shares must meet the public trading requirements set forth in the option agreement. |
2 | Shares must meet the public trading requirements set forth in the option. Shares must be valued in accordance with the terms of the option being exercised, and must be owned free and clear of any liens, claims, encumbrances or security interests. Certificates must be endorsed or accompanied by an executed assignment separate from certificate. |
I hereby make the following certifications and representations with respect to the number of Shares listed above, which are being acquired by me for my own account upon exercise of the option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the Securities Act ), and are deemed to constitute restricted securities under Rule 701 and Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least ninety (90) days after the stock of the Company becomes publicly traded ( i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the option will have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Companys Articles of Incorporation, Bylaws and/or applicable securities laws.
I further acknowledge and agree that, except for such information as required to be delivered to me by the Company pursuant to the option or the Plan (if any), I will have no right to receive any information from the Company by virtue of the grant of the option or the purchase of shares of Common Stock through exercise of the option, ownership of such shares of Common Stock, or as a result of my being a holder of record of stock of the Company. Without limiting the foregoing, to the fullest extent permitted by law, I hereby waive all inspection rights under Section 220 of the Delaware General Corporation Law and all such similar information and/or inspection rights that may be provided under the law of any jurisdiction, or any federal, state or foreign regulation, that are, or may become, applicable to the Company or the Companys capital stock (the Inspection Rights ). I hereby covenant and agree never to directly or indirectly commence, voluntarily aid in any way, prosecute, assign, transfer, or cause to be commenced any claim, action, cause of action, or other proceeding to pursue or exercise the Inspection Rights.
I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale with respect to any shares of Common Stock or other securities of the Company for a period of one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act (or such longer period as the underwriters or the Company will request to facilitate compliance with FINRA Rule 2241 or any successor or similar rule or regulation) (the Lock-Up Period ). I further agree to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.
Very truly yours, |
2.
|
Signature |
Print Name |
Address of Record: |
3.
A TTACHMENT IV 1
E ARLY E XERCISE S TOCK P URCHASE A GREEMENT
T HIS A GREEMENT is made by and between Roku, Inc., a Delaware corporation (the Company ), and ( Purchaser ).
W ITNESSETH :
W HEREAS , Purchaser holds a stock option dated to purchase shares of Class A Common Stock ( Common Stock ) of the Company (the Option ) pursuant to the Companys 2017 Equity Incentive Plan (the Plan ); and
W HEREAS , the Option consists of a Stock Option Grant Notice and an Option Agreement; and
W HEREAS , Purchaser desires to exercise the Option on the terms and conditions contained herein; and
W HEREAS , Purchaser wishes to take advantage of the early exercise provision of Purchasers Option and therefore to enter into this Agreement;
N OW , THEREFORE , IT IS AGREED between the parties as follows:
1. I NCORPORATION OF P LAN AND O PTION BY R EFERENCE . This Agreement is subject to all of the terms and conditions as set forth in the Plan and the Option. If there is a conflict between the terms of this Agreement and/or the Option and the terms of the Plan, the terms of the Plan shall control. If there is a conflict between the terms of this Agreement and the terms of the Option, the terms of the Option shall control. Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan. Defined terms not explicitly defined in this Agreement or the Plan but defined in the Option shall have the same definitions as in the Option.
2. P URCHASE AND S ALE OF C OMMON S TOCK .
(a) Agreement to purchase and sell Common Stock . Purchaser hereby agrees to purchase from the Company, and the Company hereby agrees to sell to Purchaser, an aggregate of ( ) shares of Common Stock at $ per share, for an aggregate purchase price of $ , payable as follows:
Cash, check, bank draft or money order payable to the Company |
$ | |||
Value of shares of Common Stock 2 |
$ | |||
Total Exercise Price |
$ |
1 | TBD if early exercise will be permitted for post IPO option grants. |
2 | Shares must meet the public trading requirements set forth in the Option. Shares must be valued in accordance with the terms of the Option being exercised, must have been owned for the minimum period required in the Option and must be owned free and clear of any liens, claims, encumbrances or security interest. Certificates must be endorsed or accompanied by an executed stock assignment. |
(b) Closing . The closing hereunder, including payment for and delivery of the Common Stock, shall occur at the offices of the Company immediately following the execution of this Agreement, or at such other time and place as the parties may mutually agree; provided, however, that if stockholder approval of the Plan is required before the Option may be exercised, then the Option may not be exercised, and the closing shall be delayed, until such stockholder approval is obtained. If such stockholder approval is not obtained within the time limit specified in the Plan, then this Agreement shall be null and void.
3. U NVESTED S HARE R EPURCHASE O PTION .
(a) Repurchase Option . In the event Purchasers Continuous Service terminates, then the Company shall have an irrevocable option (the Repurchase Option ) for a period of ninety (90) days after said termination (or in the case of shares issued upon exercise of the Option after such date of termination, within ninety (90) days after the date of the exercise), or such longer period as may be agreed to by the Company and Purchaser, to repurchase from Purchaser or Purchasers personal representative, as the case may be, those shares that Purchaser received pursuant to the exercise of the Option that have not as yet vested as of such termination date in accordance with the Vesting Schedule indicated on Purchasers Stock Option Grant Notice (the Unvested Shares ).
(b) Share Repurchase Price . The Company may repurchase all or any of the Unvested Shares at the lower of (i) the Fair Market Value of the such shares (as determined under the Plan) on the date of repurchase, or (ii) the price equal to Purchasers Exercise Price for such shares as indicated on Purchasers Stock Option Grant Notice.
4. E XERCISE OF R EPURCHASE O PTION . The Repurchase Option shall be exercised by written notice signed by such person as designated by the Company, and delivered or mailed as provided herein. Such notice shall identify the number of shares of Common Stock to be purchased and shall notify Purchaser of the time, place and date for settlement of such purchase, which shall be scheduled by the Company within the term of the Repurchase Option set forth above. The Company shall be entitled to pay for any shares of Common Stock purchased pursuant to its Repurchase Option at the Companys option in cash or by offset against any indebtedness owing to the Company by Purchaser (including without limitation any Promissory Note given in payment for the Common Stock), or by a combination of both. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Common Stock being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the Common Stock being repurchased by the Company, without further action by Purchaser.
5. C APITALIZATION A DJUSTMENTS TO C OMMON S TOCK . In the event of a Capitalization Adjustment, then any and all new, substituted or additional securities or other property to which Purchaser is entitled by reason of Purchasers ownership of Common Stock shall be immediately subject to the Repurchase Option and be included in the word Common Stock for all purposes of the Repurchase Option with the same force and effect as the shares of the Common Stock presently subject to the Repurchase Option, but only to the extent the Common Stock is, at the time, covered by such Repurchase Option. While the total Option Price shall remain the same after each such event, the Option Price per share of Common Stock upon exercise of the Repurchase Option shall be appropriately adjusted.
6. C ORPORATE T RANSACTIONS . In the event of a Corporate Transaction, then the Repurchase Option may be assigned by the Company to the successor of the Company (or such successors parent company), if any, in connection with such Corporate Transaction. To the extent the
2.
Repurchase Option remains in effect following such Corporate Transaction, it shall apply to the new capital stock or other property received in exchange for the Common Stock in consummation of the Corporate Transaction, but only to the extent the Common Stock was at the time covered by such right. Appropriate adjustments shall be made to the price per share payable upon exercise of the Repurchase Option to reflect the Corporate Transaction upon the Companys capital structure; provided, however, that the aggregate price payable upon exercise of the Repurchase Option shall remain the same.
7. E SCROW OF U NVESTED C OMMON S TOCK . As security for Purchasers faithful performance of the terms of this Agreement and to insure the availability for delivery of Purchasers Common Stock upon exercise of the Repurchase Option herein provided for, Purchaser agrees, at the closing hereunder, to deliver to and deposit with the Secretary of the Company or the Secretarys designee ( Escrow Agent ), as Escrow Agent in this transaction, three (3) stock assignments duly endorsed (with date and number of shares blank) in the form attached hereto as Exhibit A, together with a certificate or certificates evidencing all of the Common Stock subject to the Repurchase Option; said documents are to be held by the Escrow Agent and delivered by said Escrow Agent pursuant to the Joint Escrow Instructions of the Company and Purchaser set forth in Exhibit B, attached hereto and incorporated by this reference, which instructions also shall be delivered to the Escrow Agent at the closing hereunder.
8. R IGHTS OF P URCHASER . Subject to the provisions of the Option, Purchaser shall exercise all rights and privileges of a stockholder of the Company with respect to the shares deposited in escrow. Purchaser shall be deemed to be the holder of the shares for purposes of receiving any dividends that may be paid with respect to such shares and for purposes of exercising any voting rights relating to such shares, even if some or all of such shares have not yet vested and been released from the Companys Repurchase Option.
9. L IMITATIONS ON T RANSFER . In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not sell, assign, hypothecate, donate, encumber or otherwise dispose of any interest in the Common Stock while the Common Stock is subject to the Repurchase Option. After any Common Stock has been released from the Repurchase Option, Purchaser shall not sell, assign, hypothecate, donate, encumber or otherwise dispose of any interest in the Common Stock except in compliance with the provisions herein and applicable securities laws. Furthermore, the Common Stock shall be subject to any right of first refusal in favor of the Company or its assignees that may be contained in Purchasers Stock Option Agreement.
10. R ESTRICTIVE L EGENDS . All certificates representing the Common Stock shall have endorsed thereon legends in substantially the following forms (in addition to any other legend which may be required by other agreements between the parties hereto):
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR SUCH HOLDERS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE COMPANY.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
3.
(c) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS PROVIDED IN THE BYLAWS OF THE COMPANY AND IN AN AGREEMENT WITH THE COMPANY.
(d) THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO THE EXERCISE OF AN INCENTIVE STOCK OPTION OR A NONSTATUTORY STOCK OPTION.
(e) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A TRANSFER RESTRICTION, AS PROVIDED IN THE BYLAWS OF THE COMPANY.
(f) Any legend required by appropriate blue sky officials.
11. I NVESTMENT R EPRESENTATIONS . In connection with the purchase of the Common Stock, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Companys business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Common Stock. Purchaser is acquiring the Common Stock for investment for Purchasers own account only and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act.
(b) Purchaser understands that the Common Stock has not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchasers investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the Common Stock must be held indefinitely unless the Common Stock is subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the Common Stock. Purchaser understands that the certificate evidencing the Common Stock will be imprinted with a legend that prohibits the transfer of the Common Stock unless the Common Stock is registered or such registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701, under the Securities Act, as in effect from time to time, which, in substance, permit limited public resale of restricted securities acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of issuance of the securities, such issuance will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the securities exempt under Rule 701 may be sold by Purchaser ninety (90) days thereafter, subject to the satisfaction of certain of the conditions specified by Rule 144 and the market stand-off provision described in Purchasers Stock Option Agreement and Section 12 below.
4.
(e) In the event that the sale of the Common Stock does not qualify under Rule 701 at the time of purchase, then the Common Stock may be resold by Purchaser in certain limited circumstances subject to the provisions of Rule 144, which requires, among other things: (i) the availability of certain public information about the Company, and (ii) the resale occurring following the required holding period under Rule 144 after Purchaser has purchased, and made full payment of (within the meaning of Rule 144), the securities to be sold.
(f) Purchaser further understands that at the time Purchaser wishes to sell the Common Stock there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public current information requirements of Rule 144 or 701, and that, in such event, Purchaser would be precluded from selling the Common Stock under Rule 144 or 701 even if the minimum holding period requirement had been satisfied.
(g) Purchaser further warrants and represents that Purchaser has either (i) preexisting personal or business relationships, with the Company or any of its officers, directors or controlling persons, or (ii) the capacity to protect his own interests in connection with the purchase of the Common Stock by virtue of the business or financial expertise of Purchaser or of professional advisors to Purchaser who are unaffiliated with and who are not compensated by the Company or any of its affiliates, directly or indirectly. Purchaser further warrants and represents that Purchasers purchase the Common Stock was not accomplished by the publication of any advertisement.
12. L OCK -U P P ERIOD . By exercising the Option, Purchaser agrees not to sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by Purchaser, for a period of one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act or such longer period as necessary to permit compliance with FINRA Rule 2241 and similar rules or regulations (the Lock-Up Period ); provided, however , that nothing shall prevent the exercise of the Repurchase Option during the Lock-Up Period. Purchaser further agrees to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to Purchasers shares of Common Stock until the end of such period. The underwriters of the Companys stock are intended third party beneficiaries of this Section 12 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
13. S ECTION 83( b ) E LECTION . Purchaser understands that Section 83(a) of the Code taxes as ordinary income the difference between the amount paid for the Common Stock and the fair market value of the Common Stock as of the date any restrictions on the Common Stock lapse. In this context, restriction includes the right of the Company to buy back the Common Stock pursuant to the Repurchase Option set forth above. Purchaser understands that Purchaser may elect to be taxed at the time the Common Stock is purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) (an 83(b) Election ) of the Code with the Internal Revenue Service within thirty (30) days of the date of purchase. Even if the fair market value of the Common Stock at the time of the execution of this Agreement equals the amount paid for the Common Stock, the 83(b) Election must be made to avoid income under Section 83(a) in the future. Purchaser understands that failure to file such an 83(b) Election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that Purchaser must file an additional copy of such 83(b) Election with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser
5.
acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Common Stock hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchasers death. PURCHASER ACKNOWLEDGES THAT IT IS PURCHASERS RESPONSIBILITY, AND NOT THE COMPANYS, TO FILE A TIMELY ELECTION UNDER SECTION 83(B) OF THE CODE. THE COMPANY AND ITS LEGAL COUNSEL WILL NOT ASSUME RESPONSIBILITY FOR FAILURE TO FILE THE 83(B) ELECTION IN A TIMELY MANNER UNDER ANY CIRCUMSTANCES. PURCHASER ASSUMES ALL RESPONSIBILITY FOR PAYING ALL TAXES RESULTING FROM SUCH ELECTION OR THE LAPSE OF THE RESTRICTIONS ON THE COMMON STOCK. Forms of 83(b) Election are attached hereto as Exhibit C for reference.
14. R EFUSAL TO T RANSFER . The Company shall not be required (a) to transfer on its books any shares of Common Stock of the Company which shall have been transferred in violation of any of the provisions set forth in this Agreement, or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred.
15. N O E MPLOYMENT R IGHTS . This Agreement is not an employment contract and nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company or its Affiliates to terminate Purchasers employment for any reason at any time, with or without cause and with or without notice.
16. M ISCELLANEOUS .
(a) Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, and if not during normal business hours of the recipient, then on the next business day, (c) five (5) calendar days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the other party hereto at such partys address hereinafter set forth on the signature page hereof, or at such other address as such party may designate by ten (10) days advance written notice to the other party hereto.
(b) Successors and Assigns. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Purchaser, Purchasers successors, and assigns. The Company may assign the Repurchase Option hereunder at any time or from time to time, in whole or in part.
(c) Attorneys Fees; Specific Performance. Purchaser shall reimburse the Company for all costs incurred by the Company in enforcing the performance of, or protecting its rights under, any part of this Agreement, including reasonable costs of investigation and attorneys fees. It is the intention of the parties that the Company, upon exercise of the Repurchase Option and payment for the shares repurchased, pursuant to the terms of this Agreement, shall be entitled to receive the Common Stock, in specie, in order to have such Common Stock available for future issuance without dilution of the holdings of other stockholders. Furthermore, it is expressly agreed between the parties that money damages are inadequate to compensate the Company for the Common Stock and that the Company shall, upon proper exercise of the Repurchase Option, be entitled to specific enforcement of its rights to purchase and receive said Common Stock.
6.
(d) Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the appropriate state or federal court for the district encompassing the Companys principal place of business.
(e) Further Execution. The parties agree to take all such further action(s) as may reasonably be necessary to carry out and consummate this Agreement as soon as practicable, and to take whatever steps may be necessary to obtain any governmental approval in connection with or otherwise qualify the issuance of the securities that are the subject of this Agreement.
(f) Independent Counsel. Purchaser acknowledges that this Agreement has been prepared on behalf of the Company by Cooley LLP , counsel to the Company and that Cooley LLP does not represent, and is not acting on behalf of, Purchaser. Purchaser has been provided with an opportunity to consult with Purchasers own counsel with respect to this Agreement.
(g) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and merges all prior agreements or understandings, whether written or oral. This Agreement may not be amended, modified or revoked, in whole or in part, except by an agreement in writing signed by each of the parties hereto.
(h) 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 the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.
(i) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. This Agreement may also be executed and delivered by facsimile signature, PDF or any electronic signature complying with the U.S. federal ESIGN Act of 2000 (e.g., www.docusign.com).
T he parties hereto have executed this Agreement as of .
R OKU , I NC . | ||
By | ||
Name | ||
Title | ||
P URCHASER | ||
Signature | ||
Name (Please print) |
7.
A TTACHMENTS :
Exhibit A | Assignment Separate from Certificate | |
Exhibit B | Joint Escrow Instructions | |
Exhibit C | Forms of Section 83(b) Election |
8.
E XHIBIT A
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
F OR V ALUE R ECEIVED , hereby sells, assigns and transfers unto Roku, Inc., a Delaware corporation (the Company), pursuant to the Repurchase Option under that certain Early Exercise Stock Purchase Agreement, dated by and between the undersigned and the Company (the Agreement), ( ) shares of Common Stock of the Company standing in the undersigneds name on the books of the Company represented by Certificate No(s). and does hereby irrevocably constitute and appoint the Companys Secretary attorney-in-fact to transfer said Common Stock on the books of the Company with full power of substitution in the premises. This Assignment may be used only in accordance with and subject to the terms and conditions of the Agreement, in connection with the repurchase of shares of Common Stock issued to the undersigned pursuant to the Agreement, and only to the extent that such shares remain subject to the Companys Repurchase Option under the Agreement.
Dated: _
|
(Signature) |
(Print Name) |
(I NSTRUCTION : Please do not fill in any blanks other than the Signature line and the Print Name line .)
E XHIBIT B
JOINT ESCROW INSTRUCTIONS
Secretary
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
Dear Sir or Madam:
As Escrow Agent for both Roku, Inc., a Delaware corporation (Company), and the undersigned purchaser of Common Stock of the Company (Purchaser), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Early Exercise Stock Purchase Agreement (Agreement), dated to which a copy of these Joint Escrow Instructions is attached as Exhibit B, in accordance with the following instructions:
1. In the event the Company or an assignee shall elect to exercise the Repurchase Option set forth in the Agreement, the Company or its assignee will give to Purchaser and you a written notice specifying the number of shares of Common Stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of Common Stock to be transferred, to the Company against the simultaneous delivery to you of the purchase price (which may include suitable acknowledgment of cancellation of indebtedness) of the number of shares of Common Stock being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of Common Stock to be held by you hereunder and any additions and substitutions to said shares as specified in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as the Purchasers attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated, including but not limited to any appropriate filing with state or government officials or bank officials. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you.
