As filed with the U.S. Securities and Exchange Commission on April 16, 2018
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PLURALSIGHT, INC.
(Exact name of registrant as specified in its charter)
Delaware | 7370 | 82-3605465 | ||
(State or other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
Pluralsight, Inc.
182 North Union Avenue
Farmington, Utah 84025
(801) 784-9007
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Aaron Skonnard
Co-Founder, Chief Executive Officer, and Chairman
182 North Union Avenue
Farmington, Utah 84025
(801) 784-9007
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||||
Robert G. Day Allison B. Spinner Rezwan D. Pavri Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 (650) 493-9300 |
James Budge, Chief Financial Officer Matthew Forkner, General Counsel Matthew Tenney, Associate General Counsel Pluralsight, Inc. 182 North Union Avenue Farmington, Utah 84025 (801) 784-9007 |
Richard A. Kline Goodwin Procter LLP 135 Commonwealth Drive Menlo Park, California 94025 (650) 725-3100 |
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, a 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.
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Non-accelerated filer |
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Emerging growth company |
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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 |
Proposed Maximum Aggregate Offering Price (1)(2) |
Amount of Registration Fee |
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Class A Common Stock, $0.001 par value per share |
$100,000,000 | $12,450 | ||
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(1) |
Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act. |
(2) |
Includes the offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued , 2018
Shares
CLASS A COMMON STOCK
Pluralsight, Inc. is offering shares of its Class A common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price of our Class A common stock will be between $ and $ per share.
We intend to apply to list our Class A common stock on The Nasdaq Global Select Market under the symbol PS.
Following this offering, we will have three classes of authorized common stock: The Class A common stock offered hereby, as well as Class B common stock and Class C common stock. The Class A common stock and Class B common stock will have one vote per share. The Class C common stock will have 10 votes per share. Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through affiliated entities, will hold all of our issued and outstanding Class C common stock and will hold approximately % of the combined voting power of our outstanding capital stock, and the members of Pluralsight Holdings, LLC, other than Mr. Skonnard and his affiliates, will hold approximately % of the combined voting power of our outstanding capital stock, in each case following this offering. As a result, Mr. Skonnard will be able to control any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction.
We intend to use the net proceeds from this offering to purchase newly issued common limited liability company units, or LLC Units, of Pluralsight Holdings, LLC. As a result, following this offering, we will be a holding company and our principal asset will be LLC Units in Pluralsight Holdings, LLC. We will hold approximately LLC Units, representing a % economic interest in Pluralsight Holdings, LLC, and therefore the purchasers in this offering will indirectly have a minority economic interest in Pluralsight Holdings, LLC.
We are an emerging growth company as defined under the federal securities laws. Investing in our Class A common stock involves risks. See the section titled Risk Factors beginning on page 26.
PRICE $ A SHARE
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Underwriting Discounts and Commissions (1) |
Proceeds to Pluralsight |
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Per Share |
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See the section titled Underwriters for a description of the compensation payable to the underwriters. |
At our request, the underwriters have reserved up to % of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to certain individuals associated with us. See the section titled UnderwritersDirected Share Program.
We have granted the underwriters the right to purchase up to an additional shares of Class A common stock to cover over-allotments at the initial public offering price less the underwriting discount.
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 , 2018.
MORGAN STANLEY | J.P. MORGAN | BARCLAYS | BofA MERRILL LYNCH |
FIRST ANALYSIS SECURITIES CORP. | NEEDHAM & COMPANY | RAYMOND JAMES | SUNTRUST ROBINSON HUMPHREY |
, 2018
Technology is changing fast.
Over 60%* of the 2017
Fortune 500 use Pluralsight to keep pace
*As of December 31, 2017
Pluralsight enables businesses to develop the technology skills of their workforces at scale.
We enhance the expertise of technology professionals, enabling them to keep pace with technology changes and securely deliver key innovations on time and on budget.
Our technology learning platform empowers businesses to adapt and thrive in the digital age. Our mission is to democratize technology skills, and we are committed to closing the
global technology skills gap. Were unleashing untapped potential and lifting the human condition.
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F-1 |
Through and including , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our Class A common stock.
For investors outside of the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and observe any restrictions relating to, this offering of the shares of our Class A common stock and the distribution of this prospectus and any such free writing prospectus outside of the United States.
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This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our Class A common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially the sections titled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Organizational Structure, and Unaudited Pro Forma Consolidated Financial Information, and the consolidated financial statements of Pluralsight Holdings, LLC, or Pluralsight Holdings, and the related notes, before deciding to buy shares of our Class A common stock.
As used in this prospectus, unless expressly indicated or the context otherwise requires, references to Pluralsight, we, us, our, the Company, and similar references refer: (i) prior to the consummation of the Reorganization Transactions described in the section titled Organizational StructureReorganization Transactions to Pluralsight Holdings and its consolidated subsidiaries and (ii) after the Reorganization Transactions to Pluralsight, Inc. and its consolidated subsidiaries, including Pluralsight Holdings.
PLURALSIGHT
Our Value Proposition
Pluralsight is an enterprise software company committed to closing the global technology skills gap. This gap is holding back companies and entire industries from reaching their full potential.
The skills gap exists because technology is changing faster than the worlds ability to acquire and adapt to new skills. To address this challenge, many companies still use traditional in-person, instructor-led training, or ILT, models, which dont move fast enough or scale quickly enough to meet the ever-increasing demand.
We disrupt these in-person ILT models by offering a cloud-based technology learning platform that is broadly accessible. Learners on our platform can quickly acquire todays most valuable technology skills through high-quality learning experiences delivered by subject-matter experts, available on any device at any time. We provide businesses with visibility into the strengths of their workforce, allowing them to better align resources, provide targeted skill development, and advance the skills of their teams.
Our learning experiences empower customers to adapt and thrive in the midst of unprecedented technological change and digital transformation. As a result, technology leaders now see us as their supply chain for intellectual property.
Closing the technology skills gap requires more than success in our commercial business. That is why we created Pluralsight One, our social impact initiative, committed to serving marginalized populations that our commercial business wont reach. Pluralsight One will be funded by two of our co-founders who have together committed to donate one percent of the Companys equity from their personal holdings. We will also donate one percent of our profit, time, and product to Pluralsight One endeavors.
Ultimately, our mission is to democratize technology skills. The more individuals we reach through our platform, the bigger our future opportunity becomes as we enable our customers to access an ever-expanding talent pool.
Overview
We are a leading provider of technology skill development solutions. Our cloud-based technology learning platform provides a broad range of tools, including skill assessments, a curated library of courses, learning paths,
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and business analytics. Our platform is powered by Iris, our proprietary machine-learning driven skill assessment algorithm and recommendation engine, which enables businesses to more effectively quantify and develop skills across technologies. Through our platform we provide both businesses and individuals with the ability to stay smart, stay relevant, and drive results.
Technology has dramatically changed businesses. Companies of any scale across industries are embracing digital transformation as a way to remain competitive. To be successful through digital transformation, companies have had to dramatically adapt their workforces to incorporate more technology professionals. As the pace of technological change increases, companies are striving to improve the skills of their workforces and stay ahead of the latest technology trends.
Simply hiring more technologists is not enough. Companies need to assess the skill set of employees, address skills gaps on an individual level, and continuously help employees advance by building skills on relevant topics. Technology changes rapidly and businesses are under pressure to keep up with this change. From 2004 to 2016, there was an average of four new major software development frameworks created each year, in addition to newly developed derivations of existing software languages. As a result, computer science courses become obsolete quickly. According to a study by the Economist Intelligence Unit, 94% of executives cite a moderate or severe digital skills gap in their businesses, and a survey by Tech Pro Research indicates that 59% of IT employees worry that their current skills will become obsolete. To counter this trend, businesses are focused on improving technology skill development and increasing its efficacy.
Our cloud-based technology learning platform provides businesses the solutions that they need to improve employee skills and drive better business outcomes. The key components of our platform include:
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Skill Assessments : Our assessment tool uses machine learning and advanced algorithms to measure a users skills, benchmark that user against others in the industry, and recommend opportunities for growth. We provide a modern skill assessment experience that gives businesses a credible, adaptable, and efficient model for validating technology skills. |
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Course Library: Our course library includes over 6,500 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. We have built our exclusive course library primarily by engaging our world-class community of subject-matter experts, or authors, who create content for us and share in our success by receiving revenue-share amounts based on the viewing of their content. |
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Learning Paths : Based on either an assessment or a users goals, our learning paths are curated to take users through a set of courses designed to help them master a particular subject area. |
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Business Analytics : Our business analytics tools enable business customers to evaluate the technology skills of their teams, align learning to key business objectives, determine the usage of our platform, examine trends in skill development, and quantify the impact of our platform on their business. |
We developed our proprietary machine-learning technology, Iris, to power our platform and improve the value of our skill assessments and course recommendations. Iris powers our skill assessments algorithm and guides users on how to develop desired skills. Iris uses machine learning, modern testing approaches, advanced statistical analysis, and data to create a smarter, more personalized development journey.
Our platform can be used by anyone, at any skill level, who has an interest in improving their technology skills. We offer a range of courses from beginner to advanced skill levels, with significant granularity within each topic so users can access content most relevant to their specific needs. We utilize a cloud-based delivery model that enables us to regularly make new content available to users and allows businesses to deliver consistent skill development across distributed workforces. Users can access our platform to learn anytime and anywhere.
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Our platform is used by businesses to train their software developers, IT professionals, data scientists, data engineers, technical engineers, business users, and technology executives. Our platform is also used by individuals to develop and enhance their technology skills. Small teams often represent the top of the funnel for larger deployments, bringing our technology into the workplace and proliferating usage within a business. We deploy a direct sales team focused on landing new business customers and expanding business-wide deployments. We have been successful in attracting businesses, particularly large enterprises, to our platform and expanding their use of our platform over time. As of December 31, 2017, our customers included more than 300 of the 2017 Fortune 500. From 2013 to 2017, the billings from our 2017 Fortune 500 customers, including new 2017 Fortune 500 customers that we acquired after 2013, increased by 9.1 times in the aggregate from the billings we generated from those companies in 2013. For the year ended December 31, 2017, 79% of our billings came from business customers and 21% came from individual users. Customers subscribe to our platform unassisted through our website or through our direct sales channel. We make adoption easy, with free-trials and transparent pricing for all of our features.
We believe that we have substantial opportunities for growth. According to Training Industry, Inc., or Training Industry, global spend on corporate training initiatives was estimated to be $359 billion in 2016. Evans Data Corporation estimates that in 2017, there were over 102 million members of technical teams globally. Based in part on this information from Evans Data Corporation, we estimate that our current total addressable market exceeds $24 billion.
In recent years, we have reached significant scale in users and authors on our platform. As of December 31, 2017, more than 695,000 users in over 150 countries had access to our platform. Our content is developed and sourced from a network of over 1,350 authors. Today, we have over 6,500 on-demand and online courses on our platform and are adding on average more than 80 new courses each month. Our scale, growth, and rapid adoption are a testament to the applicability and effectiveness of our platform in the market for businesses and individuals.
We have achieved significant growth in recent periods. For the years ended December 31, 2016 and 2017, our billings were $149.2 million and $205.8 million, respectively, representing year-over-year growth of 38%, and our billings from business customers were $104.9 million and $163.0 million, respectively, representing year-over-year growth of 55%. For the years ended December 31, 2016 and 2017, our revenue was $131.8 million and $166.8 million, respectively, and our net loss was $20.6 million and $96.5 million, respectively, which reflect our substantial investments in the future growth of our business. For the years ended December 31, 2016 and 2017, cash provided by (used in) operations was $4.5 million and ($12.1 million), respectively. For the years ended December 31, 2016 and 2017, our free cash flow was ($7.9 million) and ($20.5 million), respectively, and our free cash flow included cash payments for interest on our long-term debt of $5.5 million and $6.9 million, respectively. See the section titled Selected Consolidated Financial and Other DataNon-GAAP Financial Measures for a description of free cash flow and for a reconciliation of free cash flow to net cash provided by (used in) operations, the most directly comparable financial measure calculated in accordance with GAAP.
Industry Background
Companies have to drive innovation through technology to remain competitive
As technology evolves, competition across businesses intensifies. Industry leaders that were once measured by their scale, product quality, and reputation are increasingly measured by the success of their transition into the digital age. Software is displacing manual processes throughout businesses and every company is becoming a technology company. As a result, companies are seeking to hire and retain talent that can drive lasting innovation in technology. Managers need to empower their employees to innovate in order to create or maintain a competitive advantage.
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The number of technical positions is growing across all industries
Demand for qualified technology professionals is growing as companies race to become bigger, better, and faster. The number of technology-related functions across industries is expanding as companies move into the digital age. To remain competitive, businesses must adapt to changing needs and ensure that they get the best long-term return on their investment in human capital by hiring and retaining the best talent and helping employees maintain and enhance their skill sets.
Technology skills are in high demand, but become obsolete quickly
The market for technology talent is growing and constantly evolving due to the continuously changing needs of firms and their employees. Simply filling positions, however, is not enough. Technology evolves and becomes obsolete quickly, and new technologies are perpetually emerging. As such, technology professionals must constantly keep their skills current.
Professionals in many other industries, such as medicine, law, and education, are required to undertake continuing education to maintain their professional licenses. There is no such requirement for technology professionals despite how quickly their skills can become obsolete and must be replaced. Businesses need a way to assess the ongoing technological proficiency of their workforces.
High levels of employee skill development result in better performing companies
Employee skill development has a direct impact on a companys overall performance. According to Deloitte Touche Tohmatsu Limited, or Deloitte, organizations with a strong learning culture are 56% more likely to be the first to market with their products versus their peers, and outperform the profitability of their peers, by 17%. As a result, businesses that fail to proactively improve the skills of their employees often lag behind competitors, and the consequences of this failure can be significant.
The way content is created and delivered impacts the effectiveness on the learner
In-person ILT remains the primary method to deliver content to individuals. This approach often fails to deliver satisfactory results because the creators of the content lack sufficient expertise in the subject or because the learning methods employed are antiquated or ineffective. Certain modern learning approaches provide lasting retention of information. These modern learning approaches provide diversity in delivery and improve efficacy of instruction for students, and include:
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Short segments of digestible content to hold attention; |
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Use of visuals to target one of the four forms of learning styles (visual, auditory, written, and kinesthetic); |
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Learning from other people; |
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Delivery of content by subject-matter experts with relevant experience; |
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Information delivered when it is most useful; and |
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Subject matter that is relatable to an individual. |
The ability to incorporate these qualities into technology skill development can have lasting effects on user engagement with content, understanding of key concepts, and long-term knowledge retention.
Businesses need end-to-end solutions to incorporate assessment, skill development, and analytics
Businesses need a way to accurately measure the skills of their employees in order to deliver relevant skill development and appropriately staff teams for success. With the fast pace of technological innovation, frequently
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assessing skills and elevating employee knowledge will be critical. Businesses need ways to measure employees against peer groups, identify where there are gaps in knowledge, and assign targeted skill development to best suit the needs of individuals. They also need to ensure that the skill development is effective and that employees understand the concepts they have been taught.
The Shortcomings of Existing Solutions
Many current approaches to technology skill development are inadequate. The creators of content often lack sufficient subject-matter expertise, the approaches do not focus on the needs of technology professionals, the learning methods are insufficient for the needs of modern businesses, and the offerings do not effectively enable businesses to measure concept mastery by their employees. Shortcomings of these approaches include:
In-person, instructor-led training is costly and does not scale
Still the most widely used form of corporate skill development, in-person ILT has numerous disadvantages. In-person ILT is costly, not scalable through a large or distributed business, not available on-demand, not tailored to an individuals needs, and does not typically include capabilities for assessment and on-demand help.
Legacy business e-learning is standardized, not personalized
These solutions typically consist of general, corporate-mandated static courses. These courses quickly become outdated and are designed to be accessed from desktops at work. This approach typically sacrifices depth and personalization in an attempt to make the content relevant to a large audience.
Consumer-centric e-learning does not provide advanced technology skill development or scale
A number of online learning solutions have emerged for individuals, such as solutions offering crash courses in coding or web design in an attempt to prepare people for entry-level programming jobs. These solutions do not provide advanced levels of technology skill development for technology professionals, or scale to meet the needs of businesses.
Free resources can be shallow, inconsistent, and inaccurate, and are not curated for specific needs
Free courses are available online from sources such as YouTube and can be accessed via Google searches. Free courses may not have been created by subject-matter experts, generally do not provide the level of depth that is required for skill development by technology professionals, and lack efficient discoverability, relevancy to a specific need, quality control, and measurement of success or concept mastery.
The Pluralsight Platform
Our solution consists of a cloud-based technology learning platform that provides businesses with tools to train their workforces and individuals with tools to advance their careers. We enable businesses to evaluate the technical abilities of their teams, align learning to key business objectives, develop talent, and close skills gaps in critical technology areas, such as cloud, mobile, security, IT, and data. With our large network of technology subject-matter experts, extensive and growing course library, and our ability to quantify the impact and value of our solution, we are helping business leaders to succeed in the digital age.
Our platform includes skill assessments, a curated library of courses, learnings paths, and business analytics. We developed our proprietary machine-learning technology, Iris, to power our platform and improve the value of our skill assessments and course recommendations. Iris powers our skill assessments algorithm and guides users on how to develop desired skills. Iris uses machine learning, modern testing approaches, advanced statistical analysis, and data to create a smarter, more personalized development journey.
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All of our courses are delivered on demand and across a range of devices and operating systems, including iOS, Android, Windows, and Mac. In addition, Pluralsight applications are available for TV applications, including Amazon Fire TV, Apple TV, Chromecast, and Roku.
Skill Assessments
Through our skill assessments, we are able to assess an individuals proficiency in a topic through adaptive tests, identify gaps in skill sets, benchmark against peers, and provide him or her with a Pluralsight Iris Quotient, or IQ. Pluralsight IQ is a numeric assessment of a skill and includes the skill area or technology, rating, skill level, and benchmarked percentile. Powered by Iris, our skill assessments provide highly indicative results on knowledge in specialized areas within 20 questions in under 10 minutes. Pluralsight IQ provides a modern skill assessment experience that gives businesses a credible, adaptable, and efficient model for validating technology skills.
As part of skill assessments, we also offer certification practice exams through our platform. Users utilize these practice exams to assess and validate their IT, management, and technical skills. Businesses can leverage certification practice exams to help certify their employees in areas of strategic importance to the business.
Course Library
Our course library includes over 6,500 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. A course generally consists of between two and four hours of video, broken into multiple modules consisting of two- to five-minute clips on specific topics, presented by an author who is an expert on the subject. These videos and modules are searchable, so users can either take an entire course, or target a particular segment for a specific need. At the end of a course, users can take a knowledge check to determine if they have mastered the material and are presented recommendations for future skill development.
We have built our exclusive course library primarily by engaging our world-class community of authors to create content for us and share in our success by receiving revenue-share amounts based on the viewing of their content. Our philosophy is that the more our authors earn, the more they are incentivized to create new content, which drives customer growth and user adoption.
Learning Paths
Based on either an assessment or an individuals goals, our learning paths are curated to take users through a set of courses designed to help them master a particular subject area. Our learning paths take into account the skill level of each individual to guide users to the content that is most relevant to them, and not require them to spend time reviewing content that they already know. In addition, periodic learning assessments are available to ensure that users are on target with their learning objectives.
Our platform also allows businesses to create channels, which are a curated list of courses, modules, clips, and links to external resources. Channels can be shared with specific teams and throughout the business to enable custom skill development that aligns to specific objectives, which allows companies to reach their learning goals and business objectives more effectively and efficiently.
Business Analytics
Our business analytics tools enable business customers to evaluate the technical abilities of their teams, align skill development to key business objectives, determine the usage of our platform, examine trends in employee learning and quantify the impact of our personalized learning solution on their teams skills. This enables our business customers to develop their employees talent and close any skills gap.
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Key Benefits of Our Platform
The most relevant skill development for a wide range of technology professionals
We are a company founded by software engineers, and we understand first-hand the importance of keeping up with constantly changing technologies. We are focused on delivering learning content addressing the technology languages, tools, and frameworks used by the majority of technology professionals in the workplace.
Integrated technology learning platform
Our integrated platform combines skill assessments, course library, learning paths, and business analytics to ensure that learners are taking the courses most useful to them and demonstrating comprehension of the subject matter. By gathering such insights from our platform, businesses can understand skills gaps, benchmark employees against consistent standards, and address learning needs in an efficient and targeted manner.
High quality curated content
Our content is the product of our industry-leading authors. We have spent many years identifying, cultivating, and growing our author network, and over 1,350 authors have contributed to our current course library. One of the primary challenges for businesses and individuals seeking to enhance technology skills is finding the right resources. We address that challenge for them. Our extensive relationships within the developer and technical community allow us to source and retain the best subject-matter experts to produce relevant content for our users. We provide quality assurance on our authors expertise.
Cost effective technology learning platform
We believe our pricing model provides a significant cost advantage compared to traditional technology skill development offerings. Organizations spent an average of $1,273 per employee in 2016 on direct learning expenditures, according to the Association for Talent Development. While we currently only address a portion of our customers skill development needs, we believe that technology skill development represents a significant and growing portion of our customers skill development expenditures. Additionally, we have expanded, and intend to continue to expand, our course library to address a wider range of our customers skill development needs. Our published pricing ranges from $499 to $699 per user per year for business subscriptions, providing what we believe to be a significant cost advantage over alternative solutions.
Optimized for on-demand accessibility
We offer our courses the way users want to consume content. Our cloud-based technology learning platform is an on-demand solution that allows globally distributed users to access courses anytime they want, online or offline from almost any device, maximizing utilization of our product and workplace efficiency. According to a 2015 survey, approximately 80% of our users report using Pluralsight during work, 88% outside of work hours, and 25% during commute and travel times.
Our Market Opportunity
In 2016, an estimated $359 billion was spent on corporate training initiatives, according to Training Industry. The majority of corporate spending today is on in-person ILT and legacy e-learning solutions. We believe as companies adopt more effective, on-demand, and cost-advantageous solutions for employees, we will take a significant share of market spend. Further, Evans Data Corporation estimates that in 2017, there were over 102 million members of technical teams globally. Based in part on this information from Evans Data Corporation, we estimate that our current total addressable market exceeds $24 billion.
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Competitive Strengths
Focus on addressing the needs of businesses
We are focused on enhancing skills development for technology professionals within businesses. Our cloud-hosted, multi-tenant application platform is designed for enterprise scalability to accommodate significant growth in user base, support businesses with highly distributed locations, and provide service-level agreements around system availability. We provide services to help ensure our customers realize the full value of our platform.
Target ongoing development of technology professionals
The skill development needs within a business are different from those of recent high school graduates, recreational learners, or individuals changing careers. Our content is focused on ensuring employees can master the latest emerging technologies and improve their skills in existing areas. Our course library includes over 6,500 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. We have built our extensive course library primarily by engaging our world-class community of authors, who create content for us. Our course library and community of authors enables us to provide high-quality content across a range of technology subject areas so our users can improve their performance in these key areas.
Consistent innovation and product expansion
Since 2012, we have expanded our course library at a compound annual growth rate, or CAGR, of 32% while maintaining high quality, adding major skill development categories, and expanding our end-to-end portfolio to include assessments and analytics. Our cloud-based delivery model combined with our distributed and scalable technology architecture allows us to regularly introduce new content and platform features to our customers quickly and seamlessly.
Advance skill assessments with personalized learning paths
Our ability to analyze, track, and benchmark employees differentiates our platform in the market, drives lasting value to businesses, and supports our high level of revenue retention from our business customers. Through our skill assessments, businesses are able to identify talent within their organizations and assess proficiency of a topic through adaptive tests, identify gaps in skills, and invest intelligently in their teams learning. With every assessment and course completed, Iris absorbs information about the state of technology skills of a specific business customers users and further personalizes the platform to each customers needs.
Highly efficient content development model
Our content development model allows us to source and distribute content in a highly efficient manner without having to hire content authors as full-time employees. We identify authors that are subject-matter experts in various technology areas, and engage them to develop content for our platform. By publishing their courses on our platform, we provide authors with exposure to our broad user base, thereby enabling our authors to build their reputations and increase their name recognition as a trusted source in the market. In addition, we share our success with our authors, who receive revenue-share amounts based on the viewing of their content. This incentivizes authors to create new high-quality content, which drives further user adoption and customer growth on our platform. The strength of our platform and our approach to our author relationships enables us to attract and retain leading authors. The number of authors on our platform has increased from over 100 as of December 31, 2012 to over 1,350 as of December 31, 2017.
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Blue-chip customer base
Our customers include over 300 of the 2017 Fortune 500. We derived approximately $35.8 million of our billings from our Fortune 500 customers in the year ended December 31, 2017. We believe there exists a significant opportunity to drive sales to large enterprises, including expanding relationships with existing customers and attracting new customers.
Mission-driven culture
Our mission of democratizing technology skills inspires everything we do. This is our North Starit is the why and how behind all of our decisions. We have chosen to grow in a way that we believe will make our mission a reality. This includes creating a values-based culture that empowers our team to do the best, most purposeful work of their careers.
Growth Strategy
Expand deployments within our customer base
We utilize a land-and-expand strategy within businesses, beginning with either small teams or departmental deployments. Our platform is used by individuals, developer groups, IT departments, line of business users, and human resources. We intend to drive increased sales to existing customers by targeting new users, departments, and geographies within our customers.
Grow our business customer base
We have significantly expanded our direct sales force to focus on business sales and have aligned our sales teams compensation structure to fit this objective. We intend to pursue a greater proportion of large scale, recurring business transactions and to more effectively drive business customer engagement throughout the life of the relationship.
Geographic expansion
For the year ended December 31, 2017, we generated 65% of our revenue from customers in the United States. We see a significant opportunity to expand our reach into other regions, particularly where there are large developer groups for multi-national businesses. We have users in over 150 countries around the world who have access to our platform, and we are building out sales teams in Europe and Asia to further address these large markets impacted by rapidly changing technologies.
Expand course library with new content areas and offer additional platform features
We plan to continue to expand our course library to address the most relevant topics for users. Since January 1, 2013, we have added an average of over 80 new courses every month, with an average of over 230 new hours of video per month. We will continue to add additional features to our technology learning platform over time which we believe will provide us the opportunity to generate more revenue from our customers.
Strategic acquisitions
Strategic acquisitions have enabled us to quickly scale our business, expand our course library, add features to our cloud-based technology learning platform, and address new areas of technology in high demand by our customers. Over the past five years, we have made targeted strategic acquisitions, which have allowed us to expand our content catalog, author base, and platform capabilities. We will continue to selectively add content and capabilities through acquisitions that enhance value to our customers.
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Pluralsight One
We believe technology has the power to create freedom, equality, and opportunity around the globe. Pluralsight One is our social impact initiative dedicated to closing the technology skills gap. The initiative will support nonprofit organizations and amplify their impact by equipping them and the people they serve with the technology skills needed to solve the worlds greatest challenges. The more individuals we reach through our platform, the bigger our future opportunity becomes as we enable our customers to access an ever-expanding talent pool.
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. Key risks include:
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Market adoption of cloud-based learning solutions is new and unproven and may not grow as we expect, which may harm our business and results of operations, and even if market demand increases, the demand for our platform may not increase. |
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If we are not able to expand our course library effectively or develop new platform features that respond to constantly evolving technologies and the needs of our customers, our business and results of operations would be adversely affected. |
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The market in which we participate is competitive, and if we do not compete effectively, our results of operations could be harmed. |
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If our business customers do not expand their use of our platform beyond their current organizational engagements or renew their existing contracts with us, our ability to grow our business and improve our results of operations may be adversely affected. |
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If we are unable to increase sales of subscriptions to our platform to business customers while mitigating the risks associated with serving such customers, our business, financial condition, and results of operations would suffer. |
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Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform. |
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Our future performance depends in large part on attracting and retaining authors and producing content that addresses our customers needs. |
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Our quarterly and annual results of operations may vary significantly and may be difficult to predict. If we fail to meet the expectations of investors or securities analysts, our stock price and the value of your investment could decline. |
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If our security measures are breached or unauthorized access to customer data is otherwise obtained, our platform may be perceived as insecure, we may lose existing customers or fail to attract new customers, our reputation may be harmed, and we may incur significant liabilities. |
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Privacy, data protection, and information security concerns, and data collection and transfer restrictions and related domestic or foreign regulations, may limit the use and adoption of our platform and adversely affect our business. |
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If we fail to retain key employees, including Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, or to recruit qualified technical and sales personnel, our business could be harmed. |
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Our principal asset after the completion of this offering will be our interest in Pluralsight Holdings, and we will be dependent upon Pluralsight Holdings and its consolidated subsidiaries for our results of operations, cash flows, and distributions. |
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We will be required to pay certain of our Members for certain tax benefits we may claim, and we expect that the payments we will be required to make will be substantial. |
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The multi-class structure of our common stock will have the effect of concentrating voting control with Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman; this will limit or preclude your ability to influence corporate matters and may have a negative impact on the price of our Class A common stock. |
If we are unable to adequately address these and other risks we face, our business, financial condition, results of operations and prospects may be adversely affected.
Summary of the Reorganization Transactions and the Offering Structure
This offering is being conducted through what is commonly referred to as an UP-C structure, which is often used by partnerships and limited liability companies when they decide to undertake an initial public offering. To implement the UP-C structure, we will effect certain organizational changes, which we refer to collectively as the Reorganization Transactions, which are described under the section titled Organizational StructureReorganization Transactions. Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the completion of these Reorganization Transactions.
Key terms of the UP-C structure are:
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The UP-C structure allows existing owners of a partnership or limited liability company to continue to realize the tax benefits associated with their ownership in an entity that is treated as a partnership for income tax purposes following an initial public offering and provides tax benefits and associated cash flow to both the issuer corporation in the initial public offering and the existing owners of the partnership or limited liability company. |
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Prior to the completion of this offering and the Reorganization Transactions, Pluralsight Holdings was owned entirely by the owners of membership units, including incentive units and Class B incentive units, of Pluralsight Holdings, or the Members, and operated its business through various directly and indirectly wholly-owned subsidiaries. Pluralsight, Inc. was incorporated as a Delaware corporation on December 4, 2017 to serve as the issuer of the Class A common stock offered in this offering. |
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Pursuant to the Reorganization Transactions, all outstanding redeemable convertible preferred limited liability company units, incentive units, and Class B incentive units of Pluralsight Holdings will be converted into common limited liability company units and all outstanding common limited liability company units will be reclassified into non-voting limited liability company common units. After the completion of this offering and the Reorganization Transactions, the Members, other than former Members that were corporations that were merged with and into Pluralsight, Inc. and former Members that contributed all of their membership units, including incentive units and Class B incentive units, to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions will continue to own the single class of issued non-voting common limited liability company units, or LLC Units, of Pluralsight Holdings. We refer to such former Members as the Former Members, and such continuing Members and their permitted transferees as the Continuing Members. |
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After the completion of this offering, Pluralsight, Inc. will be a holding company and will operate and control the business affairs of Pluralsight Holdings as its sole managing member. Pluralsight, Inc. will include Pluralsight Holdings in our consolidated financial statements. |
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Investors in this offering will purchase shares of Pluralsight, Inc.s Class A common stock. |
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Pluralsight, Inc. intends to use the proceeds from the sale of Class A common stock in this offering to purchase LLC Units from Pluralsight Holdings at a purchase price per unit equal to the initial public |
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offering price per share of Class A common stock in this offering net of underwriting discounts and commissions. The aggregate number of LLC Units purchased will be equal to the number of shares of Class A common stock sold to the public in this offering. |
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Generally, following the Reorganization Transactions, the Continuing Members, other than Aaron Skonnard and his affiliates, will continue to hold LLC Units with economic, non-voting interests in Pluralsight Holdings and will be issued a number of shares of our Class B common stock equal to the number of LLC Units held by them upon completion of this offering. Generally, following the Reorganization Transactions, Mr. Skonnard and his affiliates will continue to hold LLC Units with economic, non-voting interests in Pluralsight Holdings and will be issued a number of shares of Pluralsight, Inc.s Class C common stock equal to the number of LLC Units held by them upon completion of this offering. |
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The Class A common stock, Class B common stock, and Class C common stock will generally vote together as a single class on all matters submitted to a vote of stockholders, except as otherwise required by applicable law. |
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The Continuing Members holding Class B common stock or Class C common stock will have no rights to receive any distributions or dividends, whether cash or stock, which we refer to as economic interests, in connection with such holdings of the Class B common stock or Class C common stock, and the Class B common stock and Class C common stock will not be publicly traded. |
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Continuing Members will have the right to exchange their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable (which will be cancelled in connection with the exchange), for, at our option, cash or shares of Pluralsight, Inc.s Class A common stock or, at our option, have such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us, pursuant to the terms of Pluralsight Holdings fourth amended and restated limited liability company agreement, or the Fourth LLC Agreement. |
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As a result of these transactions and this offering, upon completion of this offering and the Reorganization Transactions: |
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Pluralsight, Inc.s Class A common stock will be held as follows: |
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shares (or shares if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock) by investors in this offering; |
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shares by the Former Members; |
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shares by Continuing Members, other than Mr. Skonnard and his affiliates; and |
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shares by Mr. Skonnard and his affiliates. |
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Pluralsight, Inc.s Class B common stock (together with the same amount of LLC Units) will be held as follows: |
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shares and LLC Units by the Continuing Members, other than Mr. Skonnard and his affiliates. |
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Pluralsight, Inc.s Class C common stock (together with the same amount of LLC Units) will be held as follows: |
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shares and LLC Units by Mr. Skonnard and his affiliates. |
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The combined voting power in Pluralsight, Inc. will be as follows: |
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% for investors in this offering (or % if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); |
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% for the Former Members (or % if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); |
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% for the Continuing Members, other than Mr. Skonnard and his affiliates (or % if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); and |
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% for Mr. Skonnard and his affiliates (or % if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock). |
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Pluralsight, Inc. will enter into a Tax Receivable Agreement, or TRA, with Pluralsight Holdings and the Continuing Members. We refer to the Continuing Members and any valid assignees of their rights under the TRA as the TRA Members. Under the TRA, Pluralsight, Inc. will retain approximately % of certain tax savings that are available to it under the tax rules applicable to the UP-C structure, and will be required to pay approximately % of such tax savings to the TRA Members. |
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The diagram below depicts our organizational structure immediately following the Reorganization Transactions and the completion of this offering, assuming no exercise by the underwriters of their over-allotment option to purchase additional shares of Class A common stock.
(1) |
Includes (i) the shareholders of Former Members that were corporations and that merged into Pluralsight, Inc., (ii) Former Members who exchanged their LLC Units for Class A common stock in Pluralsight, Inc., and (iii) Continuing Members, solely to the extent they contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock, in each case in connection with the Reorganization Transactions, except Aaron Skonnard and his affiliates. |
(2) |
Includes all Continuing Members, except (i) to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions and (ii) Aaron Skonnard and his affiliates. |
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For financial reporting purposes, Pluralsight Holdings is the predecessor of Pluralsight, Inc. Pluralsight, Inc. will be the financial reporting entity following this offering. Accordingly, this prospectus contains the following historical financial statements:
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Pluralsight, Inc. Other than the balance sheet, dated as of December 31, 2017, the historical financial information of Pluralsight, Inc. has not been included in this prospectus since it is a newly incorporated entity, has no business transactions or activities to date, and had no assets or liabilities during the periods presented in this prospectus. |
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Pluralsight Holdings. As Pluralsight, Inc. will have no other interest in any operations other than those of Pluralsight Holdings and its subsidiaries, the historical consolidated financial information included in this prospectus is that of Pluralsight Holdings and its consolidated subsidiaries. |
The unaudited pro forma financial information of Pluralsight, Inc. presented in this prospectus has been derived by the application of pro forma adjustments to the historical consolidated financial statements of Pluralsight Holdings and its consolidated subsidiaries included elsewhere in this prospectus.
The pro forma adjustments related to the Reorganization Transactions are described in the notes to the unaudited pro forma consolidated financial information included elsewhere in this prospectus and primarily include the following: (i) the conversion of all outstanding redeemable convertible preferred limited liability company units, incentive units, and Class B incentive units of Pluralsight Holdings into common limited liability company units and the reclassification of all outstanding common limited liability company units into LLC Units, (ii) the amendment and restatement of Pluralsight, Inc.s certificate of incorporation to, among other things, provide for Class A common stock, Class B common stock, and Class C common stock, issue shares of Class B common stock to the Continuing Members (other than Aaron Skonnard and his affiliates), and issue shares of Class C common stock to Aaron Skonnard and his affiliates, with the issuance of such shares equal in each case to the number of LLC Units the Continuing Members own, and (iii) the approximately % non-controlling interest in Pluralsight Holdings represented by the LLC Units not held by Pluralsight, Inc. after completion of the Reorganization Transactions.
The pro forma adjustments related to this offering are described in the notes to the unaudited pro forma consolidated financial information included elsewhere in this prospectus and primarily include the following: (i) the pro forma adjustments related to the Reorganization Transactions set forth above, (ii) the sale and issuance of shares of our Class A common stock by us in this offering, at the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (iii) the use of proceeds from this offering to (a) repay $ million of the term loan under our credit facility, which, as of December 31, 2017, had an outstanding balance of $116.6 million, and the related prepayment premium of 1.5% and accrued interest, and (b) settle outstanding non-transferable equity appreciation rights, or EARs, issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which amount we estimate will be approximately $ based on the number of EARs outstanding as of December 31, 2017 for which the service condition had been satisfied and based on an assumed price of our Class A common stock at the time of settlement being equal to $ , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and (iv) the approximately % non-controlling interest in Pluralsight Holdings represented by the LLC Units not held by Pluralsight, Inc. after completion of this offering.
See the sections titled Risk FactorsRisks Related to Our Company and Organizational Structure, Organizational Structure, Unaudited Pro Forma Consolidated Financial Information, and Certain Relationships and Related Party Transactions for additional information.
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Corporate Information
We were incorporated in Delaware in December 2017. We are a newly formed corporation, have no material assets other than our ownership of the LLC Units of Pluralsight Holdings, and have not engaged in any business or other activities except in connection with the Reorganization Transactions described in the section titled Organizational Structure. Our principal executive offices are located at 182 North Union Avenue, Farmington, Utah 84025, and our telephone number is (801) 784-9007. Our corporate website address is www.pluralsight.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.
Pluralsight, our logo, and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus are the property of Pluralsight, Inc., Pluralsight Holdings, and their subsidiaries. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.
Emerging Growth Company
We qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. These reduced reporting requirements include:
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an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting; |
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an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding a supplement to the auditors report providing additional information about the audit and the financial statements; |
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reduced disclosure about our executive compensation arrangements; |
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an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements; and |
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extended transition periods for complying with new or revised accounting standards. |
We may take advantage of these provisions until we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenues; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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THE OFFERING
Issuer |
Pluralsight, Inc. |
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Class A common stock offered |
shares |
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Class A common stock outstanding after this offering |
shares, or shares if the underwriters exercise in full their over-allotment option to purchase additional shares from us. |
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Option to purchase additional shares |
We have granted the underwriters the option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of our Class A common stock to cover over-allotments, if any. |
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Class B common stock to be outstanding after this offering |
shares |
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Class C common stock to be outstanding after this offering |
shares |
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Total common stock to be outstanding after this offering |
shares |
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Voting power held by holders of Class A common stock after giving effect to this offering |
% |
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Voting power held by holders of Class B common stock after giving effect to this offering |
% |
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Voting power held by holders of Class C common stock after giving effect to this offering |
% |
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Use of proceeds |
We estimate that the net proceeds from this offering will be approximately $ million, or $ million if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.
We intend to use these proceeds primarily to purchase newly-issued LLC Units from Pluralsight Holdings, as described under the section titled Organizational StructureReorganization Transactions. We intend to cause Pluralsight Holdings to (i) repay $ million of its outstanding indebtedness under its credit facility, which, as of December 31, 2017, had an outstanding balance of $116.6 million, and the related prepayment premium of up to 1.5% and accrued interest; (ii) pay the unpaid expenses of this offering; and (iii) settle |
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vested EARs. We may also use a portion of the net proceeds from this offering to satisfy income tax withholding obligations associated with the initial settlement of certain restricted stock units that will settle on or about , 2018. We also intend to cause Pluralsight Holdings to use the remainder of the net proceeds from the offering, if any, for working capital and other general corporate purposes, as well as the acquisition of, or investment in, complementary products, technologies, solutions, or businesses, although we have no present commitments or agreements to enter into any acquisitions or investments. See the section titled Use of Proceeds for additional information. |
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Voting rights |
Following the Reorganization Transactions, (i) Continuing Members of Pluralsight Holdings (other than Aaron Skonnard and his affiliates) will hold one share of Class B common stock for each LLC Unit held by them and (ii) Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, and his affiliates will hold one share of Class C common stock for each LLC Unit of Pluralsight Holdings held by them. The shares of Class B common stock and Class C common stock have no economic rights.
Each share of Class A common stock and Class B common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.
Each share of Class C common stock entitles its holder to 10 votes on all matters to be voted on by stockholders generally. Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through affiliated entities, will hold all of our issued and outstanding Class C common stock and will hold approximately % of the combined voting power of our outstanding capital stock following this offering. As a result, he will be able to control any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction. Our directors, executive officers, and beneficial holders of more than 5% of each class of our outstanding capital stock, and their affiliates, will hold approximately % of the combined voting power of our outstanding capital stock following this offering. See the sections titled Principal Stockholders and Description of Capital Stock for additional information. |
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Holders of our Class A common stock, Class B common stock, and Class C common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise set forth in our amended and restated certificate of incorporation or as required by applicable law. See the section titled Description of Capital Stock for additional information.
When LLC Units and a corresponding number of shares of Class B common stock or Class C common stock, as applicable, are exchanged or redeemed for Class A common stock by a holder of LLC Units pursuant to the Fourth LLC Agreement as described below, such shares of Class B common stock or Class C common stock, as applicable, will be cancelled. |
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Dividend Policy |
We do not intend to pay dividends on our Class A common stock in the foreseeable future, except possibly in connection with maintaining certain aspects of our UP-C structure. See the section titled Risk FactorsRisks Related to Our Organizational StructureThe disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention.
Immediately following this offering, Pluralsight, Inc. will be a holding company, and its principal asset will be a controlling equity interest in Pluralsight Holdings. If Pluralsight, Inc. decides to pay a dividend in the future, it may need to cause Pluralsight Holdings to make distributions to Pluralsight, Inc. in an amount sufficient to cover such dividend. If Pluralsight Holdings makes such distributions to Pluralsight, Inc., the other holders of LLC Units will be entitled to receive pro rata distributions.