4. This escrow shall terminate and the shares of stock held hereunder shall be released in full upon the expiration or exercise in full of the Repurchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder; provided, however, that if at the time of termination of this escrow you are advised by the Company that the property subject to this escrow is the subject of a pledge or other security agreement, you shall deliver all such property to the pledgeholder or other person designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions, your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties or their assignees. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be Secretary of the Company or if you shall resign by written notice to the Company party. In the event of any such termination, the Secretary of the Corporation shall automatically become the successor Escrow Agent unless the Company shall appoint another successor Escrow Agent, and Purchaser hereby confirms the appointment of such successor as Purchasers attorney-in-fact and agent to the full extent of your appointment.
12. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, including delivery by express courier or five days after deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties hereunto entitled at the following addresses, or at such other addresses as a party may designate by ten days advance written notice to each of the other parties hereto:
2.
C OMPANY : | Roku, Inc. | |||||
150 Winchester Circle | ||||||
Los Gatos, CA 95032 | ||||||
Attn: Chief Financial Officer | ||||||
P URCHASER : | ||||||
E SCROW A GENT : | Roku, Inc. | |||||
150 Winchester Circle | ||||||
Los Gatos, CA 95032 | ||||||
Attn: Corporate Secretary |
15. By signing these Joint Escrow Instructions you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts (including without limitation the firm of Cooley LLP ) as you may deem necessary properly to advise you in connection with your obligations hereunder. You may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. The Company shall be responsible for all fees generated by such legal counsel in connection with your obligations hereunder.
17. This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. It is understood and agreed that references to you or your herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Agreement and these Joint Escrow Instructions in whole or in part.
3.
18. This Agreement shall be governed by and interpreted and determined in accordance with the laws of the State of Delaware.
Very truly yours, |
||
R OKU , I NC . | ||
By | ||
Name: | ||
Title |
P URCHASER : |
|
Signature |
Name (Please Print) |
E SCROW A GENT : |
|
Secretary, Roku, Inc. |
4.
E XHIBIT C
S ECTION 83(b) E LECTION
(for Stock Acquired under Nonstatutory Stock Option)
[●], 20
Department of the Treasury
Internal Revenue Service
[City, State Zip] 1
Re: | Election Under Section 83(b) |
Ladies and Gentlemen:
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in gross income as compensation for services the excess (if any) of the fair market value of the shares described below over the amount paid for those shares. The following information is supplied in accordance with Treasury Regulation § 1.83-2:
1. | The name, social security number, address of the undersigned, and the taxable year for which this election is being made are: |
Name: |
||||
Social Security Number: |
||||
Address: |
||||
Taxable year: Calendar year 20 . |
2. | The property that is the subject of this election: [#] shares of common stock of Roku, Inc., a Delaware corporation (the Company ). |
3. | The property was transferred on: [●], 20 . |
4. | The property is subject to the following restrictions: |
The shares are subject to repurchase at less than their fair market value if the undersigned does not continue to provide services for the Company for a designated period of time. The right of repurchase lapses over a specified vesting period..
5. | The fair market value of the property at the time of transfer (determined without regard to any restriction other than a nonlapse restriction as defined in Treasury Regulation § 1.83-3(h)): $[●] per share x [#] shares = $[●]. |
6. | For the property transferred, the undersigned paid: $[●] per share x [#] shares = $[●]. |
7. | The amount to include in gross income is: $[●]. 2 |
1 | Per Treasury Regulation § 1.83-2(c), the Section 83(b) election must be filed with the IRS office where the person otherwise files his or her tax return. See http://www.irs.gov/uac/Where-to-File-Addresses-for--Taxpayers-and--Tax-Professionals-Filing-Form-1040 . Use the address in the row which includes the state in which the service provider lives and in the column entitled And you ARE NOT enclosing a payment. |
2 | This should equal the amount in Item 5 minus the amount in Item 6, and in many cases will be $0.00. |
5.
The undersigned taxpayer will file this election with the Internal Revenue Service office with which taxpayer files his or her annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were performed and the transferee of the property, if any. Additionally, the undersigned will include a copy of the election with his or her income tax return for the taxable year in which the property is transferred. The undersigned is the person performing the services in connection with which the property was transferred.
Very truly yours, |
|
[Name] |
6.
S ECTION 83(b) E LECTION
(for Stock Acquired under Incentive Stock Option)
[●], 20
Department of the Treasury
Internal Revenue Service
[City, State Zip] 1
Re: | Election Under Section 83(b) |
Ladies and Gentlemen:
The undersigned taxpayer hereby elects, pursuant to the provisions of Sections 55-56 and 83(b) of the Internal Revenue Code of 1986, as amended (the Code ), to include in alternative minimum taxable income for the undersigneds current taxable year, as compensation for services, the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property. The undersigned also elects pursuant to Section 83(b) of the Code to include in gross income for the taxable year in which the undersigned disposes of some or all of the property described below in a transaction which fails to satisfy the requirements of Section 422(a)(1) of the Code (a disqualifying disposition ), as compensation for services, the lesser of (i) the excess, if any, of the fair market value of the disposed property at the time of transfer to the undersigned over the amount paid for such property; or (ii) the excess, if any of the amount realized by the undersigned in the disqualifying disposition over the amount paid for such property at the time of its transfer to the undersigned.
The following information is supplied in accordance with Treasury Regulation § 1.83-2:
1. | The name, social security number, address of the undersigned, and the taxable year for which this election is being made are: |
Name: | ||||
Social Security Number: | ||||
Address: | ||||
Taxable year: Calendar year 20 . |
2. | The property that is the subject of this election: [#] shares of common stock of Roku, Inc, a Delaware corporation (the Company ). |
3. | The property was transferred on: [ ● ], 20 . |
4. | The property is subject to the following restrictions: |
1 | Per Treasury Regulation § 1.83-2(c), the Section 83(b) election must be filed with the IRS office where the person otherwise files his or her tax return. See http://www.irs.gov/uac/Where-to-File-Addresses-for--Taxpayers-and--Tax-Professionals-Filing-Form-1040 . Use the address in the row which includes the state in which the service provider lives and in the column entitled And you ARE NOT enclosing a payment. |
The shares are subject to repurchase at less than their fair market value if the undersigned does not continue to provide services for the Company for a designated period of time. The risk of repurchase lapses over a specified vesting period.
5. | The fair market value of the property at the time of transfer (determined without regard to any restriction other than a nonlapse restriction as defined in Treasury Regulation § 1.83-3(h)): $[] per share x [#] shares = $[]. |
6. | For the property transferred, the undersigned paid: $[] per share x [#] shares = $[]. |
7. | The amount to include in gross income is: $[]. 2 |
The undersigned taxpayer will file this election with the Internal Revenue Service office with which taxpayer files his or her annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were performed and the transferee of the property, if any. Additionally, the undersigned will include a copy of the election with his or her income tax return for the taxable year in which the property is transferred. The undersigned is the person performing the services in connection with which the property was transferred.
Very truly yours, |
|
[Name] |
2 | This should equal the amount in Item 5 minus the amount in Item 6, and in many cases will be $0.00. |
2.
I NSTRUCTIONS FOR F ILING S ECTION 83(b) E LECTION
Attached is a form of election under Section 83(b) of the Internal Revenue Code and an accompanying IRS cover letter. Please fill in your social security number and sign the election and cover letter, then proceed as follows:
(a) | Make four copies of the completed election form and one copy of the IRS cover letter. |
(b) | Send the original election form and cover letter, the copy of the cover letter, and a self-addressed stamped return envelope to the Internal Revenue Service Center where you would otherwise file your tax return. Even if an address for an Internal Revenue Service Center is already included in the forms below, it is your obligation to verify such address. This can be done by searching for the term where to file on www.irs.gov or by calling 1 (800) 829-1040. Sending the election via certified mail, requesting a return receipt, is also recommended. |
(c) | Deliver one copy of the completed election form to ROKU, Inc. |
(d) | Attach one copy of the completed election form to your state personal income tax return when you file it for the year of exercise (assuming you file a state income tax return), if required by state law. |
(f) | Retain one copy of the completed election form for your personal permanent records. |
Note: An additional copy of the completed election form must be delivered to the transferee (recipient) of the property if the service provider and the transferee are not the same person.
Please note that the election must be filed with the IRS within 30 days of the date of your stock option early exercise. Failure to file within that time will render the election void and you may recognize ordinary taxable income as your vesting restrictions lapse. Roku, Inc. and its counsel cannot assume responsibility for failure to file the election in a timely manner under any circumstances.
3.
[], 20
RETURN SERVICE REQUESTED
Department of the Treasury
Internal Revenue Service
[City, State Zip]
Re: | Election Under Section 83(b) of the Internal Revenue Code |
Dear Sir or Madam:
Enclosed please find an executed form of election under Section 83(b) of the Internal Revenue Code of 1986, as amended, filed with respect to an interest in Roku, Inc.
Also enclosed is a copy of this letter and a stamped, self-addressed envelope. Please acknowledge receipt of these materials by marking the copy when received and returning it to the undersigned.
Thank you very much for your assistance.
Very truly yours, |
[Name] |
Enclosures
4.
ROKU, I NC .
S TOCK O PTION G RANT N OTICE
(2017 E QUITY I NCENTIVE P LAN )
Roku, Inc. (the Company ), pursuant to its 2017 Equity Incentive Plan (the Plan ), hereby grants to Optionholder an option to purchase the number of shares of the Companys Common Stock set forth below. This option is subject to all of the terms and conditions as set forth in this stock option grant notice (this Stock Option Grant Notice ), in the Option Agreement, including any special terms and conditions for Optionholders country set forth in the appendix attached to the Option Agreement as Exhibit A (the Appendix and, together with the Option Agreement, the Agreement ), the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Agreement will have the same definitions as in the Plan or the Agreement. If there is any conflict between the terms herein and the Plan, the terms of the Plan will control.
Optionholder: |
||
Date of Grant: |
||
Vesting Commencement Date: |
||
Number of Shares Subject to Option: |
||
Exercise Price (Per Share): |
||
Total Exercise Price: |
||
Expiration Date: |
Type of Grant: | ☐ Incentive Stock Option 1 | ☐ Nonstatutory Stock Option |
Exercise Schedule : Same as Vesting Schedule
Vesting Schedule : [ ]
Additional Terms/Acknowledgements: Optionholder acknowledges receipt of, and understands and agrees to all of the terms and conditions set forth in, this Stock Option Grant Notice, the Agreement and the Plan. Optionholder acknowledges and agrees that this Stock Option Grant Notice and the Agreement may not be modified, amended or revised except as provided in the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Agreement, and the Plan set forth the entire understanding between Optionholder and the Company regarding this option award
1 | If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option. |
and supersede all prior oral and written agreements, promises and/or representations on that subject with the exception of (i) options previously granted and delivered to Optionholder, (ii) any compensation recovery policy that is adopted by the Company or is otherwise required by applicable law and (iii) any written employment or severance arrangement that would provide for vesting acceleration of this option upon the terms and conditions set forth therein.
By accepting this option, Optionholder consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
R OKU , I NC . | O PTIONHOLDER : | |||||||
By: | ||||||||
Signature | Signature | |||||||
Title: | Date: | |||||||
Date: |
A TTACHMENTS : Agreement, 2017 Equity Incentive Plan, and Notice of Exercise
2.
A TTACHMENT I
R OKU , I NC .
2017 E QUITY I NCENTIVE P LAN
O PTION A GREEMENT
(I NCENTIVE S TOCK O PTION OR N ONSTATUTORY S TOCK O PTION )
Pursuant to your Stock Option Grant Notice ( Stock Option Grant Notice ) and this Option Agreement, including any special terms and conditions for your country set forth in the appendix attached hereto as Exhibit A (the Appendix and, together with the Option Agreement, this Agreement ), Roku, Inc. (the Company ) has granted you an option under its 2017 Equity Incentive Plan (the Plan ) to purchase the number of shares of the Companys Common Stock indicated in your Stock Option Grant Notice at the exercise price indicated in your Stock Option Grant Notice. The option is granted to you effective as of the date of grant set forth in the Stock Option Grant Notice (the Date of Grant ). If there is any conflict between the terms in this Agreement and the Plan, the terms of the Plan will control. Capitalized terms not explicitly defined in this Agreement or in the Stock Option Grant Notice but defined in the Plan will have the same definitions as in the Plan.
The details of your option, in addition to those set forth in the Stock Option Grant Notice and the Plan, are as follows:
1. V ESTING . Your option will vest as provided in your Stock Option Grant Notice. Vesting will cease upon the termination of your Continuous Service, as described in Section 8 below.
2. N UMBER OF S HARES AND E XERCISE P RICE . The number of shares of Common Stock subject to your option and your exercise price per share in your Stock Option Grant Notice will be adjusted for Capitalization Adjustments.
3. E XERCISE R ESTRICTION FOR N ON -E XEMPT E MPLOYEES . If you are an Employee eligible for overtime compensation under the U.S. Fair Labor Standards Act of 1938, as amended (that is, a Non-Exempt Employee ), and except as otherwise provided in the Plan, you may not exercise your option until you have completed at least six (6) months of Continuous Service measured from the Date of Grant, even if you have already been an employee for more than six (6) months. Consistent with the provisions of the U.S. Worker Economic Opportunity Act, you may exercise your option as to any vested portion prior to such six (6) month anniversary in the case of (i) your death or disability, (ii) a Corporate Transaction in which your option is not assumed, continued or substituted, (iii) a Change in Control or (iv) your termination of Continuous Service on your retirement (as defined in the Companys benefit plans).
4. I NCENTIVE S TOCK O PTION L IMITATION . If your option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the shares of Common Stock with respect to which your option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) will be treated as Nonstatutory Stock Options.
5. M ETHOD OF P AYMENT . You must pay the full amount of the exercise price for the shares you wish to exercise. You may pay the exercise price in cash or by check, bank draft, wire transfer or money order payable to the Company or in any other manner permitted by your Stock Option Grant Notice , which may include one or more of the following:
(a) Provided that at the time of exercise the Common Stock is publicly traded, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. This manner of payment is also known as a broker-assisted exercise, same day sale, or sell to cover,
(b) Provided that at the time of exercise the Common Stock is publicly traded, by delivery to the Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances or security interests, and whose Fair Market Value is equal to the aggregate exercise price on the date of exercise. Delivery for these purposes, in the sole discretion of the Company at the time you exercise your option, will include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. You may not exercise your option by delivery to the Company of Common Stock if doing so would violate the provisions of any law, regulation or agreement restricting the redemption of the Companys stock.
6. W HOLE S HARES . You may exercise your option only for whole shares of Common Stock.
7. C OMPLIANCE . In no event may you exercise your option unless the shares of Common Stock issuable upon exercise are then registered under the Securities Act or, if not registered, the Company has determined that your exercise and the issuance of the shares would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with all other applicable laws and regulations governing your option, including any U.S. and non-U.S. state, federal and local laws, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations (including any restrictions on exercise required for compliance with Treas. Reg. 1.401(k)-1(d)(3), if applicable).
8. T ERM . You may not exercise your option before the Date of Grant or after the expiration of the options term. The term of your option expires, subject to the provisions of Section 5(h) of the Plan, upon the earliest of the following:
(a) immediately upon the termination of your Continuous Service for Cause;
(b) three (3) months after the termination of your Continuous Service for any reason other than Cause, your Disability, or your death (except as otherwise provided in Section 8(d) below); provided , however , that if during any part of such three-month period your option is not exercisable solely because of the condition set forth in the section above relating to Compliance, your option will not expire until the earlier of the Expiration Date or until it has been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; provided further , that if (i) you are a Non-Exempt Employee, (ii) your Continuous Service terminates within six (6) months after the Date of Grant, and (iii) you have vested in a portion of your option at the time of your termination of Continuous Service, your option will not expire until the earlier of (x) the later of (A) the date that is seven (7) months after the Date of Grant, and (B) the date that is three (3) months after the termination of your Continuous Service, and (y) the Expiration Date;
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(c) twelve (12) months after the termination of your Continuous Service due to your Disability (except as otherwise provided in Section 8(d) below);
(d) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates for any reason other than Cause;
(e) the Expiration Date indicated in your Stock Option Grant Notice; and
(f) the day before the tenth (10th) anniversary of the Date of Grant.
If your option is an Incentive Stock Option, note that to obtain the U.S. federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the Date of Grant and ending on the day three (3) months before the date of your options exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates.
For purposes of your option, your Continuous Service will be considered terminated (regardless of the reason of termination, whether or not later found to be invalid or in breach of employment or other laws or rules in the jurisdiction where you are providing services or the terms of your employment or service agreement, if any) effective as of the date that you cease to actively provide services to the Company or any Affiliate and will not be extended by any notice period ( e.g. , employment or service would not include any contractual notice period or any period of garden leave or similar period mandated under employment or other laws in the jurisdiction where you are employed or providing services or the terms of your employment or service agreement, if any). The Board shall have exclusive discretion to determine when you are no longer actively employed or providing services for purposes of the Plan (including whether you still may be considered to be providing services while on a leave of absence).
9. E XERCISE .
(a) You may exercise the vested portion of your option during its term by (i) delivering a Notice of Exercise (in a form designated by the Company) or completing such other documents and/or procedures designated by the Company for exercise and (ii) paying the exercise price and any applicable Tax-Related Items (as defined in Section 11 below) to the Companys Secretary, stock plan administrator, or such other person as the Company may designate, together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any Tax-Related Items.
(c) If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the Date of Grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.
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(d) By exercising your option you agree that you will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale with respect to any shares of Common Stock or other securities of the Company held by you, for a period of one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act or such longer period as the underwriters or the Company will request to facilitate compliance with FINRA Rule 2241 or any successor or similar rules or regulation (the Lock-Up Period ); provided , however , that nothing contained in this section will prevent the exercise of a repurchase option, if any, in favor of the Company during the Lock-Up Period. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. You also agree that any transferee of any shares of Common Stock (or other securities) of the Company held by you will be bound by this Section 9(d). The underwriters of the Companys stock are intended third party beneficiaries of this Section 9(d) and will have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
10. T RANSFERABILITY . Except as otherwise provided in this Section 10, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you.