Our ability to pay dividends on our Class A common stock is also limited by our existing credit facility, and may be further restricted by the terms of any future debt or preferred securities incurred or issued by us or our subsidiaries. See the sections titled Dividend Policy and Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources for additional information. |
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Exchange and Redemption Rights |
The Continuing Members of Pluralsight Holdings, from time to time following this offering, may, subject to the terms of the Fourth LLC Agreement, exchange their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable, for, at our option, cash or shares of Class A common stock, on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications, and other similar transactions, or, at our option, have such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us. Our decision to make a cash payment in connection with a Continuing Members exchange or redemption will be made by a majority of our board members, other than Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman. When an LLC Unit, together with a share of our Class B common stock or Class C common stock, as applicable, is exchanged for a share of our Class A common stock or redeemed for cash or Class A common stock, the corresponding share of our Class B common stock or Class C common stock, as applicable, will be cancelled. |
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Tax Receivable Agreement |
Future exchanges or redemptions of LLC Units for shares of our Class A common stock or, at our election, cash (which redemptions will be treated as exchanges for U.S. federal income tax purposes and for purposes of subsequent descriptions of the TRA in this prospectus) are expected to produce favorable tax attributes for us. These tax attributes would not be available to us in the absence of those transactions. Upon the closing of this offering, we will be a party to the TRA. Under the TRA, we generally expect to retain the benefit of approximately % of the applicable tax savings after our payment obligations below are taken into account. Under the TRA, we generally will be required to pay to TRA Members approximately % of the applicable savings, if any, in income tax that we realize, or in some circumstances are deemed to realize, as a result of (1) certain tax attributes that are created as a result of the exchanges of their LLC Units (calculated under certain assumptions), (2) tax benefits related to imputed interest, and (3) payments under the TRA. For purposes of calculating the income tax savings we realize, or are deemed to realize, under the TRA, we will calculate the income tax savings using the actual |
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applicable U.S. federal income tax rate in effect for the applicable tax period and an assumed weighted-average state and local income tax rate. See the sections titled Organizational Structure and Certain Relationships and Related Party TransactionsTax Receivable Agreement. |
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Risk factors |
See the section titled Risk Factors and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our Class A common stock. |
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Proposed Nasdaq trading symbol |
PS |
The number of shares of our common stock that will be outstanding after this offering excludes the following:
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15,791,871 incentive units that were outstanding as of December 31, 2017, with a weighted-average threshold price of $6.50 per unit and a weighted-average catch-up price of $2.97 per unit, that will convert into in connection with this offering (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus); |
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3,000,000 Class B incentive units that were outstanding as of December 31, 2017, with a threshold price of $9.42 per unit and a catch-up price of $2.64 per unit, that will convert into in connection with this offering (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus); |
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2,178,450 restricted share units, or RSUs, of Pluralsight Holdings that were outstanding as of December 31, 2017, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
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2,458,183 RSUs of Pluralsight Holdings that were granted after December 31, 2017, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
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3,000,000 Class B RSUs of Pluralsight Holdings that were outstanding as of December 31, 2017 and that will remain as RSUs of Pluralsight Holdings following this offering; |
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424,242 shares of our Class A common stock issuable upon the exercise of warrants issued after December 31, 2017, with an exercise price of $8.25 per share; and |
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shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of: |
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additional shares of Class A common stock, reserved for future issuance under our 2018 Equity Incentive Plan, or our 2018 Plan (including shares of Class A common stock issuable upon the exercise of stock options and vesting and settlement of RSUs which we intend to grant in connection with this offering as set forth below), as well as any annual increases in the number of shares of Class A common stock reserved for future issuance under our 2018 Plan, which will become effective in connection with the completion of this offering; and |
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The shares reserved for future issuance under the 2018 Plan include shares of Class A common stock (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this |
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prospectus) issuable upon the exercise of stock options which we intend to grant in connection with this offering; and |
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The shares reserved for future issuance under the 2018 Plan include shares of Class A common stock subject to RSUs (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) which we intend to grant in connection with this offering. |
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additional shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our 2018 Employee Stock Purchase Plan, or our ESPP, which will become effective in connection with the completion of this offering. |
Except as otherwise indicated or the context otherwise requires, all information in this prospectus assumes:
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the effectiveness of Pluralsight Holdings Fourth LLC Agreement; |
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the completion of the Reorganization Transactions; |
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the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering; |
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no vesting and settlement of outstanding RSUs of Pluralsight Holdings subsequent to December 31, 2017; and |
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no exercise by the underwriters of their over-allotment option to purchase up to an additional shares of Class A common stock from us in this offering. |
In addition, except as indicated or the context otherwise requires, all information in this prospectus reflects a recapitalization of Pluralsight Holdings common units into Class A common units and Class B common units that was completed in June 2017. Each Class A common unit has one vote, and each Class B common unit has 10 votes. In connection with this recapitalization, all Members of Pluralsight Holdings (other than Aaron Skonnard and his affiliates) received Class A common units in exchange for the common units they held, and Aaron Skonnard and his affiliates received Class B common units in exchange for the common units they held.
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present the summary consolidated financial and other data for Pluralsight Holdings and its consolidated subsidiaries. Pluralsight Holdings is the predecessor of the issuer, Pluralsight, Inc., for financial reporting purposes. The summary consolidated financial and other data of Pluralsight, Inc. has not been presented since Pluralsight, Inc. is a newly incorporated entity, has had no business transactions or activities to date, and had no assets or liabilities during the periods presented in this section.
The following summarized consolidated financial data for Pluralsight Holdings and its consolidated subsidiaries should be read in conjunction with the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included elsewhere in this prospectus. The summarized consolidated statement of operations data for the years ended December 31, 2016 and 2017, and the summarized consolidated balance sheet data as of December 31, 2017, are derived from the audited consolidated financial statements and related notes of Pluralsight Holdings included elsewhere in this prospectus. The summarized consolidated statements of operations data for the year ended December 31, 2015 have been derived from the consolidated financial statements that are not included in this prospectus. Our historical results are not necessarily indicative of our future results.
Year Ended
December 31, |
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2015 | 2016 | 2017 | ||||||||||
(in thousands, except per unit amounts) | ||||||||||||
Revenue |
$ | 108,422 | $ | 131,841 | $ | 166,824 | ||||||
Cost of revenue (1)(2) |
33,245 | 40,161 | 49,828 | |||||||||
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Gross profit |
75,177 | 91,680 | 116,996 | |||||||||
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Operating expenses (1)(2) : |
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Sales and marketing |
44,872 | 51,234 | 103,478 | |||||||||
Technology and content |
33,146 | 36,159 | 49,293 | |||||||||
General and administrative |
15,916 | 18,130 | 46,971 | |||||||||
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Total operating expenses |
93,934 | 105,523 | 199,742 | |||||||||
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Loss from operations |
(18,757 | ) | (13,843 | ) | (82,746 | ) | ||||||
Other (expense) income: |
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Interest expense |
(7,399 | ) | (6,320 | ) | (11,665 | ) | ||||||
Loss on debt extinguishment |
| | (1,882 | ) | ||||||||
Other income, net |
(18 | ) | 45 | 81 | ||||||||
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Loss before income taxes |
(26,174 | ) | (20,118 | ) | (96,212 | ) | ||||||
Provision for income taxes |
(186 | ) | (494 | ) | (324 | ) | ||||||
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Net loss |
$ | (26,360 | ) | $ | (20,612 | ) | $ | (96,536 | ) | |||
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Less: accretion of Series A redeemable convertible preferred units |
(55,300 | ) | (6,325 | ) | (63,800 | ) | ||||||
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Net loss attributable to common units |
$ | (81,660 | ) | $ | (26,937 | ) | $ | (160,336 | ) | |||
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Net loss per unit, basic and diluted (3) |
$ | (1.72 | ) | $ | (0.57 | ) | $ | (3.34 | ) | |||
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Weighted average common units used in computing basic and diluted net loss per unit (3) |
47,429 | 47,480 | 47,957 | |||||||||
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Pro forma net loss per unit, basic and diluted (unaudited) (3) |
$ | (1.00 | ) | |||||||||
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Pro forma weighted average common units used in computing basic and diluted net loss per unit (unaudited) (3) |
96,405 | |||||||||||
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(1) |
Includes equity-based compensation expense as follows: |
Year Ended
December 31, |
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2015 | 2016 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Cost of revenue |
$ | 39 | $ | 20 | $ | 20 | ||||||
Sales and marketing |
1,896 | 1,462 | 2,624 | |||||||||
Technology and content |
2,203 | 2,050 | 1,966 | |||||||||
General and administrative |
865 | 2,206 | 17,171 | |||||||||
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Total equity-based compensation |
$ | 5,003 | $ | 5,738 | $ | 21,781 | ||||||
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(2) |
Includes amortization of acquired intangible assets as follows: |
Year Ended
December 31, |
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2015 | 2016 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Cost of revenue |
$ | 6,555 | $ | 6,565 | $ | 7,008 | ||||||
Sales and marketing |
1,077 | 643 | 721 | |||||||||
Technology and content |
611 | 706 | 706 | |||||||||
General and administrative |
130 | 120 | 91 | |||||||||
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Total amortization of acquired intangible assets |
$ | 8,373 | $ | 8,034 | $ | 8,526 | ||||||
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(3) |
See Note 1 and Note 12 to Pluralsight Holdings consolidated financial statements included elsewhere in this prospectus for an explanation of the methods used to calculate basic, diluted, and pro forma net loss per unit. |
As of December 31, 2017 | ||||||||||||
Actual |
Pro
Forma (1) |
Pro Forma
As Adjusted (2)(3) |
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(in thousands) | ||||||||||||
Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
$ | 28,267 | $ | $ | ||||||||
Working capital (4) |
31,199 | |||||||||||
Total assets |
236,420 | |||||||||||
Deferred revenue, current and non-current |
111,301 | |||||||||||
Redeemable convertible preferred units |
405,766 | |||||||||||
Non-controlling interest |
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Total members/stockholders deficit |
(445,077 | ) |
(1) |
The pro forma column in the balance sheet data above reflects the pro forma balance sheet data for Pluralsight, Inc. after giving effect to the Reorganization Transactions. |
(2) |
The pro forma as adjusted column in the balance sheet data above reflects (i) the pro forma adjustments set forth above, (ii) the sale and issuance of shares of our Class A common stock by us in this offering, at the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (iii) the use of proceeds from this offering to (a) repay $ million of the term loan under our credit facility, which, as of December 31, 2017, had an outstanding balance of $116.6 million, and the related prepayment premium of 1.5% and accrued interest, and (b) settle outstanding EARs issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which amount we estimate will be $ based on the number of EARs outstanding as of December 31, 2017 for which the service condition had been satisfied and based on an assumed price of our Class A common stock at the time of settlement being equal to $ , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. |
(3) |
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, and total members/stockholders (deficit) equity by $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) cash and cash equivalents, working capital, and total members /stockholders (deficit) equity by $ million, assuming the assumed initial public offering price remains the same, after deducting estimated underwriting discounts and commissions. |
(4) |
Working capital is calculated as current assets less current liabilities, excluding deferred revenue. |
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Key Business Metrics
We monitor business customers, billings, and certain related key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Growth Rate | ||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2015 | 2016 | 2017 | 2016 | 2017 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Business customers (end of period) |
10,517 | 12,043 | 14,463 | 15 | % | 20 | % | |||||||||||||
Billings |
$ | 130,043 | $ | 149,231 | $ | 205,807 | 15 | % | 38 | % | ||||||||||
Billings from business customers |
$ | 83,663 | $ | 104,861 | $ | 162,965 | 25 | % | 55 | % | ||||||||||
% of billings from business customers |
64 | % | 70 | % | 79 | % |
Business customers . We define a business customer as a unique account in our customer relationship management system that had an active paying subscription at the end of the period presented. Each unique account in our customer relationship management system is considered a unique business customer as the system does not create unique accounts for individual customers, and, in some cases, there may be more than one business customer within a single organization.
Billings. We define billings as our total revenue plus the change in deferred revenue in the period, as presented in our consolidated statements of cash flows.
See the section titled Selected Consolidated Financial DataKey Business Metrics for more information regarding our key business metrics.
Non-GAAP Financial Measures
Year Ended
December 31, |
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2015 | 2016 | 2017 | ||||||||||
(dollars in thousands) | ||||||||||||
Non-GAAP gross profit |
$ | 81,771 | $ | 98,265 | $ | 124,024 | ||||||
Non-GAAP gross margin |
75 | % | 75 | % | 74 | % | ||||||
Non-GAAP operating loss |
$ | (5,381 | ) | $ | (71 | ) | $ | (52,439 | ) | |||
Free cash flow |
$ | 1,699 | $ | (7,927 | ) | $ | (20,472 | ) |
Non-GAAP gross profit and non-GAAP gross margin . We define non-GAAP gross profit as gross profit plus equity-based compensation and amortization related to acquired intangible assets. We define non-GAAP gross margin as our non-GAAP gross profit divided by our revenue.
Non-GAAP operating loss . We define non-GAAP operating loss as loss from operations plus equity-based compensation and amortization related to acquired intangible assets.
Free cash flow . We define free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment and purchases of our content library and other intangible assets.
See the section titled Selected Consolidated Financial DataNon-GAAP Financial Measures for more information and reconciliation of our non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
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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 in this prospectus, including in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and Pluralsight Holdings consolidated financial statements and related notes, before making a decision to invest in our Class A common stock. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Our Industry
Market adoption of cloud-based learning solutions is new and unproven and may not grow as we expect, which may harm our business and results of operations, and even if market demand increases, the demand for our platform may not increase.
We believe our future success will depend in part on the growth, if any, in the demand for cloud-based technology learning solutions, particularly enterprise-grade solutions. The widespread adoption of our platform depends not only on strong demand for new forms of technology learning, but also for solutions delivered via a Software-as-a-Service, or SaaS, business model in particular. The market for cloud-based learning solutions is less mature than the market for in-person ILT, which many businesses currently utilize, and these businesses may be slow or unwilling to migrate from these legacy approaches. As such, it is difficult to predict customer demand for our platform, customer adoption and renewal, the rate at which existing customers expand their engagement with our platform, the size and growth rate of the market for our platform, the entry of competitive products into the market, or the success of existing competitive products. Furthermore, even if businesses want to adopt a cloud-based technology learning solution, it may take them a long time to fully transition to this type of learning solution or they could be delayed due to budget constraints, weakening economic conditions, or other factors. Some businesses may also have long-term contracts with existing vendors and cannot switch in the short term. Even if market demand for cloud-based technology learning solutions generally increases, we cannot assure you that adoption of our platform will also increase. If the market for cloud-based technology learning solutions does not grow as we expect or our platform does not achieve widespread adoption it could result in reduced customer spending, customer attrition, and decreased revenue, any of which would adversely affect our business and results of operations.
If we are not able to expand our course library effectively or develop new platform features that respond to constantly evolving technologies and the needs of our customers, our business and results of operations would be adversely affected.
The market for talent in technology-related fields is growing and constantly evolving due to the continuously changing needs of our customers. Moreover, software is displacing manual processes throughout businesses in many industries and, as a result, the talent that companies seek to hire and retain must be able to keep pace with technological change and drive digital transformation. As such, our future success will depend on our ability to ensure that our business customers employees can master the latest emerging technologies and improve their skills in existing areas by developing and making available on a timely basis new and improved learning content and platform features that can address evolving customer needs. With respect to content creation, since new technologies are constantly being introduced, our success is dependent upon our ability to identify technological developments and predict which technology will become widely adopted or strategically important, and then develop course content and related skill assessments to address these areas in a timely manner, which we may not be able to do successfully. For example, certain courses we have developed in the past have received lower than anticipated levels of customer interest and we were unable to generate sufficient revenue from those courses to offset their costs. In addition, if we do not anticipate our customers demands and provide courses in topics that address these demands, our lead times for course production may make it difficult
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for us to rapidly produce the required content. With respect to platform features, many of the features we currently offer are relatively new and unproven and we cannot assure you that our existing features and any future features or enhancements that we develop will be successful. The success of any enhancement or new feature depends on several factors, including our understanding of market demand, timely execution, successful introduction, and market acceptance. We may not successfully develop new content and features or enhance our existing platform to meet customer needs or our new content and features and enhancements may not achieve adequate acceptance in the market. Additionally, we may not sufficiently increase our revenue to offset the upfront technology and content, sales and marketing, and other expenses we incur in connection with the development of new courses and platform features and enhancements. Any of the foregoing may adversely affect our business and results of operations.
The market in which we participate is competitive, and if we do not compete effectively, our results of operations could be harmed.
The market for professional skill development is highly competitive, rapidly evolving, and fragmented, and we expect competition to continue to increase in the future. A significant number of companies have developed, or are developing, products and services that currently, or in the future may, compete with our offerings. This competition could result in decreased revenue, increased pricing pressure, increased sales and marketing expenses, and loss of market share, any of which could adversely affect our business, results of operations, and financial condition.
We face competition from in-person ILT, legacy enterprise SaaS solutions, consumer-centric SaaS solutions, and free solutions. We compete directly or indirectly with:
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instructor-led training vendors, such as Global Knowledge, General Assembly, and New Horizons; |
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legacy e-learning services, such as Skillsoft and Cornerstone OnDemand; |
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individual-focused e-learning services, such as LinkedIn Learning, Udemy, and Udacity; and |
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free solutions, such as YouTube. |
Many of our competitors and potential competitors are larger and have greater brand name recognition, longer operating histories, larger marketing budgets and established customer relationships, access to larger customer bases, and significantly greater resources for the development of their solutions. In addition, we face potential competition from participants in adjacent markets that may enter our markets by leveraging related technologies and partnering with or acquiring other companies, or providing alternative approaches to provide similar results. We may also face competition from companies entering our market, including large technology companies that could expand their offerings or acquire one of our competitors, similar to LinkedIns acquisition of Lynda.com. While these companies may not currently focus on our market, they may have significantly greater financial resources and longer operating histories than we do. As a result, our competitors and potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, or customer requirements. Further, some potential customers, particularly large enterprises, may elect to develop their own internal solutions that address their technology skill development needs.
Our ability to compete is also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver skill development solutions at lower prices, with greater feature sets, more efficiently, or more conveniently, such technologies could adversely impact our ability to compete. With the introduction of new technologies and market entrants, we expect competition to intensify in the future.
Some of our principal competitors offer their solutions at a lower price or for free, which may result in pricing pressures on us. Many of our competitors that offer free solutions are also integrating features found previously only with paid solutions, which puts additional pressure on our pricing and feature development. If we are unable to maintain our pricing levels and competitive differentiation in the market, our results of operations would be negatively impacted.
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If our business customers do not expand their use of our platform beyond their current organizational engagements or renew their existing contracts with us, our ability to grow our business and improve our results of operations may be adversely affected.
Our future success depends, in part, on our ability to increase the adoption of our platform by our existing customers and future customers. Many of our business customers initially use our platform in specific groups or departments within their organization. In addition, our customers may initially use our platform for a specific use case. Our ability to grow our business depends in part on our ability to persuade customers to expand their use of our platform to address additional use cases. Further, to continue to grow our business, it is important that our customers renew their subscriptions when existing contracts expire and that we expand our relationships with our existing customers. Our customers have no obligation to renew their subscriptions, and our customers may decide not to renew their subscriptions with a similar contract period, at the same prices and terms, with the same or a greater number of users, or at all. In the past, some of our customers have elected not to renew their agreements with us, and it is difficult to accurately predict whether we will have future success in retaining customers or expanding our relationships with them. We have experienced significant growth in the number of users of our platform, but we do not know whether we will continue to achieve similar user growth in the future. Our ability to retain our business customers and expand our deployments with them may decline or fluctuate as a result of a number of factors, including our customers satisfaction with our platform, our customer support, our prices, the prices and features of competing solutions, reductions in our customers spending levels, insufficient user adoption of our platform, and new feature releases. If our customers do not purchase additional subscriptions or renew their existing subscriptions, renew on less favorable terms, or fail to continue to expand their engagement with our platform, our revenue may decline or grow less quickly than anticipated, which would harm our results of operations.
If we are unable to increase sales of subscriptions to our platform to business customers while mitigating the risks associated with serving such customers, our business, financial condition, and results of operations would suffer.
Our growth strategy is largely dependent upon increasing sales of subscriptions to our platform to business customers. As we seek to increase our sales to business customers, we face upfront sales costs and longer sales cycles, higher customer acquisition costs, more complex customer requirements, and volume discount requirements that we do not have with sales to individuals.
We often enter into customized contractual arrangements with our business customers, particularly large enterprises, in which we offer more favorable pricing terms in exchange for larger total contract values that accompany large deployments. As we drive a greater portion of our revenue through our deployments with business customers, we expect that our revenue will continue to grow significantly but the price we charge business customers per user may decline. This may result in reduced margins in the future if our cost of revenue increases. Sales to business customers involve risks that may not be present, or that are present to a lesser extent, with sales to individuals. For example, business customers may request that we integrate our platform with their existing technologies, and these customization efforts could create additional costs and delays in utilization. In addition, business customers often begin to use our platform on a limited basis, but nevertheless require education and interactions with our sales team, which increases our upfront investment in the sales effort with no guarantee that these customers will use our platform widely enough across their organization to justify our upfront investment. As we continue to expand our sales efforts to business customers, we will need to continue to increase the investments we make in sales and marketing, and there is no guarantee that our investments will succeed and contribute to additional customer acquisition and revenue growth. If we are unable to increase sales to business customers while mitigating the risks associated with serving such customers, our business, financial condition, and results of operations will suffer.