(a) Certain Trusts. Upon receiving written permission from the Board or its duly authorized designee, you may transfer your option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the Code and applicable U.S. state law, or comparable non-U.S. laws) while the option is held in the trust. You and the trustee must enter into transfer and other agreements required by the Company.
(b) Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your option pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulation 1.421-1(b)(2), or comparable non-U.S. law, that contains the information required by the Company to effectuate the transfer. You are encouraged to discuss the proposed terms of any division of this option with the Company prior to finalizing the domestic relations order or marital settlement agreement to help ensure the required information is contained within the domestic relations order or marital settlement agreement. If this option is an Incentive Stock Option, this option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(c) Beneficiary Designation. Upon receiving written permission from the Board or its duly authorized designee, you may, by delivering written notice to the Company, in a form approved by the Company and any broker designated by the Company to handle option exercises, designate a third party who, on your death, will thereafter be entitled to exercise this option and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, your executor or administrator of your estate or your legal heirs will be entitled to exercise this option and receive, on behalf of your estate, the Common Stock or other consideration resulting from such exercise.
11. R ESPONSIBILITY FOR T AXES .
(a) You acknowledge that, regardless of any action the Company or, if different, your employer (the Employer ) takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax related items related to your participation in the Plan and
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legally applicable to you ( Tax-Related Items ), the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer, if any. You further acknowledge that the Company and the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of your option, including, but not limited to, the grant, vesting or exercise of your option, the subsequent sale of shares of Common Stock acquired pursuant to such exercise and the issuance of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of your option to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. You acknowledge and agree that you will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates for Tax-Related Items arising from your option. In particular, you acknowledge that this option is exempt from Section 409A of the Code only if the exercise price per share specified in the Grant Notice is at least equal to the fair market value per share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the option. Further, if you are subject to Tax-Related Items in more than one jurisdiction, you acknowledge that the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to the relevant taxable or tax withholding event, as applicable, you agree to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the Company and/or the Employer, or their respective agents, at their discretion, to satisfy their withholding obligations with regard to all Tax-Related Items by: (i) withholding from your wages or other cash compensation paid to you by the Company and/or the Employer, (ii) withholding from the proceeds of the sale of shares of Common Stock acquired at exercise of your option and sold either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization without further consent); and/or (iii) if this option is a Nonstatutory Stock Option, withholding a number of shares of Common Stock that are otherwise deliverable to you upon exercise.
(c) Depending on the withholding method, the Company or the Employer may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case you may receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding a number of shares of Common Stock, for tax purposes, you are deemed to have been issued the full number of shares of Common Stock, notwithstanding that a number of the shares of Common Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) You agree to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means previously described. You acknowledge and agree that the Company may refuse to honor the exercise and refuse to issue or deliver the shares of Common Stock, or the proceeds of the sale of the shares of Common Stock, if you fail to comply with your obligations in connection with the Tax-Related Items.
12. N ATURE OF G RANT . In accepting your option, you acknowledge, understand and agree that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted under the Plan;
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(b) the grant of this option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of options (whether on the same or different terms), or benefits in lieu of options, even if options have been granted in the past;
(c) all decisions with respect to future options or other grants, if any, will be at the sole discretion of the Company;
(d) you are voluntarily participating in the Plan;
(e) this option and the shares of Common Stock subject to this option, and the income and value of same, are not intended to replace any pension rights or compensation;
(f) the future value of the shares of Common Stock underlying the option is unknown, indeterminable, and cannot be predicted with certainty;
(g) if the underlying shares of Common Stock do not increase in value, the option will have no value;
(h) if you exercise the option and acquire shares of Common Stock, the value of such shares of Common Stock may increase or decrease in value, even below the exercise price
(i) no claim or entitlement to compensation or damages shall arise from forfeiture of this option resulting from the termination of your Continuous Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or rendering services or the terms of your employment or service agreement, if any), and in consideration of the grant of this option, you irrevocably agree not to institute any claim against the Company or any Affiliate,
(j) unless otherwise provided in the Plan or by the Company in its discretion, the option and the benefits evidenced by this Agreement do not create any entitlement to have the option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of Common Stock;
(k) unless otherwise agreed with the Company, this option and any shares of Common Stock acquired under the Plan, and the income and value of same, are not granted as consideration for, or in connection with, the service you may provide as a director of an Affiliate; and
(l) the following provisions apply only if you are employed or rendering services outside the United States:
(i) neither the Company, the Employer nor any other Affiliate shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the option or of any amounts due to you pursuant to the exercise of the option or the subsequent sale of any shares of Common Stock acquired upon exercise;
(ii) this option and the shares of Common Stock subject to this option, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments.
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13. N O A DVICE R EGARDING G RANT . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common Stock. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan.
14. D ATA P RIVACY . 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, Employer, the Company and any other Affiliate for the exclusive purpose of implementing, administering and managing your participation in the Plan.
You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name, home address, email address and telephone number, email address, date of birth, social insurance, passport 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 of stock awarded, canceled, vested, unvested or outstanding in your favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
You understand that Data will be transferred to [Insert Applicable 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 (the Designated Broker). You understand that the recipients of Data may be located in the United States or elsewhere, and that the recipients country (e.g., the United States) may have different data privacy laws and protections than your country. You understand that if you reside outside the United States, you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the Company, the Designated Broker and any 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 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 if you reside outside the United States, 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 with the Company or any Affiliate will not be affected; the only consequence of refusing or withdrawing your consent is that the Company would not be able to grant options or other equity awards to you 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.
15. R IGHT OF R EPURCHASE . The Company will have the right to repurchase all of the shares of Common Stock you acquire pursuant to the exercise of your option upon termination of your Continuous Service for Cause. Such repurchase will be at the exercise price you paid to acquire the shares and will be effected pursuant to such other terms and conditions, and at such time, as the Company will determine.
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16. O PTION NOT A S ERVICE C ONTRACT . Your option is not an employment or service contract, and nothing in your option will be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Employer, or of the Employer to continue your employment. In addition, nothing in your option will obligate the Company or an Affiliate, their respective stockholders, boards of directors, officers or employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate. Finally, the grant of the option shall not be interpreted as forming an employment or service contract with the Company.
17. N OTICES . Any notices provided for in your option or the Plan will be given in writing (including electronically) and will be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this option by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this option, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
18. G OVERNING P LAN D OCUMENT . Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. If there is any conflict between the provisions of your option and those of the Plan, the provisions of the Plan will control. In addition, your option (and any compensation paid or shares issued under your option) is subject to recoupment in accordance with The U.S. DoddFrank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. No recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntarily terminate employment upon a resignation for good reason, or for a constructive termination or any similar term under any plan of or agreement with the Company.
19. O THER D OCUMENTS . You hereby acknowledge receipt of and the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Companys policy permitting certain individuals to sell shares only during certain window periods and the Companys insider trading policy, in effect from time to time.
20. V OTING R IGHTS . You will not have voting or any other rights as a shareholder of the Company with respect to the shares to be issued pursuant to this option until such shares are issued to you. Upon such issuance, you will obtain full voting and other rights as a shareholder of the Company. Nothing contained in this option, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.
21. S EVERABILITY . If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
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22. L ANGUAGE . If you have received this Agreement, or any other document related to this option and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control. You acknowledge that you are sufficiently proficient in English to understand the terms and conditions of this Agreement.
23. I NSIDER T RADING R ESTRICTIONS /M ARKET A BUSE L AWS . You acknowledge that you may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions, including the United States and your country of residence, which may affect your ability to acquire or sell the shares of Common Stock or rights to the shares of Common Stock under the Plan during such times as you are considered to have inside information regarding the Company (as defined by the laws in your country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. You acknowledge that it is your responsibility to comply with any applicable restrictions, and you are advised to speak to your personal advisor on this matter.
24. F OREIGN A SSES /A CCOUNT AND T AX R EPORTING , E XCHANGE C ONTROLS . Your country may have certain foreign asset, account and/or tax reporting requirements and exchange controls which may affect your ability to acquire or hold shares of Common Stock under the Plan or cash received from participating in the Plan (including from any dividends received or sale proceeds arising from the sale of shares of Common Stock) in a brokerage or bank account outside your country. You understand that you may be required to report such accounts, assets or transactions to the tax or other authorities in your country. You also may be required to repatriate sale proceeds or other funds received as a result of participation in the Plan to your country through a designated bank or broker and/or within a certain time after receipt. In addition, you may be subject to tax payment and/or reporting obligations in connection with any income realized under the Plan and/or from the sale of shares of Common Stock. You acknowledge that you are responsible for complying with all such requirements, and that you should consult personal legal and tax advisors, as applicable, to ensure compliance.
25. A PPENDIX . Notwithstanding any provisions in this Option Agreement, your option shall be subject to the special terms and conditions for your country set forth in the Appendix attached hereto as Exhibit A . Moreover, if you relocate to one of the countries included therein, the 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 Option Agreement.
26. I MPOSITION OF O THER R EQUIREMENTS . The Company reserves the right to impose other requirements on your participation in the Plan, and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
27. G OVERNING L AW /V ENUE . The interpretation, performance and enforcement of this Agreement will be governed by the law of the State of Delaware without regard to that states conflicts of laws rules. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, including its Exhibit, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts within Santa Clara County, State of California, and no other courts, where this grant is made and/or to be performed.
28. M ISCELLANEOUS .
(a) The rights and obligations of the Company under your option will be transferable to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by the Companys successors and assigns.
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(b) You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your option.
(c) You acknowledge and agree that you have reviewed your option in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your option, and fully understand all provisions of your option.
(d) All obligations of the Company under the Plan and this Agreement will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
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This Agreement will be deemed to be signed by you upon the signing by you or
otherwise by your acceptance of the Grant Notice to which it is attached.
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E XHIBIT A
A PPENDIX TO O PTION A GREEMENT
S PECIAL T ERMS AND C ONDITIONS FOR E MPLOYEES OUTSIDE THE U NITED S TATES
Capitalized terms used but not defined in this Appendix have the meanings set forth in the Plan and/or in the Option Agreement.
Terms and Conditions
This Appendix includes additional terms and conditions that govern the option granted to you under the Plan if you reside and/or work in one of the countries listed below. If you are a citizen or resident (or are considered as such for local law purposes) of a country other than the country in which you are currently residing and/or working, or if you relocate to another country after the grant of the option, the Company shall, in its discretion, determine to what extent the special terms and conditions contained herein shall be applicable to you.
Notifications
This Appendix may also include information regarding exchange controls and certain other issues of which you should be aware with respect to participation in the Plan. The information is based on the securities, exchange control, and other laws in effect in the respective countries as of August 2017. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the information in this Appendix as the only source of information relating to the consequences of your participation in the Plan because the information may be out of date at the time the you exercise your option or you sell shares of Common Stock acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to your particular situation, and the Company is not in a position to assure you of a particular result. Accordingly, you are advised to seek appropriate professional advice as to how the relevant laws in your country may apply to your situation.
Finally, if you are a citizen or resident (or are considered as such for local law purposes) of a country other than the country in which you are currently residing and/or working, or if you relocate to another country after the grant of the option, the notifications contained herein may not be applicable to you in the same manner.
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C HINA
Terms and Conditions
The following provisions apply to Participants who are subject to exchange control regulations in the Peoples Republic of China (China), including the requirements imposed by the State Administration of Foreign Exchange (SAFE), as determined by the Company in its sole discretion:
Restriction on Exercise . You will not be permitted to exercise your option and obtain any shares of Common Stock unless and until the necessary approvals for the Plan have been obtained from SAFE and remain in place, as determined by the Company in its sole discretion. Further, the Company is under no obligation to issue shares of Common Stock if the Company has not or does not obtain SAFE approval or if any such SAFE approval subsequently becomes invalid or ceases to be in effect by the time you exercise your option.
Method of Payment. This provision supplements Sections 5 and 11 of the Option Agreement:
Notwithstanding anything to the contrary in the Option Agreement or the Plan, due to exchange control laws in China, you will be required to exercise you option using the cashless sell-all exercise method pursuant to which all shares subject to the exercised option will be sold immediately upon exercise and the proceeds of sale, less the exercise price, any Tax-Related Items and brokers fees or commissions, will be remitted to the you in accordance with any applicable exchange control laws and regulations. The Company reserves the right to provide additional methods of exercise depending on the development of local law.
Exchange Control Requirements . Due to exchange control requirements in China, you understand and agree that you will not be permitted to transfer any shares of Common Stock acquired under the Plan out of the account established for you with the Designated Broker and that you will be required to immediately repatriate to China any cash proceeds from the sale of the shares of Common Stock you acquire under the Plan as well as any cash dividends paid on such shares. You further understand that such repatriation of cash proceeds will need to be effectuated through a special exchange control account established by the Company, the Employer or any other Affiliate in China, and you hereby consent and agree that any proceeds from the sale of shares of Common Stock or the receipt of any cash dividends may be transferred to such special account prior to being delivered to you.
The proceeds may be paid to you in U.S. dollars or local currency at the Companys discretion. In the event the proceeds are paid to you in U.S. dollars, you understand that you will be required to set up a U.S. dollar bank account in China and provide the bank account details to the Employer and/or the Company, so that the proceeds may be deposited into this account. If the proceeds are paid to you in local currency, you agree to bear any currency fluctuation risk between the time the shares of Common Stock are sold or cash dividends are paid and the time the proceeds are distributed to you through any such special account.
You agree to comply with any other requirements that may be imposed by the Company in the future in order to facilitate compliance with exchange control requirements in China.
Post-Termination Exercise Period. This provision modifies Section 8 of the Option Agreement:
Notwithstanding the post-termination exercise periods set forth in Section 8 of the Option Agreement, to comply with local exchange control requirements, you will be required to exercise the option within the lesser of (i) the period set forth in Section 8 of the Option Agreement, and (ii) three (3) months after termination of your Continuous Service, regardless of the reason for termination. The Company reserves the right to allow for a longer exercise period depending on the development of local law.
12.
Notifications
Exchange Control Information . Chinese residents must report to SAFE all details of foreign financial assets and liabilities, as well as details of any economic transactions conducted with non-Chinese residents, either directly or through financial institutions.
D ENMARK
Terms and Conditions
Danish Stock Option Act. By accepting this option, you acknowledge that you received an Employer Statement, translated into Danish, which is being provided to comply with the Danish Stock Option Act. To the extent more favorable and required to comply with the Danish Stock Option Act, the terms set forth in the Employer Statement will apply to your option.
Notifications
Securities/Tax Reporting Information. If you establish a brokerage or bank account holding shares outside Denmark, you must report this safety-deposit account to the Danish Tax Administration. For this purpose, you must file a Form V (Erklaering V) with the Danish Tax Administration. The Form V must be signed by you and may be signed by the applicable broker or bank where the account is held. By signing the Form V, the broker or bank undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the shares in the account. By signing the Form V, you authorize the Danish Tax Administration to examine the account. In the likely event that the Form V is not also signed by the broker or bank either because of refusal on the part of the broker and/or bank or due to the laws of the country in question, you are solely responsible for providing certain details regarding the foreign brokerage or bank account and shares deposited therein to the Danish Tax Administration as part of your annual income tax return.
In addition, if you open a brokerage account (or a deposit account with a U.S. bank) outside of Denmark, the brokerage account (or bank account) will be treated as a deposit account because cash can be held in the account. In such case, you must also file a Form K (Erklaering K) with the Danish Tax Administration. The Form K must be signed both by you and by the applicable broker or bank where the account is held, unless an exemption from the broker/bank signature requirement is granted by the Danish Tax Administration. It is possible to seek the exemption on the Form K, which you should do at the time you submit the Form K. By signing the Form K, you (and the broker/bank, to the extent the exemption is not granted) undertake an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the content of the account. By signing the Form K, you authorize the Danish Tax Administration to examine the account. In the likely event that the Form K is not also signed by the broker or bank either because of refusal on the part of the broker and/or bank or due to the laws of the country in question, you are solely responsible for providing certain details regarding the foreign brokerage or bank account and cash deposited therein to the Danish Tax Administration as part of your annual income tax return.
Foreign Asset/Account Reporting Information. If you establish an account holding shares or cash outside of Denmark, you must report the account to the Danish Tax Administration. The form which should be used to make the report can be obtained from a local bank. These obligations are separate from and in addition to the obligations described above.
13.
SPECIAL NOTICE FOR EMPLOYEES IN DENMARK
EMPLOYER STATEMENT
Pursuant to Section 3(1) of the Act on Stock Options in employment relations (the Stock Option Act ), you are entitled to receive the following information regarding the options granted to you by Roku, Inc. (the Company ) under the Roku, Inc. 2017 Equity Incentive Plan (the Plan ) in a written statement.
This statement contains information applicable to your participation in the Plan, as required under the Stock Option Act, while the other terms and conditions of your options are described in detail in the Plan and the Option Agreement (the Agreement ), both of which have been made available to you. Capitalized terms used but not defined herein shall have the same meanings given to them in the Plan or the Agreement, as applicable.
Section 1 of the Stock Option Act provides that the Stock Option Act only applies to employees. Employees are defined in section 2 of the Stock Option Act as persons who receive remuneration for their personal services in an employment relationship. Persons, including managers, who are not regarded as employees under the Stock Option Act, will not be subject to the Stock Option Act. If you are not an employee within the meaning of the Stock Option Act, the Company therefore has no obligation to issue an employer information statement to you and you will not be able to rely on this statement for legal purposes, since only the terms and conditions set out in the Plan apply.
1. | Date of grant |
The date of grant of your options is the date that the Board or Committee approved a grant for you and determined it would be effective, which is set forth in the Agreement.
2. | Terms or conditions for option grant |
The grant of options under the Plan is made at the sole discretion of the Company. Employees, Directors and Consultants of the Company and its Affiliates, are eligible to receive grants under the Plan. The Board has broad discretion to determine who will receive options and to set the terms and conditions of the options. The Company may decide, in its sole discretion, not to make any grants of options to you in the future. Under the terms of the Plan and the Agreement, you have no entitlement or claim to receive future grants of options.
3. | Exercise date or period |
The options will vest and become exercisable over a period of time (as set forth in the Agreement), subject to your Continuous Service through the applicable vesting date and other conditions set forth in the Plan and Agreement, and subject to Section 5 of this statement.
4. | Exercise Price |
During the exercise period, the options can be exercised to purchase shares of common stock of the Company at a price per share not less than the fair market value of the stock on the date the option is granted, as determined in accordance with the Plan.
14.
5. | Your rights upon termination of employment |
The treatment of your options upon termination of employment will be determined under Sections 4 and 5 of the Stock Option Act unless the terms contained in the Plan and the Agreement are more favorable to you than Sections 4 and 5 of the Stock Option Act. If the terms contained in the Plan and the Agreement are more favorable to you, then such terms will govern the treatment of your option upon termination of employment.
6. | Financial aspects of participating in the Plan |
The grant of stock options has no immediate financial consequences for you. The value of the options is not taken into account when calculating holiday allowances, pension contributions or other statutory consideration calculated on the basis of salary.
Shares of stock are financial instruments and investing in stock will always have financial risk. The future value of Company shares is unknown and cannot be predicted with certainty.
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
U.S.A.
15.
SÆRLIG MEDDELELSE TIL MEDARBEJDERE I DANMARK
ARBEJDSGIVERERKLÆRING
I henhold til § 3, stk. 1, i lov om brug af køberet eller tegningsret mv. i ansættelsesforhold ( Aktieoptionsloven ) er du berettiget til i en skriftlig erklæring at modtage følgende oplysninger om de aktieoptioner, som du tildeles af Roku, Inc. ( Selskabet ) i henhold til Roku, Inc.s 2017 Equity Incentive Plan ( Planen ).
Denne erklæring indeholder, i henhold til Aktieoptionsloven, de oplysninger, der er gældende for din deltagelse i Planen, mens de øvrige kriterier og betingelser for dine aktieoptioner er beskrevet nærmere i Planen og i Option Agreement ( Aftalen ), som begge er stillet til rådighed for dig. Begreber, der står med stort begyndelsesbogstav i denne arbejdsgivererklæring, men som ikke er defineret heri, har den betydning, der er defineret i Planen, hhv. Aftalen.
I henhold til Aktieoptionslovens § 1 finder loven kun anvendelse for lønmodtagere. Lønmodtagere er defineret i Aktieoptionslovens § 2 som personer, der modtager vederlag for personligt arbejde i tjenesteforhold.
Personer, herunder direktører, som ikke anses for at være lønmodtagere i Aktieoptionslovens forstand, er ikke omfattet af Aktieoptionsloven. Hvis du ikke er lønmodtager i Aktieoptionslovens forstand, er Selskabet derfor ikke forpligtet til at udstede en arbejdsgivererklæring til dig, og du vil ikke i juridisk henseende kunne henholde dig til denne arbejdsgivererklæring, da alene Planens vilkår er gældende.
1. | Tildelingstidspunkt |
Tidspunktet for tildelingen af dine aktieoptioner er den dag, hvor Bestyrelsen eller Komitéen godkendte din tildeling og besluttede, at den skulle træde i kraft. Tidspunktet fremgår af Aftalen.
2. | Vilkår og betingelser for optionstildelingen |
Aktieoptioner, der er omfattet af Planen, tildeles udelukkende efter Selskabets skøn. Tildeling kan i henhold til Planen ske til Medarbejdere, Bestyrelsesmedlemmer og Konsulenter i Selskabet og dets Tilknyttede Selskaber. Bestyrelsen har vide beføjelser til at bestemme, hvem der skal modtage optioner og til at fastsætte betingelserne herfor. Selskabet kan frit vælge fremover ikke at tildele dig aktieoptioner. I henhold til bestemmelserne i Planen og Aftalen har du ikke hverken ret til eller krav på fremover at få tildelt aktieoptioner.
3. | Udnyttelsestidspunkt eller -periode |
Aktieoptionerne modnes over en periode (som anført i Aftalen), forudsat at du på det relevante modningstidspunkt opfylder betingelsen om Fortsat Ansættelse og de øvrige betingelser i Planen og i Aftalen, og med forbehold for pkt. 5 i denne erklæring.
4. | Udnyttelseskurs |
I udnyttelsesperioden kan aktieoptionerne udnyttes til at købe ordinære aktier i Selskabet til en kurs, som ikke kan være lavere end markedskursen for de ordinære aktier på tildelingstidspunktet, som opgjort i overensstemmelse med Planen.
16.
5. | Din retsstilling i forbindelse med fratræden |
Dine aktieoptioner vil i tilfælde af din fratræden blive behandlet i overensstemmelse med Aktieoptionslovens §§ 4 og 5, medmindre bestemmelserne i Planen og Aftalen er mere fordelagtige for dig end Aktieoptionslovens §§ 4 og 5. Hvis bestemmelserne i Planen og Aftalen er mere fordelagtige for dig, vil det være disse bestemmelser, der er gældende for, hvordan din aktieoption behandles i forbindelse med din fratræden.
6. | Økonomiske aspekter ved deltagelse i Planen |
Tildelingen af aktieoptioner har ingen umiddelbare økonomiske konsekvenser for dig. Værdien af aktieoptionerne indgår ikke i beregningen af feriepenge, pensionsbidrag eller øvrige lovbestemte, vederlagsafhængige ydelser.
Aktier er finansielle instrumenter, og investering i aktier vil altid være forbundet med en økonomisk risiko. Den fremtidige værdi af Selskabets aktier kendes ikke og kan ikke forudsiges med sikkerhed.
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
U.S.A.
17.
G ERMANY
Notifications
Exchange Control Information. Cross-border payments in excess of 12,500 must be reported monthly to the German Federal Bank ( Bundesbank ). In case of payments in connection with securities (including proceeds realized upon the sale of shares of Common Stock or the receipt of dividends), the report must be made by the 5th day of the month following the month in which the payment was received. The report must be filed electronically and the form of report ( Allgemeine Meldeportal Statistik ) can be accessed via the Bundesbanks website ( www.bundesbank.de ), in both German and English. You are responsible for making this report.
N ETHERLANDS
There are no country-specific terms.
U NITED K INGDOM
Terms and Conditions
Responsibility for Taxes. The following supplements Section 11 of the Option Agreement:
Without limitation to Section 11 of the Option Agreement, you agree that you are liable for all Tax-Related Items and hereby covenant to pay all such Tax-Related Items, as and when requested by the Company or the Employer or by Her Majestys Revenue & Customs ( HRMC ) (or any other tax authority or any other relevant authority). You also hereby agree to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC on your behalf (or any other tax authority or any other relevant authority).
Notwithstanding the foregoing, if you are an executive officer or director (within the meaning of Section 13(k) of the Exchange Act), you acknowledge that you may not be able to indemnify the Company or the Employer for the amount of any income tax not collected from or paid by you, as it may be considered a loan. In this case, the amount of any income tax not collected within ninety (90) days of the end of the U.K. tax year in which the event giving rise to the Tax-Related Item(s) occurs may constitute a benefit to you on which additional income tax and national insurance contributions may be payable. You acknowledge that you will be responsible for reporting and paying any income tax due on this additional benefit directly to the HMRC under the self-assessment regime and for paying the Company or the Employer, as applicable, for the value of any national insurance contributions due on this additional benefit, which may also be recovered from you at any time by any of the means referred to in Section 11 of the Option Agreement.
Joint Election. As a condition of participation in the Plan, you agree to accept any liability for secondary Class 1 National Insurance contributions that may be payable by the Company or the Employer (or any successor to the Company or the Employer) in connection with the option and any event giving rise to Tax-Related Items (the Employer NICs ). The Employer NICs may be collected by the Company or the Employer using any of the methods described in the Plan or in Section 11 of the Option Agreement.
Without prejudice to the foregoing, you agree to execute a joint election with the Company and/or the Employer (a Joint Election ), the form of such Joint Election being formally approved by HMRC, and any other consent or elections required by the Company or the Employer in respect of the Employer NICs liability. You further agree to execute such other elections as may be required by any successor to the Company and/or the Employer for the purpose of continuing the effectiveness of your Joint Election.
18.
A TTACHMENT II
2017 E QUITY I NCENTIVE P LAN
A TTACHMENT III
NOTICE OF EXERCISE
R OKU , I NC .
150 W INCHESTER C IRCLE
L OS G ATOS , CA 95032
Date of Exercise: _______________
This constitutes notice to Roku, Inc. (the Company ) under my stock option that I elect to purchase the below number of shares of Common Stock of the Company (the Shares ) for the exercise price set forth below.
Type of option (check one): |
Incentive ☐ | Nonstatutory ☐ | ||||||
Stock option dated: |
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Number of Shares as to which option is exercised: |
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Certificates to be issued in name of: |
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Total exercise price: |
$ | ______________ | $ | ______________ | ||||
Cash payment delivered herewith: |
$ | ______________ | $ | ______________ | ||||
Regulation T Program (cashless exercise 1 ): |
$ | ______________ | $ | ______________ | ||||
Value of ________ Shares delivered herewith 2 : |
$ | ______________ | $ | ______________ | ] |
By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the Roku, Inc. 2017 Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the Shares issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such Shares are issued upon exercise of this option.
1 | Shares must meet the public trading requirements set forth in the option agreement. |
2 | Shares must meet the public trading requirements set forth in the option agreement. Shares must be valued in accordance with the terms of the option being exercised, and must be owned free and clear of any liens, claims, encumbrances or security interests. Certificates must be endorsed or accompanied by an executed assignment separate from certificate. |
I hereby make the following certifications and representations with respect to the number of Shares listed above, which are being acquired by me for my own account upon exercise of the option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the Securities Act ), and are deemed to constitute restricted securities under Rule 701 and Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least ninety (90) days after the stock of the Company becomes publicly traded ( i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the option will have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Companys Articles of Incorporation, Bylaws and/or applicable securities laws.
I further acknowledge and agree that, except for such information as required to be delivered to me by the Company pursuant to the option or the Plan (if any), I will have no right to receive any information from the Company by virtue of the grant of the option or the purchase of shares of Common Stock through exercise of the option, ownership of such shares of Common Stock, or as a result of my being a holder of record of stock of the Company. Without limiting the foregoing, to the fullest extent permitted by law, I hereby waive all inspection rights under Section 220 of the Delaware General Corporation Law and all such similar information and/or inspection rights that may be provided under the law of any jurisdiction, or any federal, state or foreign regulation, that are, or may become, applicable to the Company or the Companys capital stock (the Inspection Rights ). I hereby covenant and agree never to directly or indirectly commence, voluntarily aid in any way, prosecute, assign, transfer, or cause to be commenced any claim, action, cause of action, or other proceeding to pursue or exercise the Inspection Rights.
I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale with respect to any shares of Common Stock or other securities of the Company for a period of one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act (or such longer period as the underwriters or the Company will request to facilitate compliance with FINRA Rule 2241 or any successor or similar rule or regulation) (the Lock-Up Period ). I further agree to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.
Very truly yours,
2.
Signature |
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Address of Record: |
3.
Exhibit 10.7
R OKU , I NC .
R ESTRICTED S TOCK U NIT G RANT N OTICE
(2017 E QUITY I NCENTIVE P LAN )
Roku, Inc. (the Company ), pursuant to its 2017 Equity Incentive Plan (the Plan ), hereby awards to Participant a Restricted Stock Unit Award for the number of shares of the Companys Common Stock ( Restricted Stock Units ) set forth below (the Award ). The Award is subject to all of the terms and conditions as set forth in this notice of grant (this Restricted Stock Unit Grant Notice ), the Restricted Stock Unit Award Agreement, including any special terms and conditions for Participants country set forth in the appendix attached to the Award Agreement as Exhibit A (the Appendix and, together with the Restricted Stock Unit Award Agreement, the Award Agreement ), and in the Plan, all of which are attached hereto and incorporated herein in their entirety. Capitalized terms not otherwise defined herein will have the meanings set forth in the Plan or the Award Agreement. In the event of any conflict between the terms in the Award and the Plan, the terms of the Plan will control.
Participant: | ||
Date of Grant: | ||
Vesting Commencement Date: | ||
Number of Restricted Stock Units/Shares: |
Vesting Schedule: | [___________________] |
Issuance Schedule: | The shares of Common Stock to be issued in respect of the Award will be issued in accordance with the issuance schedule set forth in Section 6 of the Restricted Stock Unit Agreement. |
Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to all of the terms and conditions set forth in this Restricted Stock Unit Grant Notice, the Award Agreement and the Plan. Participant acknowledges and agrees that this Restricted Stock Unit Grant Notice and the Award Agreement may not be modified, amended or revised except as provided in the Plan. Participant further acknowledges that as of the Date of Grant, this Restricted Stock Unit Grant Notice, the Award Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the acquisition of Common Stock pursuant to the Award and supersede all prior oral and written agreements on that subject with the exception, if applicable, of (i) equity awards previously granted and delivered to Participant, (ii) any compensation recovery policy that is adopted by the Company or is otherwise required by applicable law, and (iii) any written employment or severance arrangement that would provide for vesting acceleration of this Award upon the terms and conditions set forth therein.
By accepting this Award, Participant consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
R OKU , I NC . | P ARTICIPANT | |||||||
By: | ||||||||
Signature | Signature | |||||||
Title: | Date: | |||||||
Date: |
A TTACHMENTS : Award Agreement and 2017 Equity Incentive Plan
A TTACHMENT I
R OKU , I NC .
2017 E QUITY I NCENTIVE P LAN
R ESTRICTED S TOCK U NIT A WARD A GREEMENT
Pursuant to the Restricted Stock Unit Grant Notice (the Grant Notice ) and this Restricted Stock Unit Agreement (including any special terms and conditions for your country set forth in the appendix attached hereto as Exhibit A (the Appendix and, together with the Restricted Stock Unit Award Agreement, the Award Agreement ) Roku, Inc. (the Company ) has awarded you a Restricted Stock Unit Award (the Award ) pursuant to Section 6 of the Companys 2017 Equity Incentive Plan (the Plan ) for the number of Restricted Stock Units/shares indicated in the Grant Notice. Capitalized terms not explicitly defined in this Award Agreement or the Grant Notice will have the same meanings given to them in the Plan. The terms of your Award, in addition to those set forth in the Grant Notice and the Plan, are as follows.
1. G RANT OF THE A WARD . This Award represents the right to be issued on a future date one (1) share of Common Stock for each Restricted Stock Unit that vests on the applicable vesting date(s) (subject to any adjustment under Section 3 below) as indicated in the Grant Notice. As of the Date of Grant, the Company will credit to a bookkeeping account maintained by the Company, or a third party designated by the Company, for your benefit (the Account ) the number of Restricted Stock Units/shares of Common Stock subject to the Award. Except as otherwise provided herein, you will not be required to make any payment to the Company or an Affiliate (other than services to the Company or an Affiliate) with respect to your receipt of the Award, the vesting of the Restricted Stock Units or the delivery of the Companys Common Stock to be issued in respect of the Award. Notwithstanding the foregoing, the Company reserves the right to issue you the cash equivalent of Common Stock, in part or in full satisfaction of the delivery of Common Stock upon vesting of your Restricted Stock Units, and, to the extent applicable, references in this Award Agreement and the Grant Notice to Common Stock issuable in connection with your Restricted Stock Units will include the potential issuance of its cash equivalent pursuant to such right, unless otherwise provided for your country in the Appendix.
2. V ESTING . Subject to the limitations contained herein, your Award will vest, if at all, in accordance with the vesting schedule provided in the Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. Upon such termination of your Continuous Service, the Restricted Stock Units/shares of Common Stock credited to the Account that were not vested on the date of such termination will be forfeited at no cost to the Company and you will have no further right, title or interest in or to such underlying shares of Common Stock.
For purposes of your Award, your Continuous Service will be considered terminated (regardless of the reason of termination, whether or not later found to be invalid or in breach of employment or other laws or rules in the jurisdiction where you are providing services or the terms of your employment or service agreement, if any) effective as of the date that you cease to actively provide services to the Company or any Affiliate and will not be extended by any notice period ( e.g. , employment or service would not include any contractual notice period or any period of garden leave or similar period mandated under employment or other laws in the jurisdiction where you are employed or providing services or the terms of your employment or service agreement, if any). The Board shall have exclusive discretion to determine when you are no longer actively employed or providing services for purposes of the Plan (including whether you still may be considered to be providing services while on a leave of absence).
1.
3. N UMBER OF S HARES . The number of Restricted Stock Units/shares subject to your Award may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan. Any additional Restricted Stock Units, shares, cash or other property that become subject to the Award pursuant to this Section 3, if any, will be subject, in a manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Restricted Stock Units and shares covered by your Award. Notwithstanding the provisions of this Section 3, no fractional shares or rights for fractional shares of Common Stock will be created pursuant to this Section 3. Any fraction of a share will be rounded down to the nearest whole share.
4. C OMPLIANCE . You may not be issued any Common Stock under your Award unless the shares of Common Stock underlying the Restricted Stock Units are either (i) then registered under the Securities Act, or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award must also comply with other applicable laws and regulations governing the Award, including any U.S. and non-U.S. state, federal and local laws, and you will not receive such Common Stock if the Company determines that such receipt would not be in material compliance with such laws and regulations.
5. T RANSFER R ESTRICTIONS . Prior to the time that shares of Common Stock have been delivered to you, you may not transfer, pledge, sell or otherwise dispose of this Award or the shares issuable in respect of your Award, except as expressly provided in this Section 5. For example, you may not use shares that may be issued in respect of your Restricted Stock Units as security for a loan. The restrictions on transfer set forth herein will lapse upon delivery to you of shares in respect of your vested Restricted Stock Units. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, will thereafter be entitled to receive any distribution of Common Stock to which you were entitled at the time of your death pursuant to this Award Agreement. In the absence of such a designation, your legal representative will be entitled to receive, on behalf of your estate, such Common Stock or other consideration.
(a) Death . Your Award is transferable by will and by the laws of descent and distribution. At your death, vesting of your Award will cease and your executor or administrator of your estate will be entitled to receive, on behalf of your estate, any Common Stock or other consideration that vested but was not issued before your death.
(b) Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your right to receive the distribution of Common Stock or other consideration hereunder, pursuant to a domestic relations order, official marital settlement agreement or other divorce or separation instrument that contains the information required by the Company to effectuate the transfer. You are encouraged to discuss the proposed terms of any division of this Award with the Company General Counsel prior to finalizing the domestic relations order or marital settlement agreement to verify that you may make such transfer, and if so, to help ensure the required information is contained within the domestic relations order or marital settlement agreement.
6. D ATE OF I SSUANCE .
(a) The issuance of shares in respect of the Restricted Stock Units is intended to comply with Treasury Regulations Section 1.409A-1(b)(4) and will be construed and administered in such a manner. Subject to the satisfaction any withholding obligation for Tax-Related Items (as defined in Section 10 below), in the event one or more Restricted Stock Units vests, the Company will issue to you one (1) share of Common Stock for each Restricted Stock Unit that vests on the applicable vesting date(s) (subject to any adjustment under Section 3 above, and subject to any different provisions in the Grant Notice). The issuance date determined by this paragraph is referred to as the Original Issuance Date .