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Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.
Our ability to broaden our customer base, particularly our business customer base, and achieve broader market acceptance of our platform will depend to a significant extent on the ability of our sales and marketing organizations to work together to drive our sales pipeline and cultivate customer and partner relationships to drive revenue growth. We have invested in and plan to continue expanding our sales and marketing organizations, both domestically and internationally. Identifying, recruiting, and training sales personnel will require significant time, expense, and attention. We also plan to dedicate significant resources to sales and marketing programs, including lead generation activities and brand awareness campaigns, such as search engine and email marketing, online banner and video advertising, user events such as Pluralsight LIVE, and webinars. If we are unable to hire, develop, and retain talented sales or marketing personnel, if our new sales or marketing personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective, our ability to broaden our customer base and achieve broader market acceptance of our platform could be harmed. In addition, the investments we make in our sales and marketing organization will occur in advance of experiencing benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources in these areas.
Our future performance depends in large part on attracting and retaining authors and producing content that addresses our customers needs.
The majority of our content is created by subject-matter experts, or authors, who are generally not our employees. This presents certain risks to our business, including, among others:
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we may not be able to remain competitive in finding and retaining authors; |
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we generally have exclusivity with our authors with respect to the specific subject matter of the courses they create for us, but they may produce content for competitors or on their own with respect to related topics and other subjects; |
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our existing authors, particularly our most popular authors, may not continue creating content for us; |
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the topics of content created by our authors may not address the needs of our customers; |
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the content created by our authors may not meet the quality standards that our customers expect and demand, or effectively differentiate our content from that of our competitors with respect to content quality and breadth; |
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the fees that we pay our authors may cease to be competitive with the market for their talent; and |
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we may have to reduce the fees for future courses we pay our authors to balance costs. |
If any of the risks above occur, customers may seek other solutions for their professional skill development needs and we may not be able to retain them or acquire additional customers to offset any such departures, which would adversely affect our business and results of operations. In addition, our most popular authors are a relatively small group of individuals who have created course content that has historically represented a significant portion of the total course hours viewed. The loss of our authors, particularly our most popular authors, and our inability to replace them with new author relationships of comparable quality and standing would significantly impact our business and operating results.
Our quarterly and annual results of operations may vary significantly and may be difficult to predict. If we fail to meet the expectations of investors or securities analysts, our stock price and the value of your investment could decline.
Our quarterly and annual billings, revenue and results of operations have fluctuated significantly in the past and may vary significantly in the future due to a variety of factors, many of which are outside of our control. Our
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financial results in any one quarter should not be relied upon as indicative of future performance. We may not be able to accurately predict our future billings, revenue or results of operations. Factors that may cause fluctuations in our quarterly results of operations include, but are not limited to, those listed below:
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fluctuations in the demand for our platform, and the timing of sales, particularly larger subscriptions; |
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our ability to attract new customers or retain existing customers; |
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our existing authors, particularly our most popular authors, may not continue creating content for us; |
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the content created by our authors may not address the needs of our customers and may not meet the standards that our customers expect and demand; |
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changes in customer renewal rates and our ability to increase sales to our existing customers; |
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the seasonal buying patterns of our customers; |
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the budgeting cycles and internal purchasing priorities of our customers; |
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the payment terms and subscription term length associated with our platform sales and their effect on our billings and free cash flow; |
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our ability to anticipate or respond to changes in the competitive landscape, including consolidation among competitors; |
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the timing of expenses and recognition of revenue; |
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the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure; |
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the timing and success of new product feature and service introductions by us or our competitors; |
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network outages or actual or perceived security breaches; |
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changes in laws and regulations that impact our business; and |
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general economic and market conditions. |
If our billings, revenue or results of operations fall below the expectations of investors or securities analysts in a particular quarter, or below any guidance that we may provide, the price of our Class A common stock could decline.
If our security measures are breached or unauthorized access to customer data is otherwise obtained, our platform may be perceived as insecure, we may lose existing customers or fail to attract new customers, our reputation may be harmed, and we may incur significant liabilities.
Unauthorized access to, or other security breaches of, our platform or the other systems or networks used in our business, including those of our vendors, contractors, or those with which we have strategic relationships, could result in the loss, compromise or corruption of data, loss of business, reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation, and other liabilities. We have errors and omissions insurance coverage for certain security and privacy damages and claim expenses, but this coverage may be insufficient to compensate us for all liabilities that we may incur.
Our platform and the other systems or networks used in our business are also at risk for breaches as a result of third-party action, or employee, vendor, or contractor error or malfeasance. Security is one of the main course subjects we provide on our platform, which may cause our platform to be a target for hackers and others, and which causes our brand, credibility, and reputation to be particularly sensitive to any security breaches. We have
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incurred and expect to continue to incur significant expenses to prevent security breaches, including deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants. However, since the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified until after they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period and, therefore, have a greater impact on our platform, the proprietary and other confidential data contained therein or otherwise stored or processed in our operations, and ultimately on our business.
Privacy, data protection, and information security concerns, and data collection and transfer restrictions and related domestic or foreign regulations, may limit the use and adoption of our platform and adversely affect our business.
Use of our platform involves the storage, transmission, and processing of data from our customers and their employees or other personnel, including certain personal or individually identifying information. Personal privacy, information security, and data protection are significant issues in the United States, Europe, and many other jurisdictions where we offer our platform. The regulatory framework governing the collection, processing, storage, and use of business information, particularly information that includes personal data, is rapidly evolving and any failure or perceived failure to comply with applicable privacy, security, or data protection laws, regulations and/or contractual obligations may adversely affect our business.
The U.S. federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use, and dissemination of data. Some of these requirements include obligations of companies to notify individuals of security breaches involving particular personal information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships. Even though we may have contractual protections with such vendors, contractors, or other organizations, notifications and follow-up actions related to a security breach could impact our reputation, cause us to incur significant costs, including legal expenses, harm customer confidence, hurt our expansion into new markets, cause us to incur remediation costs, or cause us to lose existing customers.
Further, many foreign countries and governmental bodies, including the European Union, or EU, where we conduct business, have laws and regulations concerning the collection and use of personal data obtained from their residents or by businesses operating within their jurisdictions. These laws and regulations often are more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of data that identifies or may be used to identify or locate an individual, such as names, email addresses and, in some jurisdictions, Internet Protocol, or IP, addresses. With regard to transfers of personal data from our European employees and customers to the United States, we historically relied on our adherence to the U.S. Department of Commerces Safe Harbor Privacy Principles and compliance with the EU-U.S. and Swiss-U.S. Safe Harbor Frameworks as agreed to and set forth by the U.S. Department of Commerce, the EU, and Switzerland, which established means for legitimizing the transfer of personal data by companies doing business in Europe from the EU and Switzerland to the United States. The EU-U.S. Safe Harbor Framework was deemed an invalid method of compliance with EU restrictions on data transfers in a ruling by the Court of Justice of the European Union in October 2015. We have since taken certain measures to legitimize our transfers of personal data, both internally and on behalf of our customers, from the EU and Switzerland to the United States. In particular, we self-certified under the EU-U.S. Privacy Shield on July 12, 2016, and subsequently self-certified under the Swiss-U.S. Privacy Shield after it was established. These frameworks were established by EU, Swiss, and U.S. authorities to provide mechanisms for companies to transfer EU and Swiss personal data to the United States. It is unclear at this time whether the EU-U.S. or Swiss-U.S. Privacy Shield Frameworks will serve as an appropriate means for us to transfer personal data from the EU or Switzerland to the United States. These frameworks may be subject to legal challenge by data protection
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authorities, and we may experience reluctance or refusal by European customers to use our platform due to potential risk exposure created by transferring personal data from Europe to the United States. We and our customers face a risk of enforcement actions taken by European data protection authorities regarding data transfers from Europe to the United States.
We also expect that there will continue to be new proposed laws, regulations, and industry standards concerning privacy, data protection, and information security in the United States, the EU, and other jurisdictions. In particular, on April 27, 2016, the EU adopted the General Data Protection Regulation 2016/679, or the GDPR, that will take full effect on May 25, 2018. The GDPR will repeal and replace the EU Data Protection Directive 95/46/EC and it will be directly applicable across EU member states. The GDPR applies to any company established in the EU as well as to those outside the EU if they collect and use personal data through the provision of goods or services to individuals in the EU or monitoring their behavior. The GDPR enhances data protection obligations of businesses and provides direct legal obligations for service providers processing personal data on behalf of customers, including with respect to cooperation with European data protection authorities, implementation of security measures and keeping records of personal data processing activities. Noncompliance with the GDPR can trigger steep fines of up to 20 million or 4% of global annual revenues, whichever is higher. Given the breadth and depth of changes in data protection obligations, preparing to meet the GDPRs requirements before its application on May 25, 2018 requires significant time and resources. Separate EU laws and regulations (and member states implementations thereof) govern the protection of consumers and of electronic communications. We cannot yet determine the impact such future laws, regulations, and standards may have on our business. Such laws and regulations are often subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our platform, increase our costs, impair our ability to grow our business, or restrict our ability to store and process data or, in some cases, impact our ability to offer our platform in some locations and may subject us to liability. Further, in view of new or modified federal, state, or foreign laws and regulations, industry standards, contractual obligations, and other legal obligations, or any changes in their interpretation, we may find it necessary or desirable to fundamentally change our business activities and practices or to expend significant resources to modify our platform and otherwise adapt to these changes. We may be unable to make such changes and modifications in a commercially reasonable manner, or at all, and our ability to develop new content and features could be limited.
The costs of compliance with and other burdens imposed by laws, regulations, and standards may limit the use and adoption of and reduce overall demand for our platform, or lead to significant fines, penalties, or liabilities for any noncompliance. Privacy, information security, and data protection concerns, actual and perceived, may inhibit market adoption of our platform, particularly in certain industries and foreign countries.
If we fail to retain key employees including, Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, or to recruit qualified technical and sales personnel, our business could be harmed.
We believe that our success depends on the continued employment of our senior management and other key employees, particularly Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman. In addition, because our future success is dependent on our ability to continue to enhance and introduce new content and platform features, we are heavily dependent on our ability to attract and retain qualified personnel with the requisite education, background, and industry experience. As we expand our business, our continued success will also depend, in part, on our ability to attract and retain qualified sales, marketing, and operational personnel capable of supporting a larger and more diverse customer base. The loss of the services of a significant number of our technology and content or sales personnel could be disruptive to our development efforts or customer relationships. In addition, if any of our key employees joins a competitor or decides to otherwise compete with us, we may experience a material disruption of our operations and business strategy, which may cause us to lose customers or increase operating expenses and may divert our attention as we seek to recruit replacements for the departed employees.
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If we fail to effectively manage our growth, our business and results of operations could be harmed.
We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, our headcount has grown from 543 employees as of December 31, 2016 to 825 employees as of December 31, 2017. In addition, we operate globally, sell our products to customers in more than 150 countries, and have employees in various locations in the United States, Europe, and the Asia Pacific region. We plan to continue to expand our operations into other countries in the future, which will place additional demands on our resources and operations. Additionally, we continue to increase the breadth and scope of our platform and our operations. To support this growth, and to manage any future growth effectively, we must continue to improve our IT and financial infrastructures, our operating and administrative systems, and our ability to manage headcount, capital, and internal processes in an efficient manner. Our organizational structure is also becoming more complex as we grow our operational, financial, and management infrastructure and we must continue to improve our internal controls as well as our reporting systems and procedures. We intend to continue to invest to expand our business, including investing in technology and content and sales and marketing operations, hiring additional personnel, improving our internal controls, reporting systems and procedures, and upgrading our infrastructure. These investments will require significant capital expenditures and the allocation of management resources, and any investments we make will occur in advance of experiencing the benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our results of operations may be adversely affected.
Our rapid growth and limited history with our cloud-based technology learning platform make it difficult to evaluate our future prospects and may increase the risk that we will not continue to grow at or near historical rates.
We have grown rapidly over the last several years, and as a result, our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. In addition, although we began operations in 2004, we shifted our business model in 2011 from offering in-person ILT to an entirely online delivery model. Since 2011, we have extended our offering to include new content areas and additional features that have enabled us to expand our addressable market, attract new users, and expand our relationships with businesses. This limited history with our SaaS model and cloud-based platform offering further limits our ability to forecast our future results of operations. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history with our delivery model or platform or operated in a more predictable market. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations, our growth rates may slow, and our business would suffer.
We recognize revenue from subscriptions over the term of our customer contracts, and as such our reported revenue and billings may differ significantly in a given period, and our revenue in any period may not be indicative of our financial health and future performance.
We recognize revenue from subscriptions ratably over the subscription term of the underlying customer contract, which is generally one year. Our billings are recorded upon invoicing for access to our platform, and thus a significant portion of the billings we report in each quarter, are generated from customer agreements entered and invoiced during the period. As a result, much of the revenue we report each quarter is derived from contracts that we entered into with customers in prior periods. Consequently, a decline in new or renewed subscriptions in any quarter will not be fully reflected in revenue or other results of operations in that quarter but will negatively affect our revenue and other results of operations across future quarters. It is difficult for us to rapidly increase our revenue from additional billings in a given period. Any increases in the average term of
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subscriptions would result in revenue for those contracts being recognized over longer periods of time with less positive impact on our results of operations in the near term. Accordingly, our revenue in any given period may not be an accurate indicator of our financial health and future performance.
As we continue to expand our sales efforts with larger business customers, our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, the timing of our billings and revenue are difficult to predict and may vary substantially from period to period, which may cause our results of operations to fluctuate significantly.
Our results of operations may fluctuate, in part, because of the resource intensive nature of our sales efforts to larger businesses, from which we derive a significant portion of our billings and revenue, the length and variability of our sales cycle, and difficulty in adjusting our operating expenses in the short term. The length of our sales cycle, from identification of the opportunity to delivery of access to our platform, varies significantly from customer to customer, with sales to larger businesses typically taking longer to complete. In addition, as we continue to increase our sales to larger businesses, we face longer more complex customer requirements, and substantial upfront sales costs. With larger businesses, the decision to subscribe to our platform frequently requires the approvals of multiple management personnel and more technical personnel than would be typical of a smaller organization and, accordingly, sales to larger businesses may require us to invest more time educating these potential customers. Purchases by larger businesses are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, which means we may not be able to come to agreement on the terms of the sale to larger businesses.
To the extent our competitors develop products that our prospective customers view as equivalent or superior to our platform, our average sales cycle may increase. Additionally, if a key sales member leaves our employment or if our primary point of contact at a customer or potential customers leaves his or her employment, our sales cycle may be further extended or customer opportunities may be lost. As a result of the buying behavior of enterprises and the efforts of our sales force and partners to meet or exceed their sales objectives by the end of each fiscal quarter, we have historically received and generated a substantial portion of billings during the last month of each fiscal quarter, often the last two weeks of the quarter. These transactions may not close as expected or may be delayed in closing. The unpredictability of the timing of customer purchases, particularly large purchases, could cause our billings and revenue to vary from period to period or to fall below expected levels for a given period, which will adversely affect our business, results of operations, and financial condition.
We believe our long-term success depends in part on continuing to expand our sales and operations outside of the United States and we are therefore subject to a number of risks associated with international sales and operations.
Sales to customers located outside of the United States represented 35% of our revenue during each of the years ended December 31, 2016 and 2017. We currently maintain offices and have sales personnel outside the United States in Europe and the Asia Pacific region, and we intend to continue to expand our international operations. In order to maintain and expand our sales internationally, we need to hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing, and retaining international staff, and specifically sales and marketing personnel, we may experience difficulties in growing our international sales and operations.
Additionally, our international sales and operations are subject to a number of risks, including the following:
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unexpected costs and errors in tailoring our products for individual markets, including translation into foreign languages and adaptation for local practices; |
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difficulties in adapting to customer desires due to language and cultural differences; |
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increased expenses associated with international sales and operations, including establishing and maintaining office space and equipment for our international operations; |
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lack of familiarity and burdens of complying with foreign laws, legal standards, privacy standards, regulatory requirements, tariffs, and other barriers; |
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greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods; |
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practical difficulties of enforcing intellectual property rights in countries with fluctuating laws and standards and reduced or varied protection for intellectual property rights in some countries; |
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unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties, or other trade restrictions; |
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limitations on technology infrastructure, which could limit our ability to migrate international operations to our existing systems, which could result in increased costs; |
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difficulties in managing and staffing international operations and differing employer/employee relationships and local employment laws; |
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fluctuations in exchange rates that may increase the volatility of our foreign-based revenue; and |
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potentially adverse tax consequences, including the complexities of foreign value added tax (or other tax) systems and restrictions on the repatriation of earnings. |
Additionally, operating in international markets also requires significant management attention and financial resources. We have limited experience in marketing, selling, and supporting our platform abroad, which increases the risk that any potential future expansion efforts that we may undertake will not be successful. We plan to invest substantial time and resources to expand our international operations, but we cannot be certain that these investments will produce desired levels of revenue or profitability. These factors and other factors could harm our ability to gain future international revenue and, consequently, materially affect our business, results of operations, and financial condition.
We may face exposure to foreign currency exchange rate fluctuations.
Today, all of our customer contracts are denominated in U.S. dollars, while our operating expenses outside of the United States are often denominated in local currencies. In the future, we plan to begin denominating certain of our customer contracts outside of the United States in local currencies, and over time, an increasing portion of our international customer contracts may be denominated in local currencies. Additionally, as we expand our international operations a larger portion of our operating expenses will be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. In the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
If we fail to manage our hosting network infrastructure capacity, our existing customers may experience service outages and our new customers may experience delays in accessing our platform.
We host our platform on data centers provided by Amazon Web Services, or AWS, a provider of cloud infrastructure services. Our operations depend on the virtual cloud infrastructure hosted in AWS as well as the information stored in these virtual data centers and which third-party internet service providers transmit. Although we have disaster recovery plans that utilize multiple AWS locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications
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failures, unauthorized intrusion, computer viruses, disabling devices, natural disasters, war, criminal act, military actions, terrorist attacks, and other similar events beyond our control could negatively affect the availability and reliability of our platform. A prolonged AWS service disruption affecting our platform for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use.
AWS enables us to order and reserve server capacity in varying amounts and sizes distributed across multiple regions, and provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. AWS may terminate the agreement by providing 30 days prior written notice and may, in some cases, terminate the agreement immediately for cause upon notice. Any disruption of our use of, or interference with, AWS would adversely affect our operations and business.
We have experienced significant growth in the number of users, transactions, and data that our hosting infrastructure supports. We seek to maintain sufficient excess capacity in our hosting network infrastructure to meet the needs of all of our customers and our growing content library. However, the provision of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure capacity requirements, our existing clients may experience service outages that may adversely impact our results of operations and lead to customer losses. For example, in 2014, prior to using AWS, we exceeded the capacity of our network infrastructure and experienced a service outage which lasted for approximately 16 hours. If our hosting infrastructure capacity fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could harm our reputation and adversely affect our revenue growth.
We rely upon SaaS technologies from third parties to operate our business, and interruptions or performance problems with these technologies may adversely affect our business and results of operations.
We rely on hosted SaaS applications from third parties in order to operate critical functions of our business, including content delivery, enterprise resource planning, customer relationship management, billing, project management, and accounting and financial reporting. If these services become unavailable due to extended outages, interruptions, or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted, and our processes for managing sales of our platform and supporting our customers could be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which could adversely affect our business.
If we are not able to keep pace with technological developments, our business will be harmed.
As our platform is designed to operate on a variety of network, hardware, and software platforms using internet tools and protocols, we will need to continuously modify and enhance our platform to keep pace with changes in internet-related hardware, software, communication, browser, and database technologies. If we are unable to respond in a timely and cost-effective manner to these rapid technological developments, our platform may become obsolete, which would adversely impact our results of operations.
If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.
We believe that developing, maintaining, and enhancing awareness and integrity of our brand and reputation in a cost-effective manner are important to achieving widespread acceptance of our platform and are important elements in maintaining existing customers and attracting new customers. We believe that the importance of our brand and reputation will increase as competition in our market further intensifies. Successful promotion of our brand will depend on the effectiveness of our marketing efforts, our ability to provide a reliable and useful platform at competitive prices, the perceived value of our platform, and our ability to provide quality customer support. Brand promotion activities may not yield increased revenue, and even if they do, the increased revenue
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may not offset the expenses we incur in building and maintaining our brand and reputation. If we fail to promote and maintain our brand successfully or to maintain loyalty among our customers, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to retain our existing customers and partners or attract new customers and partners and our business and financial condition may be adversely affected. Any negative publicity relating to our employees, partners, or other parties associated with us or them, may also tarnish our own reputation simply by association and may reduce the value of our brand. Damage to our brand and reputation may result in reduced demand for our platform and increased risk of losing market share to our competitors. Any efforts to restore the value of our brand and rebuild our reputation may be costly and may not be successful.
If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success and our business may be harmed.
We believe that a critical component to our success has been our company culture. Our company is aligned behind our culture and key values and we have invested substantial time and resources in building our team within this company culture. Additionally, as we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our company culture. If we fail to preserve our culture, our ability to retain and recruit personnel, our ability to effectively focus on and pursue our corporate objectives, and our business could be harmed.
If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue or experience slower growth rates, and incur costly litigation to protect our rights.
The skill development industry is characterized by a large number of copyrights, trademarks, trade secrets, and other intellectual property rights. Our success is dependent, in part, upon protecting our proprietary information and technology. We rely on a combination of trademarks, copyrights, trade secrets, intellectual property assignment agreements, license agreements, confidentiality procedures, non-disclosure agreements, and employee non-disclosure and invention assignment agreements to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect and mitigate unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our platform and use information that we regard as proprietary to create solutions that compete with ours. In addition, we have previously experienced, and may in the future be subject to, piracy of our course content. From time to time, individuals have illegally accessed our course materials and posted them online, and individual users within our business customers have obtained access to our content outside the scope of the customers subscription, which has caused us to lose potential revenue opportunities, and such activities may recur in the future. Policing piracy of our content and unauthorized use of our platform is difficult and the steps we take to combat such actions may prove ineffective. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our platform may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate. To the extent we expand our international activities, our exposure to unauthorized copying and use of our platform and proprietary information may increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our technology and intellectual property.
We rely in part on trade secrets, proprietary know-how, and other confidential information to maintain our competitive position. Although we enter into intellectual property assignment agreements or license agreements with our authors, confidentiality and invention assignment agreements with our employees and consultants, and confidentiality agreements with the parties with whom we have strategic relationships and business alliances, no assurance can be given that these agreements will be effective in controlling access to, and distribution of, our platform and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our platform.
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To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our managements attention and resources, could delay further sales or the implementation of our platform, impair the functionality of our platform, delay introductions of new platform features, result in our substituting inferior or more costly technologies into our platform, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new platform features or services, and we cannot guarantee that we will be able to license that technology on commercially reasonable terms or at all, and our inability to license this technology could harm our ability to compete.
We may be sued by third parties for alleged infringement of their proprietary rights.
Our success depends in part upon our not infringing the intellectual property rights of others. However, our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry or, in some cases, our technology or content. We obtain much of our content from third-party authors. Although we enter into agreements with our authors in which they represent that their content is not infringing the intellectual property rights of others, such content could be infringing and consequently subject us to liability. Moreover, we have in the past and may in the future leverage open source software in our development processes. Open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions, including that we make publicly available source code for modifications or derivative works we create based upon, incorporating or using the open source software, or that we license such modifications or derivative works under the terms of the particular open source license.
In the past, third parties have claimed that we were infringing their intellectual property rights. Such claims may reoccur in the future, and we may actually be found to be infringing on such rights. Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we may be required to disclose any of our source code that incorporates or is a modification of any such licensed software. Any claims or litigation could cause us to incur significant expenses, and if successfully asserted against us, could require that we pay substantial damages or ongoing revenue share payments, indemnify our customers or distributors, obtain licenses, modify products, or refund fees, any of which would deplete our resources and adversely impact our business.
Real or perceived errors, failures, vulnerabilities, or bugs in our platform could harm our business and results of operations.
Errors, failures, vulnerabilities, or bugs may occur in our platform, especially when updates are deployed or new features are rolled out. In addition, utilization of our platform in complicated, large-scale customer environments may expose errors, failures, vulnerabilities, or bugs in our platform. Any such errors, failures, vulnerabilities, or bugs may not be found until after they are deployed to our customers. As a provider of technology learning solutions, our brand and reputation is particularly sensitive to such errors, failures, vulnerabilities, or bugs. Real or perceived errors, failures, vulnerabilities, or bugs in our platform could result in negative publicity, loss of competitive position, loss of customer data, loss of or delay in market acceptance of our products, or claims by customers for losses sustained by them, all of which could harm our business and results of operations.
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Any failure to offer high-quality customer support may harm our relationships with our customers and our results of operations.
Our customers depend on our customer support teams to resolve technical and operational issues if and when they arise. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for customer support. Customer demand for support may also increase as we expand the features available on our platform. Increased customer demand for customer support, without corresponding revenue, could increase costs and harm our results of operations. In addition, as we continue to expand our business customer base, we need to be able to provide efficient and effective customer support that meets our business customers needs and expectations globally at scale. The number of our business customers has grown significantly, which puts additional pressure on our support organization. In order to meet these needs, we have relied in the past and will continue to rely on self-service customer support to resolve common or frequently asked questions, which supplement our customer support teams. If we are unable to provide efficient and effective customer support globally at scale including through the use of self-service support, our ability to grow our operations may be harmed and we may need to hire additional support personnel, which could harm our margins and results of operations. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer support, could harm our reputation, our ability to sell our platform to existing and prospective customers, our business, results of operations, and financial condition.
Adverse economic conditions in the United States and international countries may adversely impact our business and results of operations.
Unfavorable general economic conditions, such as a recession or economic slowdown in the United States or in one or more of our other major markets, could adversely affect demand for our platform. Changing macroeconomic conditions may affect our business in a number of ways. For example, spending patterns of businesses are sensitive to the general economic climate. Subscriptions for our platform may be considered discretionary by many of our current and potential customers. As a result, businesses considering whether to purchase or renew subscriptions to our products may be influenced by macroeconomic factors.
We may acquire other companies or technologies which could divert our managements attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and harm our results of operations.
As we have in the past, we may in the future seek to acquire or invest in businesses, people, or technologies that we believe could complement or expand our platform, enhance our content library or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are ultimately consummated.
Any integration process may result in unforeseen operating difficulties and require significant time and resources and, although we have been successful in the past, we may not be able to integrate the acquired personnel, operations, and technologies successfully or effectively manage the combined business in connection with any future acquisition. We may also not achieve the anticipated benefits from the acquired business due to a number of factors, including, among others:
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costs or liabilities associated with the acquisition; |
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diversion of managements attention from other business concerns; |
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inability to integrate or benefit from acquired content, technologies, or services in a profitable manner; |
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harm to our existing relationships with authors and customers as a result of the acquisition; |
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difficulty integrating the accounting systems, operations, and personnel of the acquired business; |
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difficulty converting the customers of the acquired business onto our platform and contract terms; |
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the potential loss of key employees; |
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use of resources that are needed in other parts of our business; and |
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the use of substantial portions of our available cash or equity to consummate the acquisition. |
In the future, if our acquisitions do not yield expected returns, we may be required to take charges for the write-down or impairment of amounts related to goodwill, intangible assets, and our content library, which could negatively impact our results of operations. We may issue additional equity securities in connection with any future acquisitions, that would dilute our existing stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to pay, incur large charges or substantial liabilities, and become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges. These challenges could adversely affect our business, financial conditions, results of operations, and prospects.
We might require additional capital to support our growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our growth and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing platform or acquire complementary businesses, technologies, and content. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our 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 common stock. Any debt financing secured by us in the future 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 addition, 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 growth and to respond to business challenges could be significantly impaired.
We may not be able to generate sufficient cash to service our indebtedness.
As of December 31, 2017, we had $116.6 million of aggregate indebtedness outstanding under our existing credit facility with Guggenheim Corporate Funding, LLC. In February 2018, we amended our credit facility and incurred $20.0 million in additional indebtedness. We intend to use a portion of the proceeds from this offering to repay $ million of this indebtedness. We may need to use a substantial portion of our cash to pay interest on our debt, which reduces the funds available to us for other purposes. Our ability to repay or to refinance our debt obligations depends on numerous factors, including the amount of our cash balances and our actual and projected financial and operating performance. We may be unable to maintain a level of cash balances or cash flows sufficient to permit us to pay the principal, premium, if any, and interest on our existing or future indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital, or restructure or refinance our indebtedness. We may not be able to take any of these actions, and even if we are, these actions may be insufficient to permit us to meet our scheduled debt service obligations.
Our credit facility also contains covenants that are typical for credit facilities of this size, type, and tenor, such as requirements that we meet specified maximum net debt to recurring revenue ratios and leverage coverage ratios and minimum liquidity amounts. Our ability to make additional borrowings under our credit facility depends upon satisfaction of these covenants. Our ability to comply with these covenants and requirements may
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be affected by events beyond our control. Our failure to comply with obligations under our credit facility could result in an event of default under the facilities. A default, if not cured or waived, could prohibit us from obtaining further loans under our credit facilities and permit the lenders thereunder to accelerate payment of their loans. In addition, the lenders would have the right to proceed against the collateral we granted to them, which consists of substantially all of our assets. If our debt is accelerated, we cannot be certain that we will have funds available to pay the accelerated debt or that we will have the ability to refinance the accelerated debt on terms favorable to us, or at all. If we could not repay or refinance the accelerated debt, we could be insolvent and could seek to file for bankruptcy protection. Any such default, acceleration, or insolvency would likely have a material and adverse effect on our business.
Our management team has limited experience managing a public company.
Most members of our management team have limited or no experience managing a publicly-traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business, financial condition, and results of operations.
Our business is subject to a variety of U.S. and international laws that could subject us to claims, increase the cost of operations, or otherwise harm our business due to changes in the laws, changes in the interpretations of the laws, greater enforcement of the laws, or investigations into compliance with the laws.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing copyright laws, employment and labor laws, workplace safety, consumer protection laws, privacy and data protection laws, anti-bribery laws, import and export controls, federal securities laws, and tax laws and regulations. In certain foreign jurisdictions, these regulatory requirements may be more stringent than those in the United States. These laws and regulations are subject to change over time and thus we must continue to monitor and dedicate resources to ensure continued compliance. Non-compliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of managements attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.
We are also subject to consumer protection laws that may impact our sales and marketing efforts, including laws related to subscriptions, billing, and auto-renewal. These laws, as well as any changes in these laws, could make it more difficult for us to retain existing customers and attract new ones.
We are subject to governmental export and import controls and anti-corruption laws and regulations that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities are subject to various restrictions under U.S. export and similar laws and regulations, including the U.S. Department of Commerces Export Administration Regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Departments Office of Foreign Assets Controls. The U.S. export control laws and U.S. economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and
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entities. In addition, various countries regulate the import of certain technology and have enacted or could enact laws that could limit our ability to provide our customers access to our platform or could limit our customers ability to access or use our services in those countries.
Although we take precautions to prevent our platform from being provided in violation of such laws, our platform could be provided inadvertently in violation of such laws, despite the precautions we take. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to civil or criminal penalties, including the possible loss of export privileges and fines. We may also be adversely affected through penalties, reputational harm, loss of access to certain markets, or otherwise. In addition, various countries regulate the import and export of certain encryption and other technology, including import and export permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our platform or could limit our users ability to access our platform in those countries. Changes in our platform, or future changes in export and import regulations may prevent our users with international operations from utilizing our platform globally or, in some cases, prevent the export or import of our platform to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions, or related legislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by, or in our decreased ability to export or sell subscriptions to our platform to, existing or potential users with international operations. Any decreased use of our platform or limitation on our ability to export or sell our platform would likely adversely affect our business, results of operations, and financial results.
We are also subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, providing, and accepting improper payments or benefits for improper purposes. These laws also require that we keep accurate books and records and maintain compliance procedures designed to prevent any such actions. Although we take precautions to prevent violations of these laws, our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.
Our business could be adversely impacted by changes in internet access for our users or laws specifically governing the internet.
Our platform depends on the quality of our users access to the internet. Certain features of our platform require significant bandwidth and fidelity to work effectively. Internet access is frequently provided by companies that have significant market power that could take actions that degrade, disrupt, or increase the cost of user access to our platform, which would negatively impact our business. We could incur greater operating expenses and our ability to acquire and retain customers could be negatively impacted if network operators:
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implement usage-based pricing; |
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discount pricing for competitive products; |
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otherwise materially change their pricing rates or schemes; |
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charge us to deliver our traffic at certain levels or at all; |
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throttle traffic based on its source or type; |
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implement bandwidth caps or other usage restrictions; or |
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otherwise try to monetize or control access to their networks. |
In December 2017, the Federal Communications Commission announced it will revise the net neutrality rules. The rules were designed to ensure that all online content is treated the same by internet service providers and other companies that provide broadband services. Should the net neutrality rules be relaxed or eliminated, we could incur greater operating expenses, which could harm our results of operations.
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As the internet continues to experience growth in the number of users, frequency of use, and amount of data transmitted, the internet infrastructure that we and our users rely on may be unable to support the demands placed upon it. The failure of the internet infrastructure that we or our users rely on, even for a short period of time, could undermine our operations and harm our results of operations.
In addition, there are various laws and regulations that could impede the growth of the internet or other online services, and new laws and regulations may be adopted in the future. These laws and regulations could, in addition to limiting internet neutrality, involve taxation, tariffs, privacy, data protection, information security, content, copyrights, distribution, electronic contracts and other communications, consumer protection, and the characteristics and quality of services, any of which could decrease the demand for, or the usage of, our platform. Legislators and regulators may make legal and regulatory changes, or interpret and apply existing laws, in ways that require us to incur substantial costs, expose us to unanticipated civil or criminal liability, or cause us to change our business practices. These changes or increased costs could materially harm our business, results of operations, and financial condition.
Our international operations subject us to potentially adverse tax consequences.
We are subject to income taxes as well as non-income-based taxes, such as payroll, sales, use, value-added, property and goods and services taxes, in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to various jurisdictional rules regarding the timing and allocation of revenue and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file and to changes in tax laws. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. From time to time, we may be subject to income and non-income tax audits. While we believe we have complied with all applicable income tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse effect on our business, results of operations, and financial condition.
Our future effective tax rate may be affected by such factors as changes in tax laws, regulations, or rates, changing interpretation of existing laws or regulations, the impact of accounting for equity-based compensation, the impact of accounting for business combinations, changes in our international organization, and changes in overall levels of income before tax. In addition, in the ordinary course of our global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Although we believe that our tax estimates are reasonable, we cannot ensure that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.
We may have exposure to greater than anticipated tax liabilities and may be affected by changes in tax laws or interpretations, any of which could adversely impact our results of operations.
We are subject to income taxes in the United States and various jurisdictions outside of the United States. Our effective tax rate could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax rates. Our tax expense could also be impacted by changes in non-deductible expenses, changes in excess tax benefits of equity-based compensation, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, the applicability of withholding taxes, effects from acquisitions, and the evaluation of new information that results in a change to a tax position taken in a prior period.
Our tax position could also be impacted by changes in accounting principles, changes in U.S. federal, state, or international tax laws applicable to corporate multinationals, other fundamental law changes currently being considered by many countries, including the United States, and changes in taxing jurisdictions administrative interpretations, decisions, policies, and positions. For example, on December 22, 2017, tax reform legislation referred to as the Tax Cuts and Jobs Act, or the Tax Act, was enacted in the United States. The Tax Act significantly revises U.S. federal income tax law, including by lowering the corporate income tax rate to 21%,
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limiting the deductibility of interest expense, implementing a modified territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries. While the Tax Act will result in a lower domestic corporate income tax rate, we will be subject to the one-time mandatory tax on previously deferred foreign earnings, which could impact our effective tax rate, although we currently do not expect the impact on our effective tax rate to be material. We have reflected the expected impact of the Tax Act in our financial statements in accordance with our understanding of the Tax Act and guidance available as of the date of this prospectus. However, many consequences of the Tax Act, including whether and how state, local, and foreign jurisdictions will react to such changes are not entirely clear at this time and the U.S. Department of Treasury has broad authority to issue regulations and interpretive guidance that may significantly impact how the Tax Act will apply to us. Any of the foregoing changes could have an adverse impact on our results of operations, cash flows, and financial condition.
Additionally, the Organization for Economic Co-Operation and Development has released guidance covering various topics, including transfer pricing, country-by-country reporting, and definitional changes to permanent establishment that could ultimately impact our tax liabilities as it is implemented in various jurisdictions.
Our results of operations may be harmed if we are required to collect sales or other related taxes for our subscription services in jurisdictions where we have not historically done so.
We collect sales and value-added tax as part of our subscription agreements in a number of jurisdictions. Sales and use, value-added, and similar tax laws and rates vary greatly by jurisdiction. One or more states or countries may seek to impose additional sales, use, or other tax collection obligations on us, including for past sales by us. A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes on our platform could, among other things, result in substantial tax liabilities for past sales, create significant administrative burdens for us, discourage customers from purchasing our platform, or otherwise harm our business, results of operations, and financial condition.
We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could adversely affect our potential profitability.
We have federal and state net operating loss carryforwards, or NOLs, due to prior period losses, which if not utilized will begin to expire in 2030 for both federal and state purposes, respectively. As of December 31, 2017 we had federal and state NOLs of $14.2 million and $5.5 million, respectively. These NOLs, and NOLs of companies we may acquire (including in connection with the Reorganization Transactions), could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our potential profitability.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize NOLs or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an ownership change. Such an ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage. This offering and the transactions contemplated hereby may trigger an ownership change.
The nature of our business requires the application of complex revenue and expense recognition rules, and any significant changes in current rules could affect our financial statements and results of operations.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board, or the FASB, the Securities and Exchange Commission, or the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls over financial reporting. In addition, many companies accounting policies and practices are being
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subject to heightened scrutiny by regulators and the public. Further, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements. For example, in May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers , as amended, which will supersede nearly all existing revenue recognition guidance. For public business entities, the standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period; however, we have elected to use the extended transition period available to emerging growth companies under the Jumpstart our Business Startups Act of 2012, or JOBS Act, and we do not anticipate adopting the standard until the fiscal year ended December 31, 2019. We cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward, which could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of the change. In addition, if we were to change our critical accounting estimates, including those related to the recognition of license revenue and other revenue sources, our results of operations could be significantly affected.
If our judgments or estimates relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock. Significant judgments, estimates, and assumptions used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, equity-based compensation expense, sales commissions costs, long-lived assets, and accounting for income taxes including deferred tax assets and liabilities.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the listing standards of The Nasdaq Global Select Market, or Nasdaq. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly, and place significant strain on our personnel, systems, and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial
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reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which could have a negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second Annual Report on Form 10-K.
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting until after we are no longer an emerging growth company as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and results of operations and could cause a decline in the price of our Class A common stock.
We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, 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. Pursuant to Section 107 of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our Class A common stock less attractive to investors. If we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with new or revised accounting standards.
We may take advantage of these provisions until we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenues; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some but not all of these reduced reporting burdens. If we take advantage of any of these reduced reporting burdens in future filings, the information that we provide our security holders may be different than the information you might get from other public companies in which you hold equity interests. We cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less attractive trading market for our Class A common stock and our stock price may be more volatile.
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We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, particularly after we are no longer an emerging growth company, which could adversely affect our business, financial condition, and results of operations.
As a public company, and particularly after we cease to be an emerging growth company, we will incur greater legal, accounting, and other expenses than we incurred as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the rules and regulations of Nasdaq. These requirements have increased and will continue to increase our legal, accounting, and financial compliance costs and have made, and will continue to make, some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers. After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. In that regard, we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
Our results of operations could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.
Natural disasters, such as earthquakes, hurricanes, tornadoes, floods, and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, and other political instability; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in any of our offices or the operations of one or more of our third-party providers and vendors, such as AWS. To the extent any of these events occur, our business and results of operations could be adversely affected.
Risks Related to Our Organizational Structure
Our principal asset after the completion of this offering will be our interest in Pluralsight Holdings, and we will be dependent upon Pluralsight Holdings and its consolidated subsidiaries for our results of operations, cash flows, and distributions.
Upon the completion of this offering, we will be a holding company and will have no material assets other than our ownership of the LLC Units of Pluralsight Holdings. As such, we will have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses or declare and pay dividends in the future, if any, will be dependent upon the results of operations and cash flows of Pluralsight Holdings and its consolidated subsidiaries and distributions we receive from Pluralsight Holdings. There can be no assurance that our subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative covenants in our debt instruments, will permit such distributions.
Our ability to pay taxes and expenses, including payments under the Tax Receivable Agreement, may be limited by our structure.
Upon the consummation of this offering, our principal asset will be a controlling equity interest in Pluralsight Holdings. As such, we will have no independent means of generating revenue. Pluralsight Holdings will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, will generally not be subject to U.S. federal income tax. Instead, taxable income will be allocated to holders of its LLC Units, including us. Accordingly, we will incur income taxes on our allocable share of any net taxable income of Pluralsight Holdings and will also
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incur expenses related to our operations. Pursuant to the Fourth LLC Agreement, Pluralsight Holdings will make cash distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations in respect of the cumulative taxable income in excess of cumulative taxable losses of Pluralsight Holdings that is allocated to them, to the extent previous tax distributions from Pluralsight Holdings have been insufficient. In addition to tax expenses, we also will incur expenses related to our operations, plus payments under the TRA, which we expect will be significant. We intend to cause Pluralsight Holdings to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow us to pay our taxes and operating expenses, including distributions to fund any ordinary course payments due under the TRA. However, Pluralsight Holdings ability to make such distributions may be subject to various limitations and restrictions. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations (as a result of Pluralsight Holdings inability to make distributions due to various limitations and restrictions or as a result of the acceleration of our obligations under the TRA), we may have to borrow funds and thus our liquidity and financial condition could be materially and adversely affected. To the extent that we are unable to make payments under the TRA when due because we have insufficient funds or as a result of certain restrictions imposed under the debt agreements of Pluralsight Holdings or under applicable law, such payments will be deferred and will generally accrue interest at a rate equal to % until paid. In certain other circumstances, nonpayment of our obligations under the TRA for a specified period may constitute a breach of a material obligation under the TRA, and therefore, may accelerate payments due under the TRA resulting in a lump-sum payment.
We will be required to pay the TRA Members for certain tax benefits we may claim, and we expect that the payments we will be required to make will be substantial.