2.
(b) If the Original Issuance Date falls on a date that is not a business day, delivery will instead occur on the next following business day. In addition, if:
(i) the Original Issuance Date does not occur (1) during an open window period applicable to you, as determined by the Company in accordance with the Companys then-effective policy on trading in Company securities, or (2) on a date when you are otherwise permitted to sell shares of Common Stock on an established stock exchange or stock market (including but not limited to under a previously established written trading plan that meets the requirements of Rule 10b5-1 under the Exchange Act and was entered into in compliance with the Companys policies (a 10b5-1 Plan )), and
(ii) either (1) withholding obligations for Tax-Related Items (as defined in Section 10 below) do not apply, or (2) the Company decides, prior to the Original Issuance Date, (A) not to satisfy the withholding obligation for Tax-Related Items (as defined in Section 10 below) by withholding shares of Common Stock from the shares otherwise due, on the Original Issuance Date, to you under this Award, and (B) not to permit you to enter into a same day sale commitment with a broker-dealer pursuant to Section 10 of this Award Agreement (including but not limited to a commitment under a 10b5-1 Plan) and (C) not to permit you to pay the Tax-Related Items in cash or from other compensation otherwise payable to you by the Company (as defined in Section 10 below),
then the shares that would otherwise be issued to you on the Original Issuance Date will not be delivered on such Original Issuance Date and will instead be delivered on the first business day when you are not prohibited from selling shares of the Companys Common Stock in the open public market, but in no event later than December 31 of the calendar year in which the Original Issuance Date occurs (that is, the last day of your taxable year in which the Original Issuance Date occurs), or, if and only if permitted in a manner that complies with Treasury Regulations Section 1.409A-1(b)(4), no later than the date that is the 15th day of the third calendar month of the applicable year following the year in which the shares of Common Stock under this Award are no longer subject to a substantial risk of forfeiture within the meaning of Treasury Regulations Section 1.409A-1(d).
(c) The form of delivery of the shares of Common Stock in respect of your Award ( e.g. , a stock certificate or electronic entry evidencing such shares) will be determined by the Company.
7. D IVIDENDS . You will receive no benefit or adjustment to your Award with respect to any cash dividend, stock dividend or other distribution that does not result from a Capitalization Adjustment; provided, however, that this sentence will not apply with respect to any shares of Common Stock that are delivered to you in connection with your Award after such shares have been delivered to you.
8. R ESTRICTIVE L EGENDS . The shares of Common Stock issued under your Award will be endorsed with appropriate legends as determined by the Company.
9. E XECUTION OF D OCUMENTS . You hereby acknowledge and agree that the manner selected by the Company by which you indicate your consent to your Grant Notice is also deemed to be your execution of your Grant Notice and of this Award Agreement. You further agree that such manner of indicating consent may be relied upon as your signature for establishing your execution of any documents to be executed in the future in connection with your Award.
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10. R ESPONSIBILITY FOR T AXES .
(a) You acknowledge that, regardless of any action the Company or, if different, your employer (the Employer ) takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax related items related to your participation in the Plan and legally applicable to you ( Tax-Related Items ), the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer, if any. You further acknowledge that the Company and the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of your Restricted Stock Units, including, but not limited to, the grant of the Restricted Stock Units, the vesting and settlement of the Restricted Stock Units, the delivery or sale of any shares of Common Stock and the issuance of any dividends, and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of your Award to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. You acknowledge and agree that you will not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates for Tax-Related Items arising from your Award. Further, if you are subject to Tax-Related Items in more than one jurisdiction, you acknowledge that the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to the relevant taxable or tax withholding event, as applicable, you agree to make adequate arrangements satisfactorily to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the Company and/or the Employer, or their respective agents, at their discretion, to satisfy their withholding obligations with regard to all Tax-Related Items by: (i) withholding from your wages or any other cash compensation otherwise payable to you by the Company and/or Employer; (ii) causing you to tender a cash payment; (iii) permitting or requiring you to enter into a same day sale commitment, if applicable, with a broker-dealer that is a member of the Financial Industry Regulatory Authority (a FINRA Dealer ) (pursuant to this authorization and without further consent) whereby you irrevocably elect to sell a portion of the shares to be delivered in connection with your Restricted Stock Units to satisfy the Tax-Related Items and whereby the FINRA Dealer irrevocably commits to forward the proceeds necessary to satisfy the Tax-Related Items directly to the Company and its Affiliates; or (iv) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to you in connection with the Award with a Fair Market Value (measured as of the date shares of Common Stock are issued to you pursuant to Section 6) equal to the amount of such Tax-Related Items; provided, however that if you are an Officer, then the Company will withhold a number of shares of Common Stock upon the relevant taxable or tax withholding event, as applicable, unless the use of such withholding method is not feasible under applicable tax or securities law or has materially adverse accounting consequences, in which case, the obligation for Tax-Related Items may be satisfied by one or a combination of methods (i)-(iii) above. Depending on the withholding method, the Company or the Employer may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case you may receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in s number of shares of Common Stock, for tax purposes, you will be deemed to have been issued the full number of shares of Common Stock subject to the vested Restricted Stock Units, notwithstanding that a number of the shares of Common Stock are held back solely for the purpose of paying the Tax-Related Items. However, the Company does not guarantee that you will be able to satisfy the Tax-Related Items through any of the methods described in the preceding provisions and in all circumstances you remain responsible for timely and fully satisfying the Tax-Related Items.
(c) Unless the Tax-Related Items of the Company and any Affiliate are satisfied, the Company will have no obligation to deliver to you any Common Stock or other consideration pursuant to this Award.
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(d) In the event the Companys obligation to withhold arises prior to the delivery to you of Common Stock or it is determined after the delivery of Common Stock to you that the amount of the Companys withholding obligation was greater than the amount withheld by the Company, you agree to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount.
11. A WARD NOT A S ERVICE C ONTRACT .
(a) Your Continuous Service with the Company, the Employer or any other Affiliate is not for any specified term and may be terminated by you or by the Company, the Employer or any other Affiliate at any time, for any reason, with or without cause and with or without notice. Nothing in this Award Agreement (including, but not limited to, the vesting of your Award or the issuance of the shares subject to your Award), the Plan or any covenant of good faith and fair dealing that may be found implicit in this Award Agreement or the Plan will: (i) confer upon you any right to continue in the employ of, or affiliation with the Employer; (ii) constitute any promise or commitment by the Company, the Employer or any other Affiliate regarding the fact or nature of future positions, future work assignments, future compensation or any other term or condition of employment or affiliation; (iii) confer any right or benefit under this Award Agreement or the Plan unless such right or benefit has specifically accrued under the terms of this Award Agreement or Plan; or (iv) deprive the Company or the Employer of the right to terminate you at any time and without regard to any future vesting opportunity that you may have. Finally, the grant of the Award shall not be interpreted as forming an employment or service contract with the Company.
(b) By accepting this Award, you acknowledge and agree that the right to continue vesting in the Award is earned only by continuing as an Employee, Director or Consultant at the will of the Company, the Employer or any other Affiliate and that the Company has the right to reorganize, sell, spin-out or otherwise restructure one or more of its businesses or Affiliates at any time or from time to time, as it deems appropriate (a reorganization ). You further acknowledge and agree that such a reorganization could result in the termination of your Continuous Service, or the termination of Affiliate status of the Employer and the loss of benefits available to you under this Award Agreement, including but not limited to, the termination of the right to continue vesting in the Award. You further acknowledge and agree that this Award Agreement, the Plan, the transactions contemplated hereunder and the vesting schedule set forth herein or any covenant of good faith and fair dealing that may be found implicit in any of them do not constitute an express or implied promise of continued engagement as an employee or consultant for the term of this Award Agreement, for any period, or at all, and will not interfere in any way with your right or the right of the Company, the Employer or any other Affiliate to terminate your Continuous Service at any time, with or without cause and with or without notice, and will not interfere in any way with the Companys right to conduct a reorganization.
12. N ATURE OF G RANT . In accepting your Award, you acknowledge, understand and agree that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted under the Plan;
(b) the Award is exceptional, voluntary and occasional and does not create any contractual or other right to receive future Awards (whether on the same or different terms), or benefits in lieu of an Award, even if an Award has been granted in the past;
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(c) all decisions with respect to future awards of Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;
(d) you are voluntarily participating in the Plan;
(e) the future value of the shares of Common Stock underlying the Award is unknown, indeterminable and cannot be predicted with certainty;
(f) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of your Continuous Service (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or rendering services or the terms of your employment agreement, if any), and in consideration of the grant of the Award, you agree not to institute any claim against the Company or any Affiliate;
(g) unless otherwise provided herein, in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Award Agreement do not create any entitlement to have the Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of Common Stock;
(h) unless otherwise agreed with the Company, the Award and the shares of Common Stock subject to the Award, and the income and value of same, are not granted as consideration for, or in connection with, the service you may provide as a director of an Affiliate; and
(i) The following provisions apply only if you are employed or rendering services outside the United States:
(i) neither the Company, the Employer nor any other Affiliate shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the Award or of any amounts due to you pursuant to the vesting of the Award or the subsequent sale of any shares of Common Stock acquired upon vesting;
(ii) the Award and the shares of Common Stock subject to the Award, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments.
13. N O A DVICE R EGARDING G RANT . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common Stock. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan.
14. D ATA P RIVACY . 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 Award Agreement and any other grant materials by and among, as applicable, Employer, the Company and any other Affiliate for the exclusive purpose of implementing, administering and managing your participation in the Plan.
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You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name, home address, email address and telephone number, email address, date of birth, social insurance, passport or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to shares of stock awarded, canceled, vested, unvested or outstanding in your favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
You understand that Data will be transferred to [Insert Applicable 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 (the Designated Broker). You understand that the recipients of Data may be located in the United States or elsewhere, and that the recipients country (e.g., the United States) may have different data privacy laws and protections than your country. You understand that if you reside outside the United States, you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the Company, the Designated Broker and any 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 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 if you reside outside the United States, 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 with the Company or any Affiliate will not be affected; the only consequence of refusing or withdrawing your consent is that the Company would not be able to grant Restricted Stock Units or other equity awards to you 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.
15. U NSECURED O BLIGATION . Your Award is unfunded, and as a holder of a vested Award, you will be considered an unsecured creditor of the Company with respect to the Companys obligation, if any, to issue shares or other property pursuant to this Award Agreement. You will not have voting or any other rights as a stockholder of the Company with respect to the shares to be issued pursuant to this Award Agreement until such shares are issued to you pursuant to Section 6 of this Award Agreement. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in this Award Agreement, and no action taken pursuant to its provisions, will create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.
16. N OTICES . Any notice or request required or permitted hereunder will be given in writing to each of the other parties hereto and will be deemed effectively given on the earlier of (i) the date of personal delivery, including delivery by express courier, or delivery via electronic means, or (ii) the date that is five (5) days after deposit in the United States Post Office (whether or not actually received by the addressee), by registered or certified mail with postage and fees prepaid, addressed to the Company at its primary executive offices, attention: Stock Plan Administrator, and addressed to you at your address as on file with the Company at the time notice is given.
17. H EADINGS . The headings of the Sections in this Award Agreement are inserted for convenience only and will not be deemed to constitute a part of this Award Agreement or to affect the meaning of this Award Agreement.
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18. G OVERNING P LAN D OCUMENT . Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. Your Award (and any compensation paid or shares issued under your Award) is subject to recoupment in accordance with The U.S. DoddFrank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. No recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntarily terminate employment upon a resignation for good reason, or for a constructive termination or any similar term under any plan of or agreement with the Company.
19. O THER D OCUMENTS . You hereby acknowledge receipt of and the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Companys policy permitting certain individuals to sell shares only during certain window periods and the Companys insider trading policy, in effect from time to time.
20. S EVERABILITY . If all or any part of this Award Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will not invalidate any portion of this Award Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Award Agreement (or part of such a Section) so declared to be unlawful or invalid will, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
21. L ANGUAGE . If you have received this Award Agreement, or any other document related to this Award and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control. You acknowledge that you are sufficiently proficient in English to understand the terms and conditions of this Award Agreement.
22. I NSIDER T RADING R ESTRICTIONS /M ARKET A BUSE L AWS . You acknowledge that you may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions, including the United States and your country of residence, which may affect your ability to acquire or sell the shares of Common Stock or rights to the shares of Common Stock under the Plan during such times as you are considered to have inside information regarding the Company (as defined by the laws in your country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. You acknowledge that it is your responsibility to comply with any applicable restrictions, and you are advised to speak to your personal advisor on this matter.
23. F OREIGN A SSES /A CCOUNT AND T AX R EPORTING , E XCHANGE C ONTROLS . Your country may have certain foreign asset, account and/or tax reporting requirements and exchange controls which may affect your ability to acquire or hold shares of Common Stock under the Plan or cash received from participating in the Plan (including from any dividends received or sale proceeds arising from the sale of shares of Common Stock) in a brokerage or bank account outside your country. You understand that you may be required to report such accounts, assets or transactions to the tax or other authorities in your country. You also may be required to repatriate sale proceeds or other funds received as a result of participation in the Plan to your country through a designated bank or broker and/or within a certain time after receipt. In addition, you may be subject to tax payment and/or reporting obligations in connection
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with any income realized under the Plan and/or from the sale of shares of Common Stock. You acknowledge that you are responsible for complying with all such requirements, and that you should consult personal legal and tax advisors, as applicable, to ensure compliance.
24. A PPENDIX . Notwithstanding any provisions in this Award Agreement, your Award shall be subject to the special terms and conditions for your country set forth in the Appendix attached hereto as Exhibit A . Moreover, if you relocate to one of the countries included therein, the 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 Award Agreement.
25. I MPOSITION OF O THER R EQUIREMENTS . The Company reserves the right to impose other requirements on your participation in the Plan, and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
26. G OVERNING L AW /V ENUE . The interpretation, performance and enforcement of this Award Agreement will be governed by the law of the State of Delaware without regard to that states conflicts of laws rules. For purposes of any action, lawsuit or other proceedings brought to enforce this Award Agreement, including its Exhibit, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts within Santa Clara County, State of California, and no other courts, where this grant is made and/or to be performed.
27. M ISCELLANEOUS . :
(a) The rights and obligations of the Company under your Award will be transferable by the Company to any one or more persons or entities, and all covenants and agreements hereunder will inure to the benefit of, and be enforceable by, the Companys successors and assigns.
(b) You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.
(c) You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.
(d) All obligations of the Company under the Plan and this Award Agreement will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and assets of the Company.
28. A MENDMENT . This Award Agreement may not be modified, amended or terminated except by an instrument in writing, signed by you and by a duly authorized representative of the Company. Notwithstanding the foregoing, this Award Agreement may be amended solely by the Board by a writing which specifically states that it is amending this Award Agreement, so long as a copy of such amendment is delivered to you, and provided that, except as otherwise expressly provided in the Plan, no such amendment materially adversely affecting your rights hereunder may be made without your written consent. Without limiting the foregoing, the Board reserves the right to change, by written notice to you, the provisions of this Award Agreement in any way it may deem necessary or advisable to carry out the
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purpose of the Award as a result of any change in applicable laws or regulations or any future law, regulation, ruling, or judicial decision, provided that any such change will be applicable only to rights relating to that portion of the Award which is then subject to restrictions as provided herein.
29. C OMPLIANCE WITH S ECTION 409A OF THE C ODE . This Award is intended to comply with the short-term deferral rule set forth in Treasury Regulation Section 1.409A-1(b)(4). Notwithstanding the foregoing, if it is determined that the Award fails to satisfy the requirements of the short-term deferral rule and is otherwise deferred compensation subject to Section 409A, and if you are a Specified Employee (within the meaning set forth in Section 409A(a)(2)(B)(i) of the Code) as of the date of your separation from service (within the meaning of Treasury Regulation Section 1.409A-1(h) and without regard to any alternative definition thereunder), then the issuance of any shares that would otherwise be made upon the date of the separation from service or within the first six (6) months thereafter will not be made on the originally scheduled date(s) and will instead be issued in a lump sum on the earlier of: (i) the fifth business day following your death, or (ii) the date that is six (6) months and one day after the date of the separation from service, with the balance of the shares issued thereafter in accordance with the original vesting and issuance schedule set forth above, but if and only if such delay in the issuance of the shares is necessary to avoid the imposition of adverse taxation on you in respect of the shares under Section 409A of the Code. Each installment of shares that vests is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).
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This Award Agreement will be deemed to be signed by the Company and you upon your signing or otherwise by your acceptance of the Restricted Stock Unit Grant Notice to which it is attached.
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E XHIBIT A
A PPENDIX TO R ESTRICTED S TOCK U NIT A WARD A GREEMENT
S PECIAL T ERMS AND C ONDITIONS FOR E MPLOYEES OUTSIDE THE U NITED S TATES
Capitalized terms used but not defined in this Appendix have the meanings set forth in the Plan and/or in the Restricted Stock Unit Award Agreement.
Terms and Conditions
This Appendix includes additional terms and conditions that govern the Restricted Stock Units granted to you under the Plan if you reside and/or work in one of the countries listed below. If you are a citizen or resident (or are considered as such for local law purposes) of a country other than the country in which you are currently residing and/or working, or if you relocate to another country after the grant of the Restricted Stock Units, the Company shall, in its discretion, determine to what extent the special terms and conditions contained herein shall be applicable to you.
Notifications
This Appendix may also include information regarding exchange controls and certain other issues of which you should be aware with respect to participation in the Plan. The information is based on the securities, exchange control, and other laws in effect in the respective countries as of August 2017. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the information in this Appendix as the only source of information relating to the consequences of your participation in the Plan because the information may be out of date at the time the Restricted Stock Units vest or you sell shares of Common Stock acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to your particular situation, and the Company is not in a position to assure you of a particular result. Accordingly, you are advised to seek appropriate professional advice as to how the relevant laws in your country may apply to your situation.
Finally, if you are a citizen or resident (or are considered as such for local law purposes) of a country other than the country in which you are currently residing and/or working, or if you relocate to another country after the grant of the Restricted Stock Units, the notifications contained herein may not be applicable to you in the same manner.
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C HINA
Terms and Conditions
The following provisions apply to Participants who are subject to exchange control regulations in the Peoples Republic of China (China), including the requirements imposed by the State Administration of Foreign Exchange (SAFE), as determined by the Company in its sole discretion:
Restriction on Vesting . You will not be permitted to vest in any shares of Common Stock unless and until the necessary approvals for the Plan have been obtained from SAFE and remain in place, as determined by the Company in its sole discretion. Further, the Company is under no obligation to issue shares of Common Stock if the Company has not or does not obtain SAFE approval or if any such SAFE approval subsequently becomes invalid or ceases to be in effect by the time you vest in the Restricted Stock Units.