Future exchanges or redemptions of LLC Units for cash or shares of our Class A common stock are expected to produce favorable tax attributes for us. When we acquire LLC Units from the Continuing Members through these exchanges or such redemptions, anticipated tax basis adjustments are likely to increase (for tax purposes) our depreciation and amortization deductions and therefore reduce the amount of income tax we would be required to pay in the future in the absence of this increased basis. This increased tax basis may also decrease the gain (or increase the loss) on future dispositions of certain assets to the extent the tax basis is allocated to those assets. Under the TRA, we generally expect to retain the benefit of approximately % of the applicable tax savings after our payment obligations below are taken into account.
Upon the closing of this offering, we will be a party to the TRA. Under the TRA, we generally will be required to pay to the TRA Members approximately % of the applicable savings, if any, in income tax that we realize, or that we are deemed to realize, as a result of (1) certain tax attributes that are created as a result of the exchanges or redemptions of their LLC Units (calculated under certain assumptions), (2) tax benefits related to imputed interest, and (3) payments under such TRA.
The increase in tax basis, as well as the amount and timing of any payments under these agreements, will vary depending upon a number of factors, including the timing of exchanges or redemptions, the price of our Class A common stock at the time of the exchange or redemption, whether such exchanges or redemptions are taxable, the amount and timing of the taxable income we generate in the future, the U.S. federal and state tax rates then applicable, and the portion of our payments under the TRA constituting imputed interest. Payments under the TRA are expected to give rise to certain additional tax benefits attributable to either further increases in basis or in the form of deductions for imputed interest, depending on the circumstances. Any such benefits are covered by the TRA and will increase the amounts due thereunder. In addition, the TRA will provide for interest, at a rate equal to %, accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the TRA.
We expect that the payments that we will be required to make to the TRA Members will be substantial. To the extent that we are unable to make timely payments under the TRA for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us. Nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore may accelerate payments due under the TRA.
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Furthermore, our future obligation to make payments under the TRA could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the TRA. See the section titled Certain Relationships and Related Party TransactionsTax Receivable Agreement for a discussion of the Tax Receivable Agreement and the related likely benefits to be realized by the TRA Members.
Payments under the TRA will be based on the tax reporting positions that we determine. Although we are not aware of any issue that would cause the U.S. Internal Revenue Service, or IRS, to challenge a tax basis increase or other tax attributes subject to the TRA, if any subsequent disallowance of tax basis or other benefits were so determined by the IRS, generally we would not be reimbursed for any payments previously made under the applicable TRA (although we would reduce future amounts otherwise payable under such TRA). As a result, payments could be made under the TRA in excess of the tax savings that we realize in respect of the attributes to which the TRA relate.
The amounts that we may be required to pay to the TRA Members under the Tax Receivable Agreement may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize.
The TRA provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur or if, at any time, we elect an early termination of the TRA, then the TRA will terminate and our obligations, or our successors obligations, to make future payments under the TRA would accelerate and become immediately due and payable. The amount due and payable in those circumstances is determined based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA. We may need to incur debt to finance payments under the TRA to the extent our cash resources are insufficient to meet our obligations under the TRA as a result of timing discrepancies or otherwise. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the TRA.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon Continuing Members that will not benefit Class A common stockholders to the same extent as it will benefit the Continuing Members.
Our organizational structure, including the TRA, confers certain benefits upon the Continuing Members that will not benefit the holders of our Class A common stock to the same extent as it will benefit the Continuing Members. We will enter into the TRA with Pluralsight Holdings and the Continuing Members and it will provide for the payment by us to the TRA Members of % of the amount of tax benefits, if any, that we realize, or in some circumstances are deemed to realize, as a result of (1) the increases in the tax basis of assets of Pluralsight Holdings resulting from any redemptions or exchanges of LLC Units from the Continuing Members as described under the section titled Certain Relationships and Related Party TransactionsFourth Amended and Restated LLC Agreement and (2) certain other tax benefits related to our making payments under the TRA. See the section titled Certain Relationships and Related Party TransactionsTax Receivable Agreement for additional information. Although we will retain % of the amount of such tax benefits, this and other aspects of our organizational structure may adversely impact the future trading market for the Class A common stock.
Generally, we will not be reimbursed for any payments made to TRA Members under the Tax Receivable Agreement in the event that any tax benefits are disallowed.
If the IRS challenges the tax basis or other tax attributes that give rise to payments under the TRA and the tax basis or other tax attributes are subsequently required to be adjusted, generally the recipients of payments under the TRA will not reimburse us for any payments we previously made to them. Instead, any excess cash
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payments made by us to a TRA Member will be netted against any future cash payments that we might otherwise be required to make under the terms of the TRA. However, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the TRA and, as a result, there might not be future cash payments to net against. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, it is possible that we could make cash payments under the TRA that are substantially greater than our actual cash tax savings. See the section titled Certain Relationships and Related Party TransactionsTax Receivable Agreement.
The disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention.
If and when we generate taxable income, Pluralsight Holdings will generally make quarterly tax distributions to each of its members, including us, based on each members allocable share of net taxable income (calculated under certain assumptions) multiplied by an assumed tax rate. The assumed tax rate for this purpose will be the highest effective marginal combined federal, state, and local income tax rate that may potentially apply to any member for the applicable fiscal year. The Tax Act recently significantly reduced the highest marginal federal income tax rate applicable to corporations such as Pluralsight, Inc., relative to non-corporate taxpayers. As a result of this disparity, we expect to receive tax distributions from Pluralsight Holdings significantly in excess of our actual tax liability and our obligations under the TRA, which could result in our accumulating a significant amount of cash. This would complicate our ability to maintain certain aspects of our capital structure. Such cash, if retained, could cause the value of an LLC Unit to deviate from the value of a share of Class A common stock, contrary to the one-to-one relationship described in the section titled Certain Relationships and Related Party TransactionsFourth Amended and Restated LLC Agreement. In addition, such cash, if used to purchase additional LLC Units, could result in deviation from the one-to-one relationship between Class A common stock outstanding and LLC Units of Pluralsight Holdings held by Pluralsight, Inc. unless a corresponding number of additional shares of Class A common stock are distributed as a stock dividend. We may, if permitted under our debt agreements, choose to pay dividends to all holders of Class A common stock with any excess cash. These considerations could have unintended impacts on the pricing of our Class A common stock and may impose transaction costs and require management efforts to address on a recurring basis. To the extent that we do not distribute such excess cash as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to Pluralsight Holdings, the Continuing Members in Pluralsight Holdings during a period in which we hold such cash balances could benefit from the value attributable to such cash balances as a result of redeeming or exchanging their LLC Units and obtaining ownership of Class A common stock (or a cash payment based on the value of Class A common stock). In such case, these Continuing Members could receive disproportionate value for their LLC Units exchanged during this time frame.
Risks Related to Our Class A Common Stock
Immediately following the completion of this offering, the Continuing Members will have the right to have their LLC Units exchanged for shares of Class A common stock and any disclosure of such exchange or the subsequent sale of such Class A common stock may cause volatility in our stock price.
After this offering, we will have an aggregate of more than shares of Class A common stock authorized but unissued, including shares of Class A common stock issuable upon exchange of LLC Units that will be held by the Continuing Members. Under the Fourth LLC Agreement and, subject to certain restrictions set forth therein and as described elsewhere in this prospectus, including lock-up agreements with the underwriters, the Continuing Members will be entitled to have their LLC Units exchanged for shares of our Class A common stock.
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We cannot predict the timing, size, or disclosure of any future issuances of our Class A common stock resulting from the exchange of LLC Units or the effect, if any, that future issuances, disclosure, if any, or sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock, or the perception that such sales or distributions could occur, may cause the market price of our Class A common stock to decline.
The multi-class structure of our common stock will have the effect of concentrating voting control with Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman; this will limit or preclude your ability to influence corporate matters and may have a negative impact on the price of our Class A common stock.
Our Class C common stock has 10 votes per share, our Class B common stock has one vote per share, and our Class A common stock, which is the stock we are offering in this offering, has one vote per share. After this offering, and including shares issuable upon the exercise of outstanding equity awards, Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through affiliated entities, will hold all of our issued and outstanding Class C common stock and will beneficially own approximately % of the combined voting power of our outstanding capital stock (or % if the underwriters exercise in full their over-allotment option to purchase additional shares). As a result, Mr. Skonnard and his affiliates will have the ability to control any action requiring the general approval of our stockholders, including the election and removal of our directors, amendments to our amended and restated certificate of incorporation and amended and restated bylaws, the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction. These actions may be taken even if they are opposed by other stockholders. This concentration of ownership and voting power may also delay, defer, or even prevent an acquisition by a third party or other change of control of us and may make some transactions more difficult or impossible without his support, even if such events are in the best interests of minority stockholders. This concentration of voting power with Mr. Skonnard and his affiliates may have a negative impact on the price of our Class A common stock. In addition, because shares of our Class C common stock have 10 votes per share on matters submitted to a vote of our stockholders, Mr. Skonnard will be able to control our company as long as he beneficially owns at least % of the Class C common stock that he beneficially owns as of the completion of this offering, or shares of Class C common stock.
As our Chief Executive Officer, Mr. Skonnard has control over our day-to-day management and the implementation of major strategic investments of our company, subject to authorization and oversight by our board of directors. As a board member and officer, Mr. Skonnard owes fiduciary duties to us and our stockholders, including those of care and loyalty, and must act in good faith and with a view to the interests of the corporation. As a stockholder, even a controlling stockholder, Mr. Skonnard is entitled to vote his shares, and shares over which he has voting control, in his own interests, which may not always be in the interests of our stockholders generally. Because Mr. Skonnard, personally and through affiliated entities, holds his economic interest in our business through Pluralsight Holdings, rather than through the public company, he may have conflicting interests with holders of shares of our Class A common stock. For example, Mr. Skonnard may have a different tax position from us, which could influence his decisions regarding whether and when we should dispose of assets or incur new or refinance existing indebtedness, especially in light of the existence of the TRA, and whether and when we should undergo certain changes of control within the meaning of the TRA or terminate the TRA. In addition, the structuring of future transactions may take into consideration these tax or other considerations even where no similar benefit would accrue to us. See the section titled Certain Relationships and Related Party TransactionsTax Receivable Agreement for additional information. In addition, Mr. Skonnards significant ownership in us and resulting ability to effectively control us may discourage someone from making a significant equity investment in us, or could discourage transactions involving a change in control, including transactions in which you as a holder of shares of our Class A common stock might otherwise receive a premium for your shares over the then-current market price.
In addition, in July 2017, FTSE Russell and Standard & Poors announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices.
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Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Under the announced policies, our multi-class capital structure would make us ineligible for inclusion in any of these indices, and as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track these indices will not be investing in our stock. These policies are new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included.
Although we do not expect to rely on the controlled company exemption under the rules and regulations of Nasdaq, we expect to have the right to use such exemption and therefore we could in the future avail ourselves of certain reduced corporate governance requirements.
will, collectively, hold a majority of the voting power of our outstanding capital stock following the completion of this offering, and therefore we will be considered a controlled company as that term is set forth in the rules and regulations of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by a person or group of persons acting together is a controlled company and may elect not to comply with certain rules and regulations of Nasdaq regarding corporate governance, including:
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the requirement that a majority of its board of directors consist of independent directors; |
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the requirement that its director nominees be selected or recommended for the boards selection by a majority of the boards independent directors in a vote in which only independent directors participate or by a nominating committee comprised solely of independent directors, in either case, with board resolutions or a written charter, as applicable, addressing the nominations process and related matters as required under the federal securities laws; and |
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the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities. |
These requirements would not apply to us if, in the future, we choose to avail ourselves of the controlled company exemption. Although we qualify as a controlled company, we do not currently expect to rely on these exemptions and intend to fully comply with all corporate governance requirements under the rules and regulations of Nasdaq. However, if we were to utilize some or all of these exemptions, we would not comply with certain of the corporate governance standards of Nasdaq, which could adversely affect the protections for minority stockholders.
There has been no prior public trading market for our Class A common stock, and an active trading market may not develop or be sustained following this offering.
We intend to apply to list our Class A common stock on Nasdaq under the symbol PS. However, there has been no prior public trading market for our Class A common stock. We cannot assure you that an active trading market for our Class A common stock will develop on such exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired or the prices that you may obtain for your shares of our Class A common stock.
Our stock price may be volatile and may decline regardless of our operating performance.
Our stock price is likely to be volatile. The trading prices of technology companies securities have been, and we expect them to continue to be, highly volatile. As a result of this volatility, investors may not be able to sell their Class A common stock at or above the initial public offering price. The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including, among others:
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actual or anticipated fluctuations in our revenue and other results of operations, including as a result of the addition or loss of any number of customers; |
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announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; |
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the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; |
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failure of securities analysts to initiate or maintain coverage of us, changes in ratings and financial estimates and the publication of other news by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; |
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changes in operating performance and stock market valuations of SaaS-based software or other technology companies, or those in our industry in particular; |
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the size of our public float; |
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price and volume fluctuations in the trading of our Class A common stock and in the overall stock market, including as a result of trends in the economy as a whole; |
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new laws or regulations or new interpretations of existing laws or regulations applicable to our business or industry, including data privacy, data protection, and information security; |
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lawsuits threatened or filed against us for claims relating to intellectual property, employment issues, or otherwise; |
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changes in our board of directors or management; |
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short sales, hedging, and other derivative transactions involving our Class A common stock; |
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sales of large blocks of our Class A common stock including sales by our executive officers, directors, and significant stockholders; and |
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other events or factors, including changes in general economic, industry, and market conditions, and trends, as well as any natural disasters, which may affect our operations. |
In addition, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management, and harm our business.
Future sales of shares by existing stockholders could cause our stock price to decline.
Sales of a substantial number of shares of our Class A common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our Class A common stock in the public market following this offering, the market price of our Class A common stock could decline. Immediately after this offering, we will have outstanding shares of Class A common stock. Of these shares, the shares sold in this offering will be immediately freely tradable, unless held by an affiliate, and all of the remaining shares of Class A common stock will be restricted as a result of securities laws or lock-up agreements but will be able to be sold after the offering as described in the section titled Shares Eligible for Future Sale. In addition, in connection with this offering, we intend to file one or more registration statements on Form S-8 registering the issuance of approximately shares of Class A common stock subject to options or other equity awards issued or reserved for future issuance under our equity incentive plans. Shares registered under these registration statements on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options, the lock-up agreements described above and the restrictions of Rule 144 under the Securities Act of 1933, as amended, in the case of our affiliates. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our Class A common stock could decline.
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If securities or industry analysts do not publish research or reports about our business, or if they downgrade our common stock, the price of our Class A common stock could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our results of operations fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our stock price and trading volume to decline.
Purchasers in this offering will immediately experience substantial dilution in net tangible book value.
We anticipate 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 common stock immediately following this offering. Therefore, if you purchase shares of our Class A common stock in this offering, you will experience immediate dilution of $ per share, the difference between the price per share you pay for our Class A common stock and the pro forma net tangible book value per share as of December 31, 2017, after giving effect to the issuance of shares of our Class A common stock in this offering. See the section titled Dilution for additional information.
We have broad discretion in the use of the net proceeds that we receive in this offering.
The principal purposes of this offering are to repay $ million of our outstanding indebtedness under our credit facility, raise additional capital, create a public market for our Class A common stock, and facilitate our future access to the public equity markets. We intend to use $ million of the proceeds of this offering to purchase newly-issued LLC Units from Pluralsight Holdings, as described in the section titled Organizational StructureOffering Transactions. We intend to cause Pluralsight Holdings to use approximately $ million of these proceeds to (i) repay $ million of our outstanding indebtedness under our credit facility; (ii) pay the unpaid expenses of this offering, which we estimate will be $ in the aggregate; and (iii) settle outstanding non-transferable EARs issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which amount we estimate will be approximately $ . Pluralsight Holdings will also use these proceeds to pay the unpaid expenses of this offering. We may also use a portion of the net proceeds from this offering to satisfy income tax withholding obligations associated with the initial settlement of certain RSUs that will settle on or about , 2018. Any remaining proceeds will be used for working capital and other general corporate purposes, including the acquisition of, or investment in complementary products, technologies, solutions, or business, although we have no present commitments or agreements to enter into any acquisitions or investments. Accordingly, our management will have broad discretion over the specific use of the remaining proceeds that we receive in this offering and might not be able to obtain a significant return, if any, on investment of these proceeds. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, and results of operations could be harmed.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise will dilute all other stockholders.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors, and consultants under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies, and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline.
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We generally do not intend to pay dividends following the completion of this offering.
We generally do not intend to pay dividends to the holders of our Class A common stock following the completion of this offering for the foreseeable future, except possibly in connection with maintaining certain aspects of our UP-C structure. See the section titled Risks Related to Our Organizational StructureThe disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention. Our ability to pay dividends on our Class A common stock is limited by our existing indebtedness, and may be further restricted by the terms of any future debt incurred or preferred securities issued by us or our subsidiaries or law. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, financial condition, and results of operations, current and anticipated cash needs, plans for expansion and any legal or contractual limitation on our ability to pay dividends. As a result, any capital appreciation in the price of our Class A common stock may be your only source of gain on your investment in our Class A common stock.
If, however, we decide to pay a dividend in the future, we would likely need to cause Pluralsight Holdings to make distributions to Pluralsight, Inc. in an amount sufficient to cover cash dividends, if any, declared by us. Deterioration in the consolidated financial condition, earnings, or cash flow of Pluralsight Holdings for any reason could limit or impair its ability to pay cash distributions or other distributions to us. In addition, our ability to pay dividends in the future is dependent upon our receipt of cash from Pluralsight Holdings and its subsidiaries. Pluralsight Holdings and its subsidiaries may be restricted from distributing cash to us by, among other things, law or the documents governing our existing or future indebtedness.
Some provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws may deter third parties from acquiring us and diminish the value of our Class A common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws may provide for, among other things:
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a classified board of directors with staggered three year terms; |
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that stockholders may remove directors only for cause; |
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our multi-class structure, which provides Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through affiliated entities, the ability to significantly influence the outcome of matters requiring stockholder approval; |
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the ability of our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change in control; |
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advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings; |
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a prohibition on stockholders calling special stockholder meetings; and |
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certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws that may be amended only by the affirmative vote of the holders of at least in voting power of all outstanding shares of our stock entitled to vote thereon, voting together as a single class. |
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These anti-takeover defenses could discourage, delay, or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
Our amended and restated bylaws will designate a state or federal court located within the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.
Our amended and restated bylaws will provide that, for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action asserting a claim against us or any of our directors or officers arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any other action asserting a claim that is governed by the internal affairs doctrine, the exclusive forum shall be a state or federal court located within the State of Delaware, in all cases subject to the courts having jurisdiction over indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to this provision. This choice of forum provision 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. Alternatively, if a court were to find these provisions of our amended and restated bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could harm our business, financial condition, or results of operations.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements under the sections titled Prospectus Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business, and in other sections of this prospectus that are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements, which are subject to a number of risks, uncertainties and assumptions about us, generally relate to future events or our future financial or operating performance. In some cases, you can identify these statements by forward-looking words such as believe, may, will, estimate, continue, anticipate, design, intend, expect, could, plan, potential, predict, seek, should, would, target, project, contemplate, or the negative version of these words and other comparable terminology that concern our expectations, strategy, plans, intentions or projections. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
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our ability to attract new customers and retain and expand our relationships with existing customers; |
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our ability to expand our course library and develop new platform features; |
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our future financial performance, including trends in billings, revenue, costs of revenue, gross margin, operating expenses, and free cash flow; |
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the demand for, and market acceptance of, our platform or for cloud-based technology learning solutions in general; |
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our ability to compete successfully in competitive markets; |
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our ability to respond to rapid technological changes; |
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our expectations and management of future growth; |
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our ability to enter new markets and manage our expansion efforts, particularly internationally; |
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our ability to attract and retain key employees and qualified technical and sales personnel; |
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our ability to effectively and efficiently protect our brand; |
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our ability to timely scale and adapt our infrastructure; |
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our ability to maintain, protect, and enhance our intellectual property and not infringe upon others intellectual property; |
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our ability to successfully identify, acquire, and integrate companies and assets; |
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the amount and timing of any payments we make under our Fourth LLC Agreement and the TRA; and |
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our anticipated uses of net proceeds from this offering. |
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.
You should not rely upon forward-looking statements as predictions of future events. These statements are only predictions based primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. There are important factors that could cause our actual results, events, or circumstances to differ materially from the results, events, or circumstances expressed or implied by the forward-looking statements, including those factors discussed in the section titled Risk Factors and elsewhere in this prospectus. You should specifically consider the numerous risks outlined in the section titled Risk Factors. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus.
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Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any of these forward-looking statements after the date of this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
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 potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
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MARKET, INDUSTRY, AND OTHER DATA
Unless otherwise indicated, estimates, and 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, are based on information from various sources, including the independent industry publications set forth below, and are subject to a number of assumptions and limitations. You are cautioned not to give undue weight to these estimates. Although we are responsible for all of the disclosure contained in this prospectus and we believe the information from the industry publications and other third-party sources included in this prospectus is reliable, we have not independently verified the accuracy or completeness of the data contained in such sources. The content of the below sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein.
The sources of certain statistical data, estimates and forecasts contained in this prospectus are the following independent industry publications or reports:
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The Economist Intelligence Unit, The Quest For Digital Skills: A Multi-Industry Executive Survey, 2016; |
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Tech Pro Research, Research: 77% Plan Further IT Education to Stave Off Obsolescence, September 1, 2014; |
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Deloitte Touche Tohmatsu Limited, Deloitte Review Issue 16, Becoming Irresistible: A New Model for Employee Engagement, January 26, 2015; |
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Association for Talent Development, 2017 State of the Industry Report, December 2017; |
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International Data Corporation, Worldwide and U.S. IT Education and Training Services Forecast, 2017-2021, November 2017; |
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Training Industry, Inc. Size of the Training Industry, April 20, 2017; and |
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Evans Data Corporation, Technical Team Total Addressable Market for Morgan Stanley, January 2018. |
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 and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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Organizational Structure Following this Offering
The diagram below depicts our organizational structure immediately following the Reorganization Transactions and the completion of this offering assuming no exercise in full by the underwriters of their over-allotment option to purchase additional shares of our Class A common stock.
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Includes (i) the shareholders of Former Members that were corporations and that merged into Pluralsight, Inc., (ii) Former Members who exchanged their LLC Units for stock in Pluralsight, Inc., and (iii) Continuing Members, solely to the extent they contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock, in each case in connection with the Reorganization Transactions, except Aaron Skonnard and his affiliates. |
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Includes all Continuing Members, except (i) to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions and (ii) Aaron Skonnard and his affiliates. |
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Immediately following this offering, Pluralsight, Inc. will be a holding company and its principal asset will be a controlling equity interest in Pluralsight Holdings. As the sole managing member of Pluralsight Holdings, Pluralsight, Inc. will operate and control all of the business and affairs of Pluralsight Holdings and, through Pluralsight Holdings and its subsidiaries, conduct our business. Pluralsight, Inc. will consolidate Pluralsight Holdings in its consolidated financial statements and will report a non-controlling interest related to the LLC Units held by the Continuing Members on its consolidated financial statements.
Investors participating in this offering will, by contrast, hold equity in Pluralsight, Inc., a Delaware corporation that is a domestic corporation for U.S. federal income tax purposes, in the form of shares of our Class A common stock. The Continuing Members and Pluralsight, Inc. will incur U.S. federal, state, and local income taxes on their proportionate share of any taxable income of Pluralsight Holdings as calculated pursuant to the Fourth LLC Agreement. As described below, each of the Continuing Members will also hold a number of shares of Class B common stock or Class C common stock, as applicable, of Pluralsight, Inc. equal to the number of LLC Units held by such person, except to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions. Although these shares have no economic rights, they will allow such Continuing Members to directly exercise voting power at Pluralsight, Inc., the managing member of Pluralsight Holdings. Under our amended and restated certificate of incorporation, each share of Class B common stock shall be entitled to one vote and each share of Class C common stock shall be entitled to 10 votes. When an LLC Unit is exchanged by a Continuing Member (which we would generally expect to occur in connection with a sale or other transfer), a corresponding share of Class B common stock or Class C common stock, as applicable, held by the exchanging owner will also be exchanged and will be cancelled.
Incorporation of Pluralsight, Inc.
Pluralsight, Inc. was incorporated in Delaware in December 2017. Pluralsight, Inc. has not engaged in any business or other activities except in connection with its incorporation. Pluralsight, Inc.s amended and restated certificate of incorporation will authorize three classes of common stock, Class A common stock, Class B common stock, and Class C common stock, each having the terms described in the section titled Description of Capital Stock.
Following this offering, each Continuing Member will hold a number of shares of our Class B common stock or Class C common stock, as applicable, equal to the number of LLC Units held by such Continuing Member, each of which provides its holder with no economic rights but entitles the holder to one vote or 10 votes, respectively, on matters presented to Pluralsight, Inc.s stockholders, as described in the sections titled Description of Capital StockCommon StockClass B Common Stock and Description of Capital StockCommon StockClass C Common Stock. Holders of Class A common stock, Class B common stock, and Class C common stock vote together as a single class on all matters presented to Pluralsight, Inc.s stockholders for their vote or approval, except as otherwise required by applicable law.
Reorganization Transactions
The amendment and restatement of the third amended and restated limited liability company agreement of Pluralsight Holdings and related transactions described below are collectively referred to as the Reorganization Transactions.
Before the completion of this offering, the third amended and restated limited liability company agreement of Pluralsight Holdings will be amended and restated to, among other things, appoint Pluralsight, Inc. as its sole managing member, effectuate the conversion of all outstanding redeemable convertible preferred limited liability company units, incentive units, and Class B incentive units and reclassification of all outstanding limited liability company common units into non-voting limited liability company common units. Additionally, prior to the completion of this offering, certain Members that are corporations will merge with and into Pluralsight, Inc. and certain Members will contribute certain of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock.
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As the sole managing member of Pluralsight Holdings, Pluralsight, Inc. will have the right to determine when distributions will be made to the unit holders of Pluralsight Holdings and the amount of any such distributions (subject to the requirements with respect to the tax distributions described below). If Pluralsight, Inc. authorizes a distribution, such distribution will be made to the holders of LLC Units, including Pluralsight, Inc., pro rata in accordance with their respective ownership of Pluralsight Holdings, provided that Pluralsight, Inc. as sole managing member will be entitled to non-pro rata distributions for certain fees and expenses.
Upon the consummation of this offering, Pluralsight, Inc. will be a holding company and its principal asset will be a controlling equity interest in Pluralsight Holdings. As such, Pluralsight, Inc. will have no independent means of generating revenue. Pluralsight Holdings will be treated as a partnership for U.S. federal income tax purposes and, as such, will generally not be subject to U.S. federal income tax. Instead, taxable income will be allocated to holders of LLC Units, including Pluralsight, Inc. Accordingly, Pluralsight, Inc. will incur income taxes on its allocable share of any net taxable income of Pluralsight Holdings. Pursuant to the Fourth LLC Agreement, Pluralsight Holdings will make cash distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations in respect of the cumulative taxable income in excess of cumulative taxable losses of Pluralsight Holdings that is allocated to them, to the extent previous tax distributions from Pluralsight Holdings have been insufficient. In addition to tax expenses, Pluralsight, Inc. also will incur expenses related to its operations, plus payments under the TRA, which Pluralsight, Inc. expects will be significant. Pluralsight, Inc. intends to cause Pluralsight Holdings to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow Pluralsight, Inc. to pay its taxes and operating expenses, including distributions to fund any ordinary course payments due under the TRA.
The Continuing Members of Pluralsight Holdings, from time to time following this offering, may, subject to the terms of the Fourth LLC Agreement, exchange their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable, for cash or shares of Class A common stock, on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications, and other similar transactions, or, at Pluralsight, Inc.s option, have such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by Pluralsight, Inc. When an LLC Unit, together with cash or a share of our Class B common stock or Class C common stock, as applicable, is exchanged for cash or a share of Pluralsight, Inc.s Class A common stock or, at Pluralsight, Inc.s option, redeemed for cash or Class A common stock, the corresponding share of our Class B common stock or Class C common stock, as applicable, will be cancelled. The Fourth LLC Agreement will provide that as a general matter a Continuing Member will not have the right to exchange LLC Units if Pluralsight, Inc. determines that such exchange would be prohibited by law or regulation or would violate other agreements with us to which the Continuing Member may be subject, including the Fourth LLC Agreement. Additionally, the Fourth LLC Agreement contains restrictions on redemptions and exchanges intended to prevent Pluralsight Holdings from being treated as a publicly traded partnership for U.S. federal income tax purposes. These restrictions are modeled on certain safe harbors provided for under applicable U.S. federal income tax law. Pluralsight, Inc. may impose additional restrictions on exchange that Pluralsight, Inc. determines to be necessary or advisable so that Pluralsight Holdings is not treated as a publicly traded partnership for U.S. federal income tax purposes. As a holder exchanges LLC Units and Class B common stock or Class C common stock, as applicable, for cash or shares of Class A common stock or a redemption transaction is effected, the number of LLC Units held by Pluralsight, Inc. is correspondingly increased as it acquires the exchanged LLC Units or funds the redemption transaction, and a corresponding number of shares of Class B common stock or Class C common stock, as applicable, are cancelled. See the section titled Certain Relationships and Related Party TransactionsFourth Amended and Restated LLC Agreement.
As noted above, each of the Continuing Members will also hold a number of shares of our Class B common stock or Class C common stock, as applicable, initially equal to the number of LLC Units held by such person, except to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions. Although these shares
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have no economic rights, they will allow such Continuing Members to directly exercise voting power at Pluralsight, Inc., the managing member of Pluralsight Holdings. Under Pluralsight, Inc.s amended and restated certificate of incorporation, each share of Class B common stock will be entitled to one vote and each share of Class C common stock will be entitled to 10 votes.
This Offering
In connection with the completion of this offering, Pluralsight, Inc. intends to use a portion of the proceeds it receives from this offering to purchase LLC Units from Pluralsight Holdings at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts and commissions. Assuming that the shares of Class A common stock to be sold in this offering are sold at $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, at the time of this offering, Pluralsight, Inc. will purchase from Pluralsight Holdings LLC Units for an aggregate of $ (or LLC Units for an aggregate of $ if the underwriters exercise in full their option to purchase additional shares of Class A common stock). Pluralsight Holdings will bear or reimburse Pluralsight, Inc. for all of the expenses of this offering. Accordingly, following this offering, Pluralsight, Inc. will hold a number of LLC Units that is equal to the number of shares of Class A common stock that it has issued, a relationship that we believe fosters transparency because it results in a single share of Class A common stock representing the same percentage ownership in Pluralsight Holdings as a single LLC Unit.
Following This Offering
The Continuing Members of Pluralsight Holdings, from time to time following this offering, may, subject to the terms of the Fourth LLC Agreement, exchange their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable, for shares of Class A common stock (or cash, at our option), on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications, and other similar transactions, or, at our option, have such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us. These exchanges and redemptions are expected to result in increases in the tax basis of the assets of Pluralsight Holdings that otherwise would not have been available. Increases in tax basis resulting from such exchanges may reduce the amount of tax that Pluralsight, Inc. would otherwise be required to pay in the future. This tax basis may also decrease the gains (or increase the losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.
Pluralsight, Inc. will enter into a TRA with the Continuing Members that will provide for the payment by Pluralsight, Inc. of approximately % of the amount of the calculated tax savings, if any, that Pluralsight, Inc. realizes, or in some circumstances is deemed to realize, as a result of this existing and increased tax basis and certain other tax benefits related to it entering into the TRA, including tax benefits attributable to payments under the TRA. These payment obligations are obligations of Pluralsight, Inc. and not of Pluralsight Holdings. See the section titled Certain Relationships and Related Party TransactionsTax Receivable Agreement for additional information.
Pluralsight, Inc. may accumulate cash balances in future years resulting from distributions from Pluralsight Holdings exceeding its tax or other liabilities. To the extent Pluralsight, Inc. does not use such cash balances to pay a dividend on or repurchase shares of Class A common stock and instead decides to hold or recontribute such cash balances to Pluralsight Holdings for use in its operations, Continuing Members who exchange LLC Units and shares of Class B common stock or Class C common stock, as applicable, for shares of Class A common stock in the future could also benefit from any value attributable to such accumulated cash balances.
As a result of the Reorganization Transactions and this offering, upon completion of this offering:
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Our Class A common stock will be held as follows: |
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shares (or shares if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock) by investors in this offering; |
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shares by the Former Members; |
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shares by Continuing Members, other than Mr. Skonnard and his affiliates; and |
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shares by Mr. Skonnard and his affiliates. |
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Our Class B common stock (together with the same amount of LLC Units) will be held as follows: |
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shares and LLC Units by the Continuing Members, other than Aaron Skonnard and his affiliates. |
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Our Class C common stock (together with the same amount of LLC Units) will be held as follows: |
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shares and LLC Units by Aaron Skonnard and his affiliates. |
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The combined voting power in Pluralsight, Inc. will be as follows: |
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% for investors in this offering (or % if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); |
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% for the Former Members (or % if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); |
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% for the Continuing Members, other than Aaron Skonnard and his affiliates (or % if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); and |
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% for Aaron Skonnard and his affiliates (or % if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock). |
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We estimate that the net proceeds from the sale of shares of our Class A common stock in this offering will be approximately $ million, based on an assumed initial offering price of $ share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock, based on the same assumptions, we estimate our net proceeds will be approximately $ million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed initial public offering price would increase or decrease, respectively, the net proceeds to us by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of 1,000,000 in the number of shares of our Class A common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $ million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions payable by us.
The principal purposes of this offering are to increase our financial flexibility, increase our visibility in the marketplace, and create a public market for our Class A common stock.
We intend to use the net proceeds to purchase newly-issued LLC Units from Pluralsight Holdings, as described in the section titled Organizational StructureReorganization Transactions. We intend to cause Pluralsight Holdings to (i) repay $ million of its outstanding indebtedness under its credit facility, which credit facility is described in the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsCommitments and Contractual Obligations, which, as of December 31, 2017, had an outstanding balance of $116.6 million, and the related prepayment premium of 1.5%, which was $1.7 million as of December 31, 2017, plus any accrued interest, (ii) pay the unpaid expenses of this offering, which we estimate will be $ in the aggregate, and (iii) settle outstanding non-transferable equity appreciation rights, or EARs, issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which amount we estimate will be $ based on the number of EARs outstanding as of December 31, 2017 for which the service condition had been satisfied and based on an assumed price of our Class A common stock at the time of settlement being equal to $ , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. We may also use a portion of the net proceeds from this offering to satisfy income tax withholding obligations associated with the initial settlement of certain RSUs that will settle on or about , 2018. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and EstimatesEquity-Based Compensation. We intend to use the remainder of the net proceeds from the offering, if any, for working capital and other general corporate purposes, including the acquisition of, or investment in complementary products, technologies, solutions, or business, although we have no present commitments or agreements to enter into any acquisitions or investments.
Other than as discussed above, we do not have more specific plans for the net proceeds from this offering. Accordingly, our management will have significant flexibility in applying the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of these net proceeds. As of the date of this prospectus, we intend to invest the net proceeds in short-term interest-bearing investment-grade securities, certificates of deposit or government securities. The goal with respect to the investment of these net proceeds will be capital preservation and liquidity so that these funds are readily available to fund our operations.
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We do not intend to pay any cash dividends on our Class A common stock.
We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to pay dividends on our Class A common stock will be made at the discretion of our board of directors subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions, and capital requirements. Holders of our Class B common stock and Class C common stock are not entitled to participate in any dividends declared by our board of directors. Our ability to pay cash dividends on our capital stock may also be limited by the terms of our existing indebtedness and the terms of any future debt or preferred securities or future credit facility.
Immediately following this offering, we will be a holding company, and our principal asset will be a controlling equity interest in Pluralsight Holdings. If, however, we decide to pay a dividend in the future, we would likely need to cause Pluralsight Holdings to make distributions to us in an amount sufficient to cover such dividend. If Pluralsight Holdings makes such distributions to us, the other holders of LLC Units will be entitled to receive pro rata distributions. See the section titled Risk FactorsRisks Related to Our Organizational StructureThe disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention with respect to the cash that we may receive from Pluralsight Holdings which is intended to allow us to pay the income taxes we owe by reason of our equity interest in Pluralsight Holdings but which may exceed the amount of such taxes.
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The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2017:
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on an actual basis; |
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on a pro forma basis, to reflect the Reorganization Transactions; and |
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on a pro forma as adjusted basis to reflect (i) the adjustments described above, (ii) the sale and issuance of shares of Class A common stock pursuant to this offering, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (iii) the use of proceeds from this offering to (a) repay $ million of the outstanding indebtedness under our credit facility, which, as of December 31, 2017, had an outstanding balance of $116.6 million, and the related prepayment premium of 1.5% and accrued interest, and (b) settle outstanding non-transferable EARs issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which we estimate will be $ based on the number of EARs outstanding as of December 31, 2017 for which the service condition had been satisfied and that the price of our Class A common stock at the time of settlement was equal to $ , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. |
The pro forma and pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the information in this table together with Pluralsight Holdings consolidated financial statements and related notes included elsewhere in this prospectus and the sections titled Selected Consolidated Financial and Other Data, and Managements Discussion and Analysis of Financial Condition and Results of Operations.
As of December 31, 2017 | ||||||||||||
Actual |
Pro
Forma |
Pro Forma
As Adjusted (1) |
||||||||||
(unaudited) | ||||||||||||
(in thousands, except share and per
share data) |
||||||||||||
Cash and cash equivalents |
$ | 28,267 | $ | $ | ||||||||
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|
|
|
|
|
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Long-term debt, net |
$ | 116,037 | ||||||||||
Redeemable convertible preferred units |
405,766 | |||||||||||
Members/stockholders (deficit) equity: |
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Preferred stock, $0.001 par value per share, no shares authorized, issued, and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted |
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Class A common stock, $0.001 par value per share: no shares authorized, issued, and outstanding, actual; shares authorized, shares issued and outstanding, pro forma; and shares authorized, shares issued and outstanding, pro forma as adjusted |
| |||||||||||
Class B common stock, $0.001 par value per share, no shares authorized, issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma; and shares authorized, shares issued and outstanding, pro forma as adjusted |
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Class C common stock, $0.001 par value per share, no shares authorized, issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma; and shares authorized, shares issued and outstanding, pro forma as adjusted |
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Additional paid-in capital |
| |||||||||||
Members capital |
| |||||||||||
Accumulated other comprehensive income |
25 | |||||||||||
Accumulated deficit |
(445,102 | ) | ||||||||||
|
|
|
|
|
|
|||||||
Total members/stockholders (deficit) equity attributable to Pluralsight |
(445,077 | ) |
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As of December 31, 2017 | ||||||||||||
Actual |
Pro
Forma |
Pro Forma
As Adjusted (1) |
||||||||||
(unaudited) | ||||||||||||
(in thousands, except share and
per share data) |
||||||||||||
Non-controlling interest |
| |||||||||||
|
|
|
|
|
|
|||||||
Total capitalization |
$ | 76,726 | $ | $ | ||||||||
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|
|
|
|
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(1) |
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total members/stockholders (deficit) equity, and total capitalization by $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) cash and cash equivalents, additional paid-in capital, total members/stockholders (deficit) equity and total capitalization by $ million, assuming the assumed initial public offering price remains the same, after deducting estimated underwriting discounts and commissions. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. |
If the underwriters elect to exercise their over-allotment option to purchase additional shares of our Class A common stock from us in full, pro forma as adjusted cash, and cash equivalents, additional paid-in capital, total members/stockholders (deficit) equity, and total capitalization would be $ , $ , $ , and $ , respectively.
The number of shares of our common stock that will be outstanding after this offering excludes the following:
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15,791,871 incentive units that were outstanding as of December 31, 2017, with a weighted-average threshold price of $6.50 per unit and a weighted-average catch-up price of $2.97 per unit, that will convert into in connection with this offering (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus); |
|
3,000,000 Class B incentive units that were outstanding as of December 31, 2017, with a threshold price of $9.42 per unit and a catch-up price of $2.64 per unit, that will convert into in connection with this offering (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus); |
|
2,178,450 RSUs of Pluralsight Holdings that were outstanding as of December 31, 2017, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
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2,458,183 RSUs of Pluralsight Holdings that were granted after December 31, 2017, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
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3,000,000 Class B RSUs of Pluralsight Holdings that were outstanding as of December 31, 2017 and that will remain as RSUs of Pluralsight Holdings following this offering; |
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424,242 shares of our Class A common stock issuable upon the exercise of warrants issued after December 31, 2017, with an exercise price of $8.25 per share; and |
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shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of: |
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additional shares of Class A common stock, reserved for future issuance under our 2018 Plan (including shares of Class A common stock issuable upon the exercise of stock options and vesting and settlement of RSUs which we intend to grant in connection with this offering as set |
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forth below), as well as any annual increases in the number of shares of Class A common stock reserved for future issuance under our 2018 Plan, which will become effective in connection with the completion of this offering; and |
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The shares reserved for future issuance under the 2018 Plan include shares of Class A common stock (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) issuable upon the exercise of stock options which we intend to grant in connection with this offering; and |
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The shares reserved for future issuance under the 2018 Plan include shares of Class A common stock subject to RSUs (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) which we intend to grant in connection with this offering. |
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additional shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our ESPP, which will become effective in connection with the completion of this offering. |
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The Continuing Members will maintain their LLC Units in Pluralsight Holdings after the Reorganization Transactions. Because the Continuing Members do not own any Class A common stock, except to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions, or have any right to receive distributions from Pluralsight, Inc., we have presented dilution in pro forma net tangible book value per share both before and after this offering assuming that all of the holders of LLC Units (other than Pluralsight, Inc.) had their LLC Units exchanged for newly-issued shares of Class A common stock on a one-to-one basis and the exchange and cancellation of all of their shares of Class B common stock and Class C common stock, as applicable (which are not entitled to receive distributions or dividends, whether cash or stock from Pluralsight, Inc.), in order to more meaningfully present the potential dilutive impact on the investors in this offering. We refer to the assumed exchange of all LLC Units for shares of Class A common stock as described in the previous sentence as the Assumed Exchange.
If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the amount per share paid by purchasers of shares of Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after the completion of this offering.
Pro forma net tangible book value per share of Pluralsight, Inc. is determined by dividing our total tangible assets less our total liabilities by the total number of shares of Class A common stock outstanding prior to the completion of this offering. As of December 31, 2017, Pluralsight Holdings historical net tangible book deficit was approximately $ million, or $ per common unit. After giving effect to the Reorganization Transactions and the Assumed Exchange, our pro forma net tangible book value as of December 31, 2017, was approximately $ million, or $ per share, based on the total number of shares of our Class A common stock deemed to be outstanding as of December 31, 2017.