Immediate Sale of Shares of Common Stock. To facilitate compliance with regulatory requirements in China, you understand and agree that any shares of Common Stock you acquire upon vesting of your Restricted Stock Units may be immediately sold at vesting or, at the Companys discretion, at a later time. You agree that the Company is authorized to instruct the Designated Broker to assist with the sale of such shares of Common Stock (on your behalf pursuant to this authorization and without further consent) and you expressly authorize the Designated Broker to complete the sale of such shares. You acknowledge that the Designated Broker is under no obligation to arrange for the sale of the shares of Common Stock at any particular price. Upon the sale of the shares of Common Stock, the Company agrees to pay the cash proceeds from the sale, less any brokerage fees or commissions, to you in accordance with applicable exchange control laws and regulations and provided any liability for Tax-Related Items resulting from your participation in the Plan has been satisfied.
If the Company, in its discretion, does not exercise its right to require the sale of shares of Common Stock upon vesting, as described in the preceding paragraph, you understand and agree that the Company may require that any shares of Common Stock you acquire under the Plan be sold no later than three (3) months after your termination of your Continuous Service, or within such other time frame as may be permitted by the Company or required by SAFE. You understand that any shares of Common Stock you acquire under the Plan that have not been sold within three (3) months of your termination of your Continuous Service may be sold by the Designated Broker at the Companys direction, pursuant to this authorization by you without further consent.
Exchange Control Requirements . Due to exchange control requirements in China, you understand and agree that you will not be permitted to transfer any shares of Common Stock acquired under the Plan out of the account established for you with the Designated Broker and that you will be required to immediately repatriate to China any cash proceeds from the sale of the shares of Common Stock you acquire under the Plan as well as any cash dividends paid on such shares. You further understand that such repatriation of cash proceeds will need to be effectuated through a special exchange control account established by the Company, the Employer or any other Affiliate in China, and you hereby consent and agree that any proceeds from the sale of shares of Common Stock or the receipt of any cash dividends may be transferred to such special account prior to being delivered to you.
The proceeds may be paid to you in U.S. dollars or local currency at the Companys discretion. In the event the proceeds are paid to you in U.S. dollars, you understand that you will be required to set up a U.S. dollar bank account in China and provide the bank account details to the Employer and/or the Company, so that the proceeds may be deposited into this account. If the proceeds are paid to you in local currency, you agree to bear any currency fluctuation risk between the time the shares of Common Stock are sold or cash dividends are paid and the time the proceeds are distributed to you through any such special account.
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You agree to comply with any other requirements that may be imposed by the Company in the future in order to facilitate compliance with exchange control requirements in China.
Notifications
Exchange Control Information . Chinese residents must report to SAFE all details of foreign financial assets and liabilities, as well as details of any economic transactions conducted with non-Chinese residents, either directly or through financial institutions.
D ENMARK
Terms and Conditions
Danish Stock Option Act. By accepting this Award, you acknowledge that you received an Employer Statement, translated into Danish, which is being provided to comply with the Danish Stock Option Act. To the extent more favorable and required to comply with the Danish Stock Option Act, the terms set forth in the Employer Statement will apply to your Restricted Stock Units.
Notifications
Securities/Tax Reporting Information. If you establish a brokerage or bank account holding shares outside Denmark, you must report this safety-deposit account to the Danish Tax Administration. For this purpose, you must file a Form V (Erklaering V) with the Danish Tax Administration. The Form V must be signed by you and may be signed by the applicable broker or bank where the account is held. By signing the Form V, the broker or bank undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the shares in the account. By signing the Form V, you authorize the Danish Tax Administration to examine the account. In the likely event that the Form V is not also signed by the broker or bank either because of refusal on the part of the broker and/or bank or due to the laws of the country in question, you are solely responsible for providing certain details regarding the foreign brokerage or bank account and shares deposited therein to the Danish Tax Administration as part of your annual income tax return.
In addition, if you open a brokerage account (or a deposit account with a U.S. bank) outside of Denmark, the brokerage account (or bank account) will be treated as a deposit account because cash can be held in the account. In such case, you must also file a Form K (Erklaering K) with the Danish Tax Administration. The Form K must be signed both by you and by the applicable broker or bank where the account is held, unless an exemption from the broker/bank signature requirement is granted by the Danish Tax Administration. It is possible to seek the exemption on the Form K, which you should do at the time you submit the Form K. By signing the Form K, you (and the broker/bank, to the extent the exemption is not granted) undertake an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the content of the account. By signing the Form K, you authorize the Danish Tax Administration to examine the account. In the likely event that the Form K is not also signed by the broker or bank either because of refusal on the part of the broker and/or bank or due to the laws of the country in question, you are solely responsible for providing certain details regarding the foreign brokerage or bank account and cash deposited therein to the Danish Tax Administration as part of your annual income tax return.
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Foreign Asset/Account Reporting Information. If you establish an account holding shares or cash outside of Denmark, you must report the account to the Danish Tax Administration. The form which should be used to make the report can be obtained from a local bank. These obligations are separate from and in addition to the obligations described above.
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SPECIAL NOTICE FOR EMPLOYEES IN DENMARK
EMPLOYER STATEMENT
Pursuant to Section 3(1) of the Act on Stock Options in employment relations (the Stock Option Act ), you are entitled to receive the following information regarding the restricted stock units granted to you by Roku, Inc. (the Company ) under the Roku, Inc. 2017 Equity Incentive Plan (the Plan ) in a written statement.
This statement contains information applicable to your participation in the Plan, as required under the Stock Option Act, while the other terms and conditions of your restricted stock units ( Restricted Stock Units ) are described in detail in the Plan and the Restricted Stock Unit Award Agreement (the Agreement ), both of which have been made available to you. Capitalized terms used but not defined herein shall have the same meanings given to them in the Plan or the Agreement, as applicable.
Section 1 of the Stock Option Act provides that the Stock Option Act only applies to employees. Employees are defined in section 2 of the Stock Option Act as persons who receive remuneration for their personal services in an employment relationship. Persons, including managers, who are not regarded as employees under the Stock Option Act, will not be subject to the Stock Option Act. If you are not an employee within the meaning of the Stock Option Act, the Company therefore has no obligation to issue an employer information statement to you and you will not be able to rely on this statement for legal purposes, since only the terms and conditions set out in the Plan apply.
1. | Date of grant |
The date of grant of your Restricted Stock Units is the date that the Board or Committee approved a grant for you and determined it would be effective, which is set forth in the Agreement.
2. | Terms or conditions for Restricted Stock Unit grant |
The grant of Restricted Stock Units under the Plan is made at the sole discretion of the Company. Employees, Directors and Consultants of the Company and its Affiliates, are eligible to receive grants under the Plan. The Board has broad discretion to determine who will receive Restricted Stock Units and to set the terms and conditions of the Restricted Stock Units. The Company may decide, in its sole discretion, not to make any grants of Restricted Stock Units to you in the future. Under the terms of the Plan and the Agreement, you have no entitlement or claim to receive future grants of Restricted Stock Units.
3. | Vesting date or period |
The Restricted Stock Units will vest over a period of time (as set forth in the Agreement), subject to your Continuous Service through the applicable vesting date and other conditions set forth in the Plan and Agreement, and subject to Section 5 of this statement.
4. | Exercise Price |
No exercise price is payable upon the conversion of your Restricted Stock Units into Shares in accordance with the vesting and settlement schedule described in the Agreement.
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5. | Your rights upon termination of employment |
The treatment of your Restricted Stock Units upon termination of employment will be determined under Sections 4 and 5 of the Stock Option Act unless the terms contained in the Plan and the Agreement are more favorable to you than Sections 4 and 5 of the Stock Option Act. If the terms contained in the Plan and the Agreement are more favorable to you, then such terms will govern the treatment of your Restricted Stock Units upon termination of employment.
6. | Financial aspects of participating in the Plan |
The grant of Restricted Stock Units has no immediate financial consequences for you. The value of the Restricted Stock Units is not taken into account when calculating holiday allowances, pension contributions or other statutory consideration calculated on the basis of salary.
Shares of stock are financial instruments and investing in stock will always have financial risk. The future value of Company shares is unknown and cannot be predicted with certainty.
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
U.S.A.
16.
SÆRLIG MEDDELELSE TIL MEDARBEJDERE I DANMARK
ARBEJDSGIVERERKLÆRING
I henhold til § 3, stk. 1, i lov om brug af køberet eller tegningsret mv. i ansættelsesforhold (Aktieoptionsloven) er du berettiget til i en skriftlig erklæring at modtage følgende oplysninger om de aktieoptioner, som du tildeles af Roku, Inc. (Selskabet) i henhold til Roku, Inc.s 2017 Equity Incentive Plan (Planen).
Denne erklæring indeholder, i henhold til Aktieoptionsloven, de oplysninger, der er gældende for din deltagelse i Planen, mens de øvrige kriterier og betingelser for dine aktieoptioner er beskrevet nærmere i Planen og i Restricted Stock Unit Award Agreement (Aftalen), som begge er stillet til rådighed for dig. Begreber, der står med stort begyndelsesbogstav i denne arbejdsgivererklæring, men som ikke er defineret heri, har den betydning, der er defineret i Planen, hhv. Aftalen.
I henhold til Aktieoptionslovens § 1 finder loven kun anvendelse for lønmodtagere. Lønmodtagere er defineret i Aktieoptionslovens § 2 som personer, der modtager vederlag for personligt arbejde i tjenesteforhold.
Personer, herunder direktører, som ikke anses for at være lønmodtagere i Aktieoptionslovens forstand, er ikke omfattet af Aktieoptionsloven. Hvis du ikke er lønmodtager i Aktieoptionslovens forstand, er Selskabet derfor ikke forpligtet til at udstede en arbejdsgivererklæring til dig, og du vil ikke i juridisk henseende kunne henholde dig til denne arbejdsgivererklæring, da alene Planens vilkår er gældende.
1. | Tildelingstidspunkt |
Tidspunktet for tildelingen af dine aktieoptioner er den dag, hvor Bestyrelsen eller Komitéen godkendte din tildeling og besluttede, at den skulle træde i kraft. Tidspunktet fremgår af Aftalen.
2. | Vilkår og betingelser for optionstildelingen |
Aktieoptioner, der er omfattet af Planen, tildeles udelukkende efter Selskabets skøn. Tildeling kan i henhold til Planen ske til Medarbejdere, Bestyrelsesmedlemmer og Konsulenter i Selskabet og dets Tilknyttede Selskaber. Bestyrelsen har vide beføjelser til at bestemme, hvem der skal modtage optioner og til at fastsætte betingelserne herfor. Selskabet kan frit vælge fremover ikke at tildele dig aktieoptioner. I henhold til bestemmelserne i Planen og Aftalen har du ikke hverken ret til eller krav på fremover at få tildelt aktieoptioner.
3. | Udnyttelsestidspunkt eller -periode |
Aktieoptionerne modnes over en periode (som anført i Aftalen), forudsat at du på det relevante modningstidspunkt opfylder betingelsen om Fortsat Ansættelse og de øvrige betingelser i Planen og i Aftalen, og med forbehold for pkt. 5 i denne erklæring.
4. | Udnyttelseskurs |
I udnyttelsesperioden kan aktieoptionerne udnyttes til at købe ordinære aktier i Selskabet til en kurs, som ikke kan være lavere end markedskursen for de ordinære aktier på tildelingstidspunktet, som opgjort i overensstemmelse med Planen.
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5. | Din retsstilling i forbindelse med fratræden |
Dine aktieoptioner vil i tilfælde af din fratræden blive behandlet i overensstemmelse med Aktieoptionslovens §§ 4 og 5, medmindre bestemmelserne i Planen og Aftalen er mere fordelagtige for dig end Aktieoptionslovens §§ 4 og 5. Hvis bestemmelserne i Planen og Aftalen er mere fordelagtige for dig, vil det være disse bestemmelser, der er gældende for, hvordan din aktieoption behandles i forbindelse med din fratræden.
6. | Økonomiske aspekter ved deltagelse i Planen |
Tildelingen af aktieoptioner har ingen umiddelbare økonomiske konsekvenser for dig. Værdien af aktieoptionerne indgår ikke i beregningen af feriepenge, pensionsbidrag eller øvrige lovbestemte, vederlagsafhængige ydelser.
Aktier er finansielle instrumenter, og investering i aktier vil altid være forbundet med en økonomisk risiko. Den fremtidige værdi af Selskabets aktier kendes ikke og kan ikke forudsiges med sikkerhed.
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
U.S.A.
18.
G ERMANY
Notifications
Exchange Control Information. Cross-border payments in excess of 12,500 must be reported monthly to the German Federal Bank ( Bundesbank ). In case of payments in connection with securities (including proceeds realized upon the sale of shares of Common Stock or the receipt of dividends), the report must be made by the 5th day of the month following the month in which the payment was received. The report must be filed electronically and the form of report ( Allgemeine Meldeportal Statistik ) can be accessed via the Bundesbanks website ( www.bundesbank.de ), in both German and English. You are responsible for making this report.
N ETHERLANDS
There are no country-specific terms.
U NITED K INGDOM
Terms and Conditions
Responsibility for Taxes. The following supplements Section 10 of the Award Agreement:
Without limitation to Section 10 of the Award Agreement, you agree that you are liable for all Tax-Related Items and hereby covenant to pay all such Tax-Related Items, as and when requested by the Company or the Employer or by Her Majestys Revenue & Customs ( HRMC ) (or any other tax authority or any other relevant authority). You also hereby agree to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC on your behalf (or any other tax authority or any other relevant authority).
Notwithstanding the foregoing, if you are an executive officer or director (within the meaning of Section 13(k) of the Exchange Act), you acknowledge that you may not be able to indemnify the Company or the Employer for the amount of any income tax not collected from or paid by you, as it may be considered a loan. In this case, the amount of any income tax not collected within ninety (90) days of the end of the U.K. tax year in which the event giving rise to the Tax-Related Item(s) occurs may constitute a benefit to you on which additional income tax and national insurance contributions may be payable. You acknowledge that you will be responsible for reporting and paying any income tax due on this additional benefit directly to the HMRC under the self-assessment regime and for paying the Company or the Employer, as applicable, for the value of any national insurance contributions due on this additional benefit, which may also be recovered from you at any time by any of the means referred to in Section 10 of the Award Agreement.
Joint Election. As a condition of participation in the Plan, you agree to accept any liability for secondary Class 1 National Insurance contributions that may be payable by the Company or the Employer (or any successor to the Company or the Employer) in connection with the Restricted Stock Units and any event giving rise to Tax-Related Items (the Employer NICs ). The Employer NICs may be collected by the Company or the Employer using any of the methods described in the Plan or in Section 10 of the Restricted Stock Unit Award Agreement.
Without prejudice to the foregoing, you agree to execute a joint election with the Company and/or the Employer (a Joint Election ), the form of such Joint Election being formally approved by HMRC, and any other consent or elections required by the Company or the Employer in respect of the Employer NICs liability. You further agree to execute such other elections as may be required by any successor to the Company and/or the Employer for the purpose of continuing the effectiveness of your Joint Election.
19.
A TTACHMENT II
2017 E QUITY I NCENTIVE P LAN
20.
Exhibit 10.8
R OKU , I NC .
2017 E MPLOYEE S TOCK P URCHASE P LAN
A DOPTED BY THE B OARD OF D IRECTORS : S EPTEMBER 12, 2017
A PPROVED BY THE S TOCKHOLDERS : S EPTEMBER 14, 2017
IPO D ATE /E FFECTIVE D ATE : , 2017
1. | G ENERAL ; P URPOSE . |
(a) The Plan provides a means by which Eligible Employees of the Company and certain Designated Companies may be given an opportunity to purchase shares of Common Stock. The Plan permits the Company to grant a series of Purchase Rights to Eligible Employees under an Employee Stock Purchase Plan.
(b) The Company, by means of the Plan, seeks to retain the services of such Employees, to secure and retain the services of new Employees and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Related Corporations and Affiliates.
(c) The Plan includes two components: a 423 Component and a Non-423 Component. The Company intends (but makes no undertaking or representation to maintain) the 423 Component to qualify as an Employee Stock Purchase Plan. The provisions of the 423 Component, accordingly, will be construed in a manner that is consistent with the requirements of Section 423 of the Code. In addition, this Plan authorizes grants of Purchase Rights under the Non-423 Component that do not meet the requirements of an Employee Stock Purchase Plan. Except as otherwise provided in the Plan or determined by the Board, the Non-423 Component will operate and be administered in the same manner as the 423 Component. In addition, the Company may make separate Offerings which vary in terms (provided that such terms are not inconsistent with the provisions of the Plan or the requirements of an Employee Stock Purchase Plan), and the Company will designate which Designated Company is participating in each separate Offering.
2. | A DMINISTRATION . |
(a) The Board will administer the Plan unless and until the Board delegates administration of the Plan to a Committee or Committees, as provided in Section 2(c).
(b) The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine how and when Purchase Rights will be granted and the provisions of each Offering (which need not be identical).
(ii) To designate from time to time which Related Corporations will be eligible to participate in the Plan as Designated 423 Corporations or as Designated Non-423 Corporations, which Affiliates may be excluded from participation in the Plan, and which Designated Companies will participate in each separate Offering (to the extent that the Company makes separate Offerings).
(iii) To construe and interpret the Plan and Purchase Rights, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it deems necessary or expedient to make the Plan fully effective.
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(iv) To settle all controversies regarding the Plan and Purchase Rights granted under the Plan.
(v) To suspend or terminate the Plan at any time as provided in Section 12.
(vi) To amend the Plan at any time as provided in Section 12.
(vii) Generally, to exercise such powers and to perform such acts as it deems necessary or expedient to promote the best interests of the Company, its Related Corporations, and Affiliates and to carry out the intent that the 423 Component be treated as an Employee Stock Purchase Plan.
(viii) To adopt such rules, procedures and sub-plans relating to the operation and administration of the Plan as are necessary or appropriate under applicable local laws, regulations and procedures to permit or facilitate participation in the Plan by Employees who are foreign nationals or employed or located outside the United States. Without limiting the generality of, but consistent with, the foregoing, the Board specifically is authorized to adopt rules, procedures, and sub-plans, which, if applicable to a Designated Non-423 Corporation, do not have to comply with the requirements of Section 423 of the Code, regarding, without limitation, eligibility to participate in the Plan, handling and making of Contributions, establishment of bank or trust accounts to hold Contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of share issuances, any of which may vary according to applicable requirements.
(c) The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated. Whether or not the Board has delegated administration of the Plan to a Committee, the Board will have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan.
(d) All determinations, interpretations and constructions made by the Board in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.
3. | S HARES OF C OMMON S TOCK S UBJECT TO THE P LAN . |
(a) Subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the maximum number of shares of Common Stock that may be issued under the Plan will not exceed 3,000,000 shares of Common Stock, plus the number of shares of Common Stock that are automatically added commencing on the first day commencing on January 1 of each year for a period of up to ten years, commencing on January 1 in the calendar year following the calendar year in which the IPO Date occurs and ending on (and including) January 1, 2027 (each, an Evergreen Date ), in an amount equal to the lesser of (i) one percent (1%) of the total number of shares of Capital Stock outstanding on the last day of
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the year prior to the date of such automatic increase, and (ii) 3,000,000 shares of Common Stock. Notwithstanding the foregoing, the Board may act prior to the Evergreen Date of a given year to provide that there will be no increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of Common Stock than would otherwise occur pursuant to the preceding sentence.
(b) If any Purchase Right granted under the Plan terminates without having been exercised in full, the shares of Common Stock not purchased under such Purchase Right will again become available for issuance under the Plan.
(c) The stock purchasable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market.
4. | G RANT OF P URCHASE R IGHTS ; O FFERING . |
(a) The Board may from time to time grant or provide for the grant of Purchase Rights to Eligible Employees under an Offering (consisting of one or more Purchase Periods) on an Offering Date or Offering Dates selected by the Board. Each Offering will be in such form and will contain such terms and conditions as the Board will deem appropriate, and, with respect to the 423 Component, will comply with the requirement of Section 423(b)(5) of the Code that all Employees granted Purchase Rights will have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering will include (through incorporation of the provisions of this Plan by reference in the Offering Document or otherwise) the period during which the Offering will be effective, which period will not exceed 27 months beginning with the Offering Date, and the substance of the provisions contained in Sections 5 through 8, inclusive.
(b) If a Participant has more than one Purchase Right outstanding under the Plan, unless he or she otherwise indicates in forms delivered to the Company or a third party designated by the Company (each, a C ompany Designee ): (i) each form will apply to all of his or her Purchase Rights under the Plan, and (ii) a Purchase Right with a lower exercise price (or an earlier-granted Purchase Right, if different Purchase Rights have identical exercise prices) will be exercised to the fullest possible extent before a Purchase Right with a higher exercise price (or a later-granted Purchase Right if different Purchase Rights have identical exercise prices) will be exercised.
(c) The Board will have the discretion to structure an Offering so that if the Fair Market Value of a share of Common Stock on the first Trading Day of a new Purchase Period within that Offering is less than or equal to the Fair Market Value of a share of Common Stock on the Offering Date for that Offering, then (i) that Offering will terminate immediately as of that first Trading Day, and (ii) the Participants in such terminated Offering will be automatically enrolled in a new Offering beginning on the first Trading Day of such new Purchase Period.
5. | E LIGIBILITY . |
(a) Purchase Rights may be granted only to Employees of the Company or, as the Board may designate in accordance with Section 2(b), to Employees of a Related Corporation or an Affiliate. Except as provided in Section 5(b), an Employee will not be eligible to be granted Purchase Rights unless, on the Offering Date, the Employee has been in the employ of the Company, a Related Corporation, or an Affiliate, as the case may be, for such continuous period preceding such Offering Date as the Board may require, but in no event will the required period of continuous employment be equal to or greater than two years. In addition, the Board may provide that no Employee will be eligible to be granted Purchase
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Rights under the Plan unless, on the Offering Date, such Employees customary employment with the Company, the Related Corporation, or the Affiliate, as applicable, is more than 20 hours per week and more than five months per calendar year or such other criteria as the Board may determine consistent with Section 423 of the Code and applicable laws.
(b) The Board may provide that each person who, during the course of an Offering, first becomes an Eligible Employee will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an Eligible Employee or which occurs thereafter, receive a Purchase Right under that Offering, which Purchase Right will thereafter be deemed to be a part of that Offering. Such Purchase Right will have the same characteristics as any Purchase Rights originally granted under that Offering, as described herein, except that:
(i) the date on which such Purchase Right is granted will be the Offering Date of such Purchase Right for all purposes, including determination of the exercise price of such Purchase Right;
(ii) the period of the Offering with respect to such Purchase Right will begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an Eligible Employee within a specified period of time before the end of the Offering, he or she will not receive any Purchase Right under that Offering.
(c) No Employee will be eligible for the grant of any Purchase Rights if, immediately after any such Purchase Rights are granted, such Employee owns stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of any Related Corporation. For purposes of this Section 5(c), the rules of Section 424(d) of the Code will apply in determining the stock ownership of any Employee, and stock which such Employee may purchase under all outstanding Purchase Rights and options will be treated as stock owned by such Employee.
(d) As specified by Section 423(b)(8) of the Code, an Eligible Employee may be granted Purchase Rights only if such Purchase Rights, together with any other rights granted under all Employee Stock Purchase Plans of the Company and any Related Corporations or Affiliates, do not permit such Eligible Employees rights to purchase stock of the Company or any Related Corporation or Affiliates to accrue at a rate which, when aggregated, exceeds US$25,000 of Fair Market Value of such stock (determined at the time such rights are granted, and which, with respect to the Plan, will be determined as of their respective Offering Dates) for each calendar year in which such rights are outstanding at any time.
(e) Officers of the Company and any Designated Company, if they are otherwise Eligible Employees, will be eligible to participate in Offerings under the Plan. Notwithstanding the foregoing, the Board may provide in an Offering that Employees who are highly compensated Employees within the meaning of Section 423(b)(4)(D) of the Code will not be eligible to participate.
6. | P URCHASE R IGHTS ; P URCHASE P RICE . |
(a) On each Offering Date, each Eligible Employee, pursuant to an Offering made under the Plan, will be granted a Purchase Right to purchase up to that number of shares of Common Stock (rounded down to the nearest whole share) purchasable either with a percentage or with a maximum dollar amount, as designated by the Board, but in either case not exceeding 15% of such Employees earnings (as defined by the Board in each Offering) during the period that begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date will be no later than the end of the Offering.
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(b) The Board will establish one or more Purchase Dates during an Offering on which Purchase Rights granted for that Offering will be exercised and shares of Common Stock will be purchased in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may specify (i) a maximum number of shares of Common Stock that may be purchased by any Participant on any Purchase Date during such Offering, (ii) a maximum aggregate number of shares of Common Stock that may be purchased by all Participants pursuant to such Offering and/or (iii) a maximum aggregate number of shares of Common Stock that may be purchased by all Participants on any Purchase Date under the Offering. If the aggregate purchase of shares of Common Stock issuable upon exercise of Purchase Rights granted under the Offering would exceed any such maximum aggregate number, then, in the absence of any Board action otherwise, a pro rata (based on each Participants accumulated Contributions) allocation of the shares of Common Stock (rounded down to the nearest whole share) available will be made in as nearly a uniform manner as will be practicable and equitable.
(d) The purchase price of shares of Common Stock acquired pursuant to Purchase Rights will be not less than the lesser of:
(i) an amount equal to 85% of the Fair Market Value of the shares of Common Stock on the Offering Date; or
(ii) an amount equal to 85% of the Fair Market Value of the shares of Common Stock on the applicable Purchase Date.
7. | P ARTICIPATION ; W ITHDRAWAL ; T ERMINATION . |
(a) An Eligible Employee may elect to authorize payroll deductions as the means of making Contributions by completing and delivering to the Company or Company Designee, within the time specified in the Offering, an enrollment form provided by the Company or Company Designee. The enrollment form will specify the amount of Contributions not to exceed the maximum amount specified by the Board. Each Participants Contributions will be credited to a bookkeeping account for such Participant under the Plan and will be deposited with the general funds of the Company except where applicable laws or regulations require that Contributions be deposited with a Company Designee or otherwise be segregated. If permitted in the Offering, a Participant may begin such Contributions with the first payroll occurring on or after the Offering Date (or, in the case of a payroll date that occurs after the end of the prior Offering but before the Offering Date of the next new Offering, Contributions from such payroll will be included in the new Offering). If permitted in the Offering, a Participant may thereafter reduce (including to zero) or increase his or her Contributions. If required under applicable laws or regulations or if specifically provided in the Offering, in addition to or instead of making Contributions by payroll deductions, a Participant may make Contributions through a payment by cash, check, or wire transfer prior to a Purchase Date, in a manner directed by the Company or a Company Designee.
(b) During an Offering, a Participant may cease making Contributions and withdraw from the Offering by delivering to the Company or a Company Designee a withdrawal form provided by the Company. The Company may impose a deadline before a Purchase Date for withdrawing. Upon such withdrawal, such Participants Purchase Right in that Offering will immediately terminate and the Company will distribute as soon as practicable to such Participant all of his or her accumulated but unused Contributions and such Participants Purchase Right in that Offering shall thereupon terminate. A Participants withdrawal from that Offering will have no effect upon his or her eligibility to participate in any other Offerings under the Plan, but such Participant will be required to deliver a new enrollment form to participate in subsequent Offerings.
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(c) Unless otherwise required by applicable law, Purchase Rights granted pursuant to any Offering under the Plan will terminate immediately if the Participant either (i) is no longer an Employee for any reason or for no reason or (ii) is otherwise no longer eligible to participate. The Company will distribute as soon as practicable to such individual all of his or her accumulated but unused Contributions.
(d) During a Participants lifetime, Purchase Rights will be exercisable only by such Participant. Purchase Rights are not transferable by a Participant, except by will, by the laws of descent and distribution, or, if permitted by the Company, by a beneficiary designation as described in Section 10.
(e) Unless otherwise specified in the Offering or required by applicable law, the Company will have no obligation to pay interest on Contributions.
8. | E XERCISE OF P URCHASE R IGHTS . |
(a) On each Purchase Date, each Participants accumulated Contributions will be applied to the purchase of shares of Common Stock (rounded down to the nearest whole share), up to the maximum number of shares of Common Stock permitted by the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares will be issued unless specifically provided for in the Offering.
(b) Unless otherwise provided in the Offering, if any amount of accumulated Contributions remains in a Participants account after the purchase of shares of Common Stock on a Purchase Date in an Offering, then such remaining amount will be distributed to such Participant as soon as practicable after the applicable Purchase Date, without interest, unless the payment of interest is required by applicable laws.
(c) No Purchase Rights may be exercised to any extent unless the shares of Common Stock to be issued upon such exercise under the Plan are covered by an effective registration statement pursuant to the Securities Act and the Plan is in material compliance with all applicable U.S. federal and state, foreign and other securities, exchange control and other laws applicable to the Plan. If on a Purchase Date the shares of Common Stock are not so registered or the Plan is not in such compliance, no Purchase Rights will be exercised on such Purchase Date, and the Purchase Date will be delayed until the shares of Common Stock are subject to such an effective registration statement and the Plan is in material compliance, except that the Purchase Date will in no event be more than 6 months from the Offering Date. If, on the Purchase Date, as delayed to the maximum extent permissible, the shares of Common Stock are not registered and the Plan is not in material compliance with all applicable laws or regulations, as determined by the Company in its sole discretion, no Purchase Rights will be exercised and all accumulated but unused Contributions will be distributed as soon as practicable to the Participants without interest, unless the payment of interest is required by applicable laws.
9. | C OVENANTS OF THE C OMPANY . |
The Company will seek to obtain from each U.S. federal or state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Purchase Rights and issue and sell shares of Common Stock thereunder unless the Company determines, in its sole discretion, that doing so would cause the Company to incur costs that are unreasonable. If, after commercially reasonable efforts, the Company is unable to obtain the authority that counsel for the
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Company deems necessary for the grant of Purchase Rights or the lawful issuance and sale of Common Stock under the Plan, and at a commercially reasonable cost, the Company will be relieved from any liability for failure to grant Purchase Rights and/or to issue and sell Common Stock upon exercise of such Purchase Rights.
10. | D ESIGNATION OF B ENEFICIARY . |
(a) The Company may, but is not obligated to, permit a Participant to submit a form designating a beneficiary who will receive any shares of Common Stock and/or Contributions from the Participants account under the Plan if the Participant dies before such shares and/or Contributions are delivered to the Participant. The Company may, but is not obligated to, permit the Participant to change such designation of beneficiary. Any such designation and/or change must be on a form approved by the Company or as approved by the Company for use by a Company Designee.
(b) If a Participant dies, in the absence of a valid beneficiary designation, the Company will deliver any shares of Common Stock and/or Contributions to the executor or administrator of the estate of the Participant. If no executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such shares of Common Stock and/or Contributions, without interest, unless the payment of interest is required by applicable laws, to the Participants spouse, dependents or relatives, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
11. | A DJUSTMENTS UPON C HANGES IN C OMMON S TOCK ; C ORPORATE T RANSACTIONS . |
(a) In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities by which the share reserve is to increase automatically each year pursuant to Section 3(a), (iii) the class(es) and number of securities subject to, and the purchase price applicable to outstanding Offerings and Purchase Rights, and (iv) the class(es) and number of securities that are the subject of the purchase limits under each ongoing Offering. The Board will make these adjustments, and its determination will be final, binding and conclusive.
(b) In the event of a Corporate Transaction, then: (i) any surviving corporation or acquiring corporation (or the surviving or acquiring corporations parent company) may assume or continue outstanding Purchase Rights or may substitute similar rights (including a right to acquire the same consideration paid to the stockholders in the Corporate Transaction) for outstanding Purchase Rights, or (ii) if any surviving or acquiring corporation (or its parent company) does not assume or continue such Purchase Rights or does not substitute similar rights for such Purchase Rights, then the Participants accumulated Contributions will be used to purchase shares of Common Stock (rounded down to the nearest whole share) within ten business days prior to the Corporate Transaction under the outstanding Purchase Rights, and the Purchase Rights will terminate immediately after such purchase.
12. | A MENDMENT , T ERMINATION OR S USPENSION OF THE P LAN . |
(a) The Board may amend the Plan at any time in any respect the Board deems necessary or advisable. However, except as provided in Section 11(a) relating to Capitalization Adjustments, stockholder approval will be required for any amendment of the Plan for which stockholder approval is required by applicable laws, regulations or listing requirements, including any amendment that either (i) materially increases the number of shares of Common Stock available for issuance under the Plan, (ii) materially expands the class of individuals eligible to become Participants and receive Purchase Rights, (iii) materially increases the benefits accruing to Participants under the Plan or materially reduces the
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price at which shares of Common Stock may be purchased under the Plan, (iv) materially extends the term of the Plan, or (v) expands the types of awards available for issuance under the Plan, but in each of (i) through (v) above only to the extent stockholder approval is required by applicable laws, regulations, or listing requirements.
(b) The Board may suspend or terminate the Plan at any time. No Purchase Rights may be granted under the Plan while the Plan is suspended or after it is terminated.
(c) Any benefits, privileges, entitlements and obligations under any outstanding Purchase Rights granted before an amendment, suspension or termination of the Plan will not be materially impaired by any such amendment, suspension or termination except (i) with the consent of the person to whom such Purchase Rights were granted, (ii) as necessary to comply with any laws, listing requirements, or governmental regulations (including, without limitation, the provisions of Section 423 of the Code and the regulations and other interpretive guidance issued thereunder relating to Employee Stock Purchase Plans) including without limitation any such regulations or other guidance that may be issued or amended after the Effective Date, or (iii) as necessary to obtain or maintain any special tax, listing, or regulatory treatment. To be clear, the Board may amend outstanding Purchase Rights without a Participants consent if such amendment is necessary to ensure that the Purchase Right and/or the 423 Component complies with the requirements of Section 423 of the Code.
13. | S ECTION 409A OF THE C ODE ; T AX Q UALIFICATION . |
(a) Purchase Rights granted under the 423 Component are intended to be exempt from the application of Section 409A of the Code under U.S. Treasury Regulation Section 1.409A-1(b)(5)(ii). Purchase Rights granted under the Non-423 Component to U.S. taxpayers are intended to be exempt from the application of Section 409A of the Code under the short-term deferral exception and any ambiguities will be construed and interpreted in accordance with such intent. Subject to Section 13(b) below, Purchase Rights granted to U.S. taxpayers under the Non-423 Component will be subject to such terms and conditions that will permit such Purchase Rights to satisfy the requirements of the short-term deferral exception available under Section 409A of the Code, including the requirement that the shares subject to a Purchase Right be delivered within the short-term deferral period. Subject to Section 13(b) below, in the case of a Participant who would otherwise be subject to Section 409A of the Code, to the extent the Board determines that a Purchase Right or the exercise, payment, settlement or deferral thereof is subject to Section 409A of the Code, the Purchase Right will be granted, exercised, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including U.S. Department of Treasury regulations and other interpretive guidance issued thereunder, including, without limitation, any such regulations or other guidance that may be issued after the adoption of the Plan. Notwithstanding the foregoing, the Company will have no liability to a Participant or any other party if the Purchase Right 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 Board with respect thereto.
(b) Although the Company may endeavor to (i) qualify a Purchase Right for special 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 special or to avoid unfavorable tax treatment, notwithstanding anything to the contrary in this Plan, including Section 13(a) above. The Company will be unconstrained in its corporate activities without regard to the potential negative tax impact on Participants under the Plan.
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14. | E FFECTIVE D ATE OF P LAN . |
The Plan will become effective immediately prior to and contingent upon the IPO Date. No Purchase Rights will be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval must be within 12 months before or after the date the Plan is adopted (or if required under Section 12(a) above, materially amended) by the Board.
15. | M ISCELLANEOUS P ROVISIONS . |
(a) Proceeds from the sale of shares of Common Stock pursuant to Purchase Rights will constitute general funds of the Company.
(b) A Participant will not be deemed to be the holder of, or to have any of the rights of a holder with respect to, shares of Common Stock subject to Purchase Rights unless and until the Participants shares of Common Stock acquired upon exercise of Purchase Rights are recorded in the books of the Company (or its transfer agent).
(c) The Plan and Offering do not constitute an employment contract. Nothing in the Plan or in the Offering will in any way alter the at-will nature of a Participants employment, if applicable, or be deemed to create in any way whatsoever any obligation on the part of any Participant to continue in the employ of the Company, a Related Corporation, or an Affiliate, or on the part of the Company, a Related Corporation, or an Affiliate to continue the employment of a Participant.
(d) The provisions of the Plan will be governed by the laws of the State of Delaware without resort to that states conflicts of laws rules.
(e) If any particular provision of the Plan is found to be invalid or otherwise unenforceable, such provision will not affect the other provisions of the Plan, but the Plan will be construed in all respects as if such invalid provision were omitted.
(f) If any provision of the Plan does not comply with applicable law or regulations, such provision shall be construed in such a manner as to comply with applicable law or regulations.
16. | D EFINITIONS . |
As used in the Plan, the following definitions will apply to the capitalized terms indicated below:
(a) 423 Component means the part of the Plan, which excludes the Non-423 Component, pursuant to which Purchase Rights that satisfy the requirements for an Employee Stock Purchase Plan may be granted to Eligible Employees.
(b) Affiliate means any entity, other than a Related Corporation, in which the Company has an equity or other ownership interest or that is directly or indirectly controlled by, controls, or is under common control with the Company, in all cases, as determined by the Board, whether now or hereafter existing.
(c) Board means the Board of Directors of the Company.
(d) Capital Stock means each and every class of common stock of the Company, regardless of the number of votes per share.
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(e) Capitalization Adjustment means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Purchase Right after the Effective Date without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other similar equity restructuring transaction, as that term is used in Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.
(f) Code means the U.S. Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder .
(g) Committee means a committee of one or more members of the Board to whom authority has been delegated by the Board in accordance with Section 2(c).
(h) Common Stock means, as of the IPO Date, the Class A Common Stock of the Company, having one vote per share.
(i) Company means Roku, Inc., a Delaware corporation.
(j) Contributions means the payroll deductions and/or other payments specifically provided for in the Offering that a Participant contributes to fund the exercise of a Purchase Right. A Participant may make additional payments into his or her account if specifically provided for in the Offering, and then only if the Participant has not already contributed the maximum permitted amount of payroll deductions and/or other payments during the Offering.
(k) Corporate Transaction means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) a sale or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii) a sale or other disposition of more than 50% of the outstanding securities of the Company;
(iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
(l) Designated 423 Corporation means any Related Corporation selected by the Board as participating in the 423 Component.
(m) Designated Company means any Designated Non-423 Corporation or Designated 423 Corporation, provided, however, that at any given time, a Related Corporation participating in the 423 Component shall not be a Related Corporation participating in the Non-423 Component.
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(n) Designated Non-423 Corporation means any Related Corporation or Affiliate selected by the Board as participating in the Non-423 Component.
(o) Director means a member of the Board.
(p) Effective Date means the effective date of the Plan, as set forth in Section 13.
(q) Eligible Employee means an Employee who meets the requirements set forth in the document(s) governing the Offering for eligibility to participate in the Offering, provided that such Employee also meets the requirements for eligibility to participate set forth in the Plan.
(r) Employee means any person, including an Officer or Director, who is employed for purposes of Section 423(b)(4) of the Code by the Company or a Related Corporation (including an Affiliate). However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an Employee for purposes of the Plan.
(s) Employee Stock Purchase Plan means a plan that grants Purchase Rights intended to be options issued under an employee stock purchase plan, as that term is defined in Section 423(b) of the Code.
(t) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder.
(u) Fair Market Value means, as of any date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded on any established market, the Fair Market Value of a share of Common Stock will be the closing sales price for such stock as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the date of determination , as reported in such source as the Board deems reliable. Unless otherwise provided by the Board, if there is no closing sales price for the Common Stock on the date of determination, then the Fair Market Value will be the closing sales price on the last preceding date for which such quotation exists.
(ii) In the absence of such markets for the Common Stock, the Fair Market Value will be determined by the Board in good faith in compliance with applicable laws and regulations and in a manner that complies with Sections 409A of the Code.
(iii) Notwithstanding the foregoing, for any Offering that commences on the IPO Date, the Fair Market Value of the shares of Common Stock on the Offering Date will be the price per share at which shares are first sold to the public in the Companys initial public offering as specified in the final prospectus for that initial public offering.
(v) IPO Date means the date of the underwriting agreement between the Company and the underwriter(s) managing the initial public offering of the Common Stock, pursuant to which the Common Stock is priced for the initial public offering.
(w) Non-423 Component means the part of the Plan, which excludes the 423 Component, pursuant to which Purchase Rights that are not intended to satisfy the requirements for an Employee Stock Purchase Plan may be granted to Eligible Employees.
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(x) Offering means the grant to Eligible Employees of Purchase Rights, with the exercise of those Purchase Rights automatically occurring at the end of one or more Purchase Periods. The terms and conditions of an Offering will generally be set forth in the Offering Document approved by the Board for that Offering.
(y) Offering Date means a date selected by the Board for an Offering to commence.
(z) Officer means a person who is an officer of the Company or a Related Corporation or Affiliate within the meaning of Section 16 of the Exchange Act.
(aa) Participant means an Eligible Employee who holds an outstanding Purchase Right.
(bb) Plan means this Roku, Inc. 2017 Employee Stock Purchase Plan, including both the 423 Component and the Non-423 Component, as amended from time to time.
(cc) Purchase Date means one or more dates during an Offering selected by the Board on which Purchase Rights will be exercised and on which purchases of shares of Common Stock will be carried out in accordance with such Offering.
(dd) Purchase Period means a period of time specified within an Offering, generally beginning on the Offering Date or on the first Trading Day following a Purchase Date, and ending on a Purchase Date. An Offering may consist of one or more Purchase Periods.
(ee) Purchase Right means an option to purchase shares of Common Stock granted pursuant to the Plan.
(ff) Related Corporation means any parent corporation or subsidiary corporation of the Company whether now or subsequently established, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
(gg) Securities Act means the U.S. Securities Act of 1933, as amended.
(hh) Trading Day means any day on which the exchange(s) or market(s) on which shares of Common Stock are listed, including but not limited to the NYSE, Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or any successors thereto, is open for trading.
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Exhibit 10.9
I NDEMNITY A GREEMENT
T HIS I NDEMNITY A GREEMENT (the Agreement ) is made and entered into as of _______________, 2017, between Roku, Inc., a Delaware corporation (the Company ), and _____________( Indemnitee ).
RECITALS
A. Highly competent persons have become more reluctant to serve corporations as directors or officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
B. Although the furnishing of such insurance to protect persons serving a corporation and its subsidiaries from certain liabilities has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The Bylaws and Certificate of Incorporation of the Company require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware ( DGCL ). The Bylaws, Certificate of Incorporation and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;
C. The uncertainties relating to such liability insurance and to indemnification have increased the difficulty of attracting and retaining such persons;
D. The Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Companys stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
E. It is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
F. This Agreement is a supplement to and in furtherance of the Bylaws and Certificate of Incorporation of the Company and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and
G. Indemnitee does not regard the protection available under the Companys Bylaws and Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be so indemnified; and
H. Indemnitee may have certain rights to indemnification and/or insurance provided by other entities and/or organizations which Indemnitee and such other entities and/or organizations intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Companys acknowledgement and agreement to the foregoing being a material condition to Indemnitees willingness to serve on the Board.
Adopted [_______ 2017] | 1. |
I. This Agreement supersedes and replaces in its entirety any previous Indemnification Agreement entered into between the Company and the Indemnitee.
N OW , T HEREFORE , in consideration of Indemnitees agreement to serve as an officer or a director from and after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time pursuant to, and in accordance with, the terms of this Agreement. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(a) if, by reason of his or her Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her, or on his or her behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitees conduct was unlawful.
(b) Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitees behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Company; provided , however , if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his or her Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he or she shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
2. Additional Indemnity . In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf if, by reason of his or her Corporate Status, he or she is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, any and all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Companys obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.
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3. Contribution .
(a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee. The Company shall not settle any action or claim in a manner that would impose any penalty or admission of guilt or liability on Indemnitee without Indemnitees written consent.
(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the applicable law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their respective conduct is active or passive.
(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
4. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his or her Corporate Status, a witness, or is made (or asked) to respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he or she shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
3.
5. Advancement of Expenses . Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitees Corporate Status within 30 days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.
6. Procedures and Presumptions for Determination of Entitlement to Indemnification . It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.
(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination with respect to Indemnitees entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board: (i) unless a Change in Control has occurred: (1) by a majority vote of the Disinterested Directors, even though less than a quorum, (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (3) if there are no Disinterested Directors or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (4) if so directed by the Board, by the stockholders of the Company; and (ii) if a Change in Control has occurred, then by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee. For purposes hereof, Disinterested Directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee.
(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent Counsel shall be selected as provided in this Section 6(c). The Independent Counsel shall be selected by the Board. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Companys selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such
4.
Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Counsel was selected or appointed. In no event shall Indemnitee be liable for fees and expenses incurred by such Independent Counsel, subject to the limitations on indemnification set forth herein.
(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its Board or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its Board or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(e) Indemnitee shall be deemed to have acted in good faith if Indemnitees action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(f) If the person, persons or entity empowered or selected under Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made, and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact or an omission of a material fact necessary to make Indemnitees statement not materially misleading in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60 day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within 15 days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within 75 days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within 15 days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitees entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification), and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
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(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
7. Remedies of Indemnitee .
(a) In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within 10 days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within 10 days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitees entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 1 year following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a). The Company shall not oppose Indemnitees right to seek any such adjudication.
(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b).
(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7, absent (i) a misstatement by Indemnitee of a material fact or an omission of a material fact necessary to make Indemnitees misstatement not materially misleading in connection with the application for indemnification or (ii) a prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7, seeks a judicial adjudication of his or her rights under, or to recover damages for breach of, this Agreement, or to recover under any directors and officers liability insurance policies maintained by the Company, the Company shall pay on his or her behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 13 of this Agreement) actually and reasonably incurred by him or her in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.
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The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within 10 days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
8. Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation .
(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders, a resolution of Board or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate of Incorporation, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy all greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, the Company shall procure such insurance policy or policies under which the Indemnitee shall be covered in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) The Company hereby acknowledges that Indemnitee has or may have in the future certain rights to indemnification, advancement of expenses and/or insurance provided by other entities and/or organizations (collectively, the Secondary Indemnitors ). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Secondary Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Certificate of Incorporation or Bylaws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Secondary Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Secondary Indemnitors from any and all claims against the Secondary Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Secondary Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Secondary Indemnitors shall have a right of
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contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Secondary Indemnitors are express third party beneficiaries of the terms of this Section 8(c).
(d) Except as provided in paragraph (c) above, in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee (other than against the Secondary Indemnitors), who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(e) Except as provided in paragraph (c) above, the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(f) Except as provided in paragraph (c) above, the Companys obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
9. Exceptions to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision, provided, that the foregoing shall not affect the rights of Indemnitee or the Secondary Indemnitors set forth in Section 8(c) above;
(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act, or similar provisions of state statutory law or common law;
(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law;
(d) with respect to remuneration paid to Indemnitee if it is determined by final judgment or other final adjudication that such remuneration was in violation of law (and, in this respect, both the Company and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication, as indicated in the last paragraph of this Section 9 below);
(e) a final judgment or other final adjudication is made that Indemnitees conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct (but only to the extent of such specific determination);
(f) in connection with any claim for reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements
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that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act, or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant to any settlement); or
(g) on account of conduct that is established by a final judgment as constituting a breach of Indemnitees duty of loyalty to the Company or resulting in any personal profit or advantage to which Indemnitee is not legally entitled.
For purposes of this Section 9, a final judgment or other adjudication may be reached in either the underlying proceeding or action in connection with which indemnification is sought or a separate proceeding or action to establish rights and liabilities under this Agreement.
Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee or otherwise act in violation of any undertaking appearing in and required by the rules and regulations promulgated under the Securities Act, or in any registration statement filed with the SEC under the Securities Act. Indemnitee acknowledges that paragraph (h) of Item 512 of Regulation S-K promulgated under the Securities Act currently generally requires the Company to undertake, in connection with any registration statement filed under the Securities Act, to submit the issue of the enforceability of Indemnitees rights under this Agreement in connection with any liability under the Securities Act on public policy grounds to a court of appropriate jurisdiction and to be governed by any final adjudication of such issue. Indemnitee specifically agrees that any such undertaking shall supersede the provisions of this Agreement and to be bound by any such undertaking.
10. Duration of Agreement . All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 hereof) by reason of his or her Corporate Status, whether or not he or she is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.
11. Security . To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Companys obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.
12. Enforcement .
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.
(b) Other than as provided herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
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13. Definitions . For purposes of this Agreement:
(a) Beneficial Owner shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
(b) Board means the Board of Directors of the Company.
(c) Change in Control means the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Stock by Third Party . Any Person is or becomes the Beneficial Owner (as defined above), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Companys then outstanding securities;
(ii) Change in Board . During any period of 2 consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (ii) or (iv) of this definition of Change in control) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a least a majority of the members of the Board;
(iii) Corporate Transactions . The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the Board or other governing body of such surviving entity;
(iv) Liquidation . The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets; and
(v) Other Events . There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement.
(d) Corporate Status describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.
(e) Disinterested Director means a non-executive director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(f) Enterprise shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.
(g) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
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(h) Expenses shall include all documented and reasonable attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(i) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(j) Person for purposes of the definition of Beneficial Owner and Change in Control set forth above, shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(k) Proceeding includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or her or of any inaction on his or her part while acting as an officer or director of the Company, or by reason of the fact that he or she is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he or she is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his or her rights under this Agreement.
(l) Sarbanes-Oxley Act shall mean the Sarbanes-Oxley Act of 2002, as amended.
(m) SEC shall mean the Securities and Exchange Commission.
(n) Securities Act shall mean the Securities Act of 1933, as amended.
14. Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Further, the invalidity or unenforceability of any provision hereof as to the Indemnitee shall in no way affect the validity or enforceability of any provision hereof as to the other. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.
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15. Modification and Waiver . No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.
17. Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) 5 days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a) | To Indemnitee at the address set forth below Indemnitees signature hereto. |
(b) | To the Company at: |
Roku, Inc.
150 Winchester Circle
Los Gatos, CA 95032
Attention: Legal Department
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
18. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature, electronic mail (including.pdf or any electronic signature complying with the U.S. Federal ESIGN Act of 2000, e.g., www.docusign.com ) or other transmission method and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument and be deemed to have been duly and validly delivered and be valid and effective for all purposes.
19. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
20. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court ), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably Corporation Service Company as its agent in
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the State of Delaware for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
[SIGNATURE PAGE TO FOLLOW]
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I N W ITNESS W HEREOF , the parties hereto have executed this Agreement on and as of the day and year first above written.
R OKU , I NC . | ||
By: | /s/ Anthony Wood |
Name: | Anthony Wood | |
Title: | President and Chief Executive Officer | |
INDEMNITEE | ||
Name: | ||
Address: | ||
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Exhibit 10.30
INDEPENDENT CONTRACTOR SERVICES AGREEMENT
THIS INDEPENDENT CONTRACTOR SERVICES AGREEMENT (Agreement) is entered into as of the 10th day of September, 2017 (Effective Date), by and between Roku, Inc. (Company), with its principal place of business at 150 Winchester Circle, Los Gatos, California 95032, and Neil Hunt (Contractor), an individual residing at , Los Altos CA 94024.
1. E NGAGEMENT . Company hereby engages Contractor as an independent contractor to provide consulting services to the Company as may be requested from time to time by the Companys CEO, Anthony Wood. Any such services rendered and compensation due hereunder shall be separate and distinct from any services rendered by Contractor in his role and capacity as a member of the Companys Board of Directors or any Committee of the Board of Directors.
2. C OMPENSATION . As compensation for the services, Company will pay Contractor a daily rate of five thousand dollars ($5,000) per day. The parties agree the total fees under this Agreement shall not equal or exceed one hundred and twenty thousand dollars ($120,000) in any rolling 12 month period. Contractor will not be reimbursed for any expenses incurred in connection with the performance of the services unless those expenses are approved in advance and in writing by Company. Contractor will submit periodic invoices to the Company for Services rendered hereunder.
3. I NDEPENDENT C ONTRACTOR R ELATIONSHIP . Contractor and Company acknowledge and agree that Contractors relationship with Company will be that of an independent contractor and nothing in this Agreement is intended to or should be construed to create any employment relationship. Contractor shall be solely responsible for paying taxes on any income from this Agreement. Company will not withhold any taxes from any payments to Contractor, and will file a 1099 form with the appropriate taxing authorities.
4. C ONFIDENTIAL I NFORMATION . To facilitate Contractors provision of the services, Company may provide Contractor access to certain information. The disclosure and receipt of confidential information shall be governed by that certain Non-Disclosure Agreement by and between the parties, dated August 1, 2017.
5. T ERM AND T ERMINATION . The term of this Agreement shall commence on the Effective Date and shall continue indefinitely until terminated by either party upon five (5) days written notice to the other party. The following provisions shall survive termination of this Agreement: Articles 3, 4 and 6.
6. G ENERAL P ROVISIONS
6.1 Governing Law and Jurisdiction . This Agreement will be governed solely by, and construed in accordance with, the laws of the United States and the State of California, without giving effect to Californias conflict of laws rules that would apply the laws of any other jurisdiction.
6.2 Entire Agreement; Amendment . This Agreement constitutes the entire agreement between the parties relating to the specific subject matter described in this Agreement, and supersedes all prior or simultaneous representations, discussions, negotiations, course of dealing and agreements regarding such subject matter, whether written or oral. Any modifications or amendments to this Agreement must be in writing signed by both parties and attached to this Agreement as a new exhibit.
6.3 Waiver . No term or provision hereof will be considered waived by either party, and no breach excused by either party, unless such waiver or consent is in writing signed on behalf of the party against whom the waiver is asserted.
Roku, Inc. Independent Contractor Agreement | 1 |
6.4 Successors and Assigns . Neither party may assign this Agreement, or Contractors rights or obligations under this Agreement, without other partys prior written consent. This Agreement will be for the benefit of Companys successors and assigns, and will be binding on Contractors heirs, legal representatives and permitted assignees.
R OKU , I NC . | C ONTRACTOR | |||||||
By: | /s/ Anthony Wood | By: | /s/ Neil Hunt |
Name: | Anthony Wood | Name: | Neil Hunt | |||||
Title: | President and Chief Executive Officer | Date: | September 10, 2017 | |||||
Date: | September 12, 2017 |
Roku, Inc. Independent Contractor Agreement | 2 |
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Amendment No. 1 to Registration Statement No. 333-220318 on Form S-1 of our report dated June 26, 2017 (August 22, 2017 as to Note 12 and September 15, 2017 as to the reverse stock split as described in the Stock Split paragraph in Note 13) relating to the consolidated financial statements of Roku, Inc. and its subsidiaries appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
September 15, 2017