After giving further effect to receipt of the net proceeds of our sale of shares of Class A common stock at an assumed initial offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2017 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to investors purchasing Class A common stock in this offering.
The following table illustrates this dilution to new investors on a per share basis:
Assumed initial public offering price per share |
$ | |||||||
Pro forma net tangible book value per share as of December 31, 2017 |
$ | |||||||
Increase in pro forma net tangible book value per share attributable to investors purchasing shares of our Class A common stock in this offering |
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|
|
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Pro forma as adjusted net tangible book value per share of our Class A common stock immediately after the completion of this offering |
||||||||
|
|
|||||||
Dilution in pro forma net tangible book value per share to investors purchasing shares in this offering |
$ | |||||||
|
|
If the underwriters exercise in full their over-allotment option to purchase additional shares in this offering, the pro forma as adjusted net tangible book value would be $ per share, the increase in the pro forma net tangible book value per share for existing stockholders would be $ per share and the dilution to new investors participating in this offering would be $ per share.
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Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the pro forma as adjusted net tangible book value, by $ per share and the dilution per share to new investors by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions.
We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 shares in the number of shares we are offering would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by approximately $ million, or $ per share, and the pro forma dilution per share to investors in this offering by $ per share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions.
The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.
The table below summarizes, as of December 31, 2017, after giving effect to the Assumed Exchange and the sale by us of shares of our Class A common stock in this offering, the number of shares of our common stock, the total consideration, and the average price per share (i) paid to us by our existing stockholders, which are the Members, and (ii) to be paid by new investors participating in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters option to purchase additional shares of our Class A common stock from us. If the underwriters exercise in full their option to purchase additional shares, the number of shares held by existing stockholders, which are the Members, will be reduced to % of the total number of shares of capital stock to be outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering will be further increased to % of the total number of shares of capital stock to be outstanding upon completion of the offering.
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, the total consideration paid by new investors by $ and increase or decrease, as applicable, the percent of total consideration paid by new investors by %, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions. 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 offered by us would increase or decrease, as applicable, total consideration paid by new investors by $ , assuming that the assumed initial price to the public remains the same, and after deducting estimated underwriting discounts and commissions.
71
The number of shares of our common stock that will be outstanding after this offering excludes the following:
|
15,791,871 incentive units that were outstanding as of December 31, 2017, with a weighted-average threshold price of $6.50 per unit and a weighted-average catch-up price of $2.97 per unit, that will convert into in connection with this offering (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus); |
|
3,000,000 Class B incentive units that were outstanding as of December 31, 2017, with a threshold price of $9.42 per unit and a catch-up price of $2.64 per unit, that will convert into in connection with this offering (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus); |
|
2,178,450 RSUs of Pluralsight Holdings that were outstanding as of December 31, 2017, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
|
2,458,183 RSUs of Pluralsight Holdings that were granted after December 31, 2017, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
|
3,000,000 Class B RSUs of Pluralsight Holdings that were outstanding as of December 31, 2017 and that will remain as RSUs of Pluralsight Holdings following this offering; |
|
424,242 shares of our Class A common stock issuable upon the exercise of warrants issued after December 31, 2017, with an exercise price of $8.25 per share; and |
|
shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of: |
|
additional shares of Class A common stock, reserved for future issuance under our 2018 Plan (including shares of Class A common stock issuable upon the exercise of stock options and vesting and settlement of RSUs which we intend to grant in connection with this offering as set forth below), as well as any annual increases in the number of shares of Class A common stock reserved for future issuance under our 2018 Plan, which will become effective in connection with the completion of this offering; and |
|
The shares reserved for future issuance under the 2018 Plan include shares of Class A common stock (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) issuable upon exercise of stock options which we intend to grant in connection with this offering; and |
|
The shares reserved for future issuance under the 2018 Plan include shares of Class A common stock subject to RSUs (based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) which we intend to grant in connection with this offering. |
|
additional shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our ESPP, which will become effective in connection with the completion of this offering. |
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present the selected historical consolidated financial information and other data for Pluralsight Holdings and its consolidated subsidiaries. Pluralsight Holdings is the predecessor of the issuer, Pluralsight, Inc., for financial reporting purposes. The selected consolidated financial and other data of Pluralsight, Inc. has not been presented since Pluralsight, Inc. is a newly incorporated entity, has had no business transactions or activities to date, and had no assets or liabilities during the periods presented in this section. The following selected consolidated financial data for Pluralsight Holdings and its consolidated subsidiaries should be read in conjunction with the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2016 and 2017, and the selected consolidated balance sheet data as of December 31, 2016 and 2017, are derived from the audited consolidated financial statements and related notes of Pluralsight Holdings included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results.
Year Ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(in thousands, except per unit amounts) | ||||||||||||
Revenue |
$ | 108,422 | $ | 131,841 | $ | 166,824 | ||||||
Cost of revenue (1)(2) |
33,245 | 40,161 | 49,828 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
75,177 | 91,680 | 116,996 | |||||||||
|
|
|
|
|
|
|||||||
Operating expenses (1)(2) : |
||||||||||||
Sales and marketing |
44,872 | 51,234 | 103,478 | |||||||||
Technology and content |
33,146 | 36,159 | 49,293 | |||||||||
General and administrative |
15,916 | 18,130 | 46,971 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
93,934 | 105,523 | 199,742 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(18,757 | ) | (13,843 | ) | (82,746 | ) | ||||||
Other (expense) income: |
||||||||||||
Interest expense |
(7,399 | ) | (6,320 | ) | (11,665 | ) | ||||||
Loss on debt extinguishment |
| | (1,882 | ) | ||||||||
Other income, net |
(18 | ) | 45 | 81 | ||||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(26,174 | ) | (20,118 | ) | (96,212 | ) | ||||||
Provision for income taxes |
(186 | ) | (494 | ) | (324 | ) | ||||||
|
|
|
|
|
|
|||||||
Net loss |
$ | (26,360 | ) | $ | (20,612 | ) | $ | (96,536 | ) | |||
|
|
|
|
|
|
|||||||
Less: accretion of Series A redeemable convertible preferred units |
(55,300 | ) | (6,325 | ) | (63,800 | ) | ||||||
|
|
|
|
|
|
|||||||
Net loss attributable to common units |
$ | (81,660 | ) | $ | (26,937 | ) | $ | (160,336 | ) | |||
|
|
|
|
|
|
|||||||
Net loss per unit, basic and diluted (3) |
$ | (1.72 | ) | $ | (0.57 | ) | $ | (3.34 | ) | |||
|
|
|
|
|
|
|||||||
Weighted average common units used in computing basic and diluted net loss per unit (3) |
47,429 | 47,480 | 47,957 | |||||||||
|
|
|
|
|
|
|||||||
Pro forma net loss per unit, basic and diluted (unaudited) (3) |
$ | (1.00 | ) | |||||||||
|
|
|||||||||||
Pro forma weighted average common units used in computing basic and diluted net loss per unit (unaudited) (3) |
96,405 | |||||||||||
|
|
(1) |
Includes equity-based compensation expense as follows: |
Year Ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Cost of revenue |
$ | 39 | $ | 20 | $ | 20 | ||||||
Sales and marketing |
1,896 | 1,462 | 2,624 | |||||||||
Technology and content |
2,203 | 2,050 | 1,966 | |||||||||
General and administrative |
865 | 2,206 | 17,171 | |||||||||
|
|
|
|
|
|
|||||||
Total equity-based compensation |
$ | 5,003 | $ | 5,738 | $ | 21,781 | ||||||
|
|
|
|
|
|
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(2) |
Includes amortization of acquired intangible assets as follows: |
Year Ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Cost of revenue |
$ | 6,555 | $ | 6,565 | $ | 7,008 | ||||||
Sales and marketing |
1,077 | 643 | 721 | |||||||||
Technology and content |
611 | 706 | 706 | |||||||||
General and administrative |
130 | 120 | 91 | |||||||||
|
|
|
|
|
|
|||||||
Total amortization of acquired intangible assets |
$ | 8,373 | $ | 8,034 | $ | 8,526 | ||||||
|
|
|
|
|
|
(3) |
See Note 1 and Note 12 to Pluralsight Holdings consolidated financial statements included elsewhere in this prospectus for an explanation of the methods used to calculate basic, diluted and pro forma net loss per unit. |
As of December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||
Cash and cash equivalents |
$ | 8,389 | $ | 19,397 | $ | 28,267 | ||||||
Working (deficit) capital (1) |
(7,664 | ) | 19,212 | 31,199 | ||||||||
Total assets |
192,984 | 214,972 | 236,420 | |||||||||
Deferred revenue, current and non-current |
55,795 | 72,683 | 111,301 | |||||||||
Redeemable convertible preferred units |
305,294 | 341,966 | 405,766 | |||||||||
Total members/stockholders deficit |
(286,134 | ) | (307,230 | ) | (445,077 | ) |
(1) |
Working (deficit) capital is calculated as current assets less current liabilities, excluding deferred revenue. |
Key Business Metrics
We monitor business customers, billings, and certain related key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Growth Rate | ||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||
2015 | 2016 | 2017 | 2016 | 2017 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Business customers (end of period) |
10,517 | 12,043 | 14,463 | 15 | % | 20 | % | |||||||||||||
Billings |
$ | 130,043 | $ | 149,231 | $ | 205,807 | 15 | % | 38 | % | ||||||||||
Billings from business customers |
$ | 83,663 | $ | 104,861 | $ | 162,965 | 25 | % | 55 | % | ||||||||||
% of billings from business customers |
64 | % | 70 | % | 79 | % |
Business customers
We use the number of business customers to measure and monitor the growth of our business and the success of our sales and marketing activities, and believe that the growth of our business customer base is indicative of our long-term billings and revenue growth potential. We define a business customer as a unique account in our customer relationship management system that had an active paying subscription at the end of the period presented. Each unique account in our customer relationship management system is considered a unique business customer as the system does not create unique accounts for individual customers, and, in some cases, there may be more than one business customer within a single organization.
Billings
We use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers and our ability to sell subscriptions to our platform to both
74
existing and new customers. Billings represent our total revenue plus the change in deferred revenue in the period, as presented in our consolidated statements of cash flows. Billings in any particular period represent amounts invoiced to our customers and reflect subscription renewals and upsells to existing customers plus sales to new customers. Our pricing and subscription periods vary for business customers and individual customers. Subscription periods for our business customers generally range from one to three years, with a majority being one year, as we only recently began offering subscription periods greater than one year. We typically invoice our business customers in advance in annual installments. Subscription periods for our individual customers range from one month to one year and we typically invoice them in advance in monthly or annual installments.
We use billings from business customers and our percentage of billings from business customers to measure and monitor our ability to sell subscriptions to our platform to business customers. We believe that billings from business customers will be a significant source of future revenue growth and a key factor affecting our long-term performance. We expect our billings from business customers to continue to increase as a percentage of billings over the long term.
As our billings continue to grow in absolute terms, we expect our billings growth rate to decline over the long term as we achieve scale in our business. As we recognize revenue from subscription fees ratably over the term of the contract, due to the difference in timing of billings received and when we recognize revenue, changes to our billings and billings growth rates are not immediately reflected in our revenue and revenue growth rates.
Non-GAAP Financial Measures
Year Ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(dollars in thousands) | ||||||||||||
Non-GAAP gross profit |
$ | 81,771 | $ | 98,265 | $ | 124,024 | ||||||
Non-GAAP gross margin |
75 | % | 75 | % | 74 | % | ||||||
Non-GAAP operating loss |
$ | (5,381 | ) | $ | (71 | ) | $ | (52,439 | ) | |||
Free cash flow |
$ | 1,699 | $ | (7,927 | ) | $ | (20,472 | ) |
Non-GAAP gross profit and non-GAAP gross margin
Non-GAAP gross profit is a non-GAAP financial measure that we define as gross profit plus equity-based compensation and amortization related to acquired intangible assets. We define non-GAAP gross margin as our non-GAAP gross profit divided by our revenue. We believe non-GAAP gross profit and non-GAAP gross margin are useful to investors as they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses. We believe these non-GAAP measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain non-cash items that may vary from company to company for reasons unrelated to overall profitability.
See the section below titled Reconciliation of Non-GAAP Financial Measures for information regarding the limitations of using our non-GAAP gross profit and non-GAAP gross margin as a financial measure and for a reconciliation of our non-GAAP gross profit to gross profit, the most directly comparable financial measure calculated in accordance with GAAP.
Non-GAAP operating loss
Non-GAAP operating loss is a non-GAAP financial measure that we define as loss from operations plus equity-based compensation and amortization related to acquired intangible assets. We believe non-GAAP operating loss provides investors with useful information on period-to-period performance as evaluated by
75
management and comparison with our past financial performance. We believe non-GAAP operating loss is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.
See the section below titled Reconciliation of Non-GAAP Financial Measures for information regarding the limitations of using our non-GAAP operating loss as a financial measure and for a reconciliation of our non-GAAP operating loss to loss from operations, the most directly comparable financial measure calculated in accordance with GAAP.
Free cash flow
We define free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment and purchases of our content library and other intangible assets. We consider free cash flow to be an important measure because it measures the amount of cash we spend or generate and reflects changes in our working capital. For 2015, 2016, and 2017, our free cash flow included cash paid for interest on our long-term debt of $6.5 million, $5.5 million, and $6.9 million, respectively. For 2016 and 2017, our free cash flow was negative as a result of our continued investments to support the growth of our business. We expect our free cash flow to improve as we experience greater scale in our business and improve operational efficiency, as well as reduce our cash paid for interest on our long-term debt following the repayment of $ million of the outstanding indebtedness under our credit facility in connection with this offering. We expect to generate positive free cash flow over the long term.
See the section below titled Reconciliation of Non-GAAP Financial Measures for information regarding the limitations of using free cash flow as a financial measure and for a reconciliation of free cash flow to net cash provided by (used in) operations, the most directly comparable financial measure calculated in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures
We use non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of non-GAAP gross profit, non-GAAP operating loss, and free cash flow to the related GAAP financial measures, gross profit, loss from operations, and net cash provided by (used in) operating activities, respectively. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow in conjunction with their respective related GAAP financial measures.
76
The following table provides a reconciliation of gross profit to non-GAAP gross profit:
Year Ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(dollars in thousands) | ||||||||||||
Gross profit |
$ | 75,177 | $ | 91,680 | $ | 116,996 | ||||||
Equity-based compensation |
39 | 20 | 20 | |||||||||
Amortization of acquired intangible assets |
6,555 | 6,565 | 7,008 | |||||||||
|
|
|
|
|
|
|||||||
Non-GAAP gross profit |
$ | 81,771 | $ | 98,265 | $ | 124,024 | ||||||
|
|
|
|
|
|
|||||||
Gross margin |
69 | % | 70 | % | 70 | % | ||||||
Non-GAAP gross margin |
75 | % | 75 | % | 74 | % |
The following table provides a reconciliation of loss from operations to non-GAAP operating loss:
Year Ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Loss from operations |
$ | (18,757 | ) | $ | (13,843 | ) | $ | (82,746 | ) | |||
Equity-based compensation |
5,003 | 5,738 | 21,781 | |||||||||
Amortization of acquired intangible assets |
8,373 | 8,034 | 8,526 | |||||||||
|
|
|
|
|
|
|||||||
Non-GAAP operating loss |
$ | (5,381 | ) | $ | (71 | ) | $ | (52,439 | ) | |||
|
|
|
|
|
|
The following table provides a reconciliation of net cash provided by (used in) operating activities to free cash flow:
Year Ended December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Net cash provided by (used in) operating activities |
$ | 11,942 | $ | 4,468 | $ | (12,139 | ) | |||||
Less: purchases of property and equipment |
(7,954 | ) | (10,142 | ) | (5,951 | ) | ||||||
Less: purchases of content library |
(2,289 | ) | (2,253 | ) | (2,382 | ) | ||||||
|
|
|
|
|
|
|||||||
Free cash flow |
$ | 1,699 | $ | (7,927 | ) | $ | (20,472 | ) | ||||
|
|
|
|
|
|
77
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet as of December 31, 2017 and unaudited pro forma consolidated statements of operations for the year ended December 31, 2017 present our consolidated financial position and results of operations to reflect (i) the Reorganization Transactions, (ii) the sale and issuance of Class A common stock pursuant to this offering, and (iii) the use of proceeds from this offering to (a) repay $ million of our term loan under our credit facility and (b) settle outstanding non-transferable EARs issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2017 assumes the Reorganization Transactions and this offering were completed on January 1, 2017. The unaudited pro forma consolidated balance sheet as of December 31, 2017 assumes the Reorganization Transactions and this offering were completed on December 31, 2017.
The unaudited pro forma consolidated financial information has been prepared based on our historical financial statements and the assumptions and adjustments as described in the notes to the unaudited pro forma consolidated financial information. The pro forma adjustments are based upon available information and methodologies that are factually supportable and directly attributable to the Reorganization Transactions or this offering. In addition, the unaudited pro forma consolidated statements of operations reflect only those adjustments that are expected to have a continuing impact on our results of operations. The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to represent our consolidated results of operations or consolidated financial position that would actually have occurred had the Reorganization Transactions and this offering referred to above been consummated on the dates assumed or to project our consolidated results of operations or consolidated financial position for any future date or period.
As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these steps and, among other things, additional directors and officers liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have not included any pro forma adjustments relating to these costs.
As described in greater detail under the sections titled Organizational Structure and Certain Relationships and Related Party TransactionsTax Receivable Agreement, in connection with the completion of this offering, we will enter into the TRA with the TRA Members, which will provide for the payment by Pluralsight, Inc. to the TRA Members of % of the applicable savings, if any, that Pluralsight, Inc. may realize, or be deemed to realize (using the actual applicable U.S. federal income tax rate in effect for the tax period and an assumed, weighted-average state and local income tax rate based on applicable period apportionment factors), as a result of (1) certain tax attributes that are created as a result of the exchanges of their LLC Units (calculated under certain assumptions), (2) tax benefits related to imputed interest, and (3) payments under the TRA. Due to the uncertainty in the amount and timing of future exchanges of LLC Units by the TRA Members, and the uncertainty of when those exchanges will ultimately result in tax savings as we currently do not generate taxable income, the unaudited pro forma consolidated financial information assumes that no exchanges of LLC Units have occurred and therefore no increases in tax basis in Pluralsight, Inc.s assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. However, if all of the TRA Members were to exchange their LLC Units, we would recognize a deferred tax asset of approximately $ million and a liability of approximately $ million, assuming (i) that the TRA Members redeemed or exchanged all of their LLC Units immediately after the completion of this offering at the assumed initial public offering price of $ per share of our Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, (ii) no material changes in relevant tax law, (iii) a constant corporate tax rate of %, and (iv) that we earn sufficient taxable income in each year to realize on a current basis all tax benefits that are subject to the TRA. For each 5% increase (decrease) in the amount of LLC Units exchanged by the TRA Members, our deferred tax asset would increase (decrease) by approximately $
78
million and the related liability would increase (decrease) by approximately $ million, assuming that the price per share and corporate tax rate remain the same. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize will differ based on, among other things, the timing of the exchanges, the price of shares of our Class A common stock at the time of the exchange, and the tax rates then in effect.
The unaudited pro forma consolidated financial information should be read together with the sections titled Capitalization and Managements Discussion and Analysis of Financial Condition and Results of Operations, and Pluralsight Holdings historical consolidated financial statements and related notes thereto included elsewhere in this prospectus.
79
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 2017
Pluralsight
Holdings Actual |
Reorganization
Transactions Adjustments |
As
Adjusted Before Offering |
Initial
Public Offering Adjustments |
Pluralsight,
Inc. Pro Forma |
||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 28,267 | (2),(7),(8) | |||||||||||||||||||||||
Accounts receivable, net |
38,229 | |||||||||||||||||||||||||
Prepaid expenses and other current assets |
5,125 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total current assets |
71,621 | |||||||||||||||||||||||||
Property and equipment, net |
22,457 | |||||||||||||||||||||||||
Content library, net |
13,441 | |||||||||||||||||||||||||
Intangible assets, net |
2,854 | |||||||||||||||||||||||||
Goodwill |
123,119 | |||||||||||||||||||||||||
Deferred tax asset (6) |
| |||||||||||||||||||||||||
Other assets |
2,928 | (3) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total assets |
$ | 236,420 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Liabilities, redeemable convertible preferred units, and members deficit |
||||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||||
Accounts payable |
$ | 6,029 | (3) | |||||||||||||||||||||||
Accrued expenses |
26,514 | (3) | ||||||||||||||||||||||||
Accrued author fees |
7,879 | |||||||||||||||||||||||||
Deferred revenue |
103,107 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total current liabilities |
143,529 | |||||||||||||||||||||||||
Deferred revenue, net of current portion |
8,194 | |||||||||||||||||||||||||
Long-term debt, net |
116,037 | (7) | ||||||||||||||||||||||||
Facility financing obligation |
7,513 | |||||||||||||||||||||||||
Payable to related parties pursuant to tax receivable agreement (6) |
| |||||||||||||||||||||||||
Other liabilities |
458 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total liabilities |
275,731 | |||||||||||||||||||||||||
Redeemable convertible preferred units |
405,766 | (1) | ||||||||||||||||||||||||
Members/stockholders (deficit) equity: |
||||||||||||||||||||||||||
Preferred stock, $0.001 par value per share, shares authorized, no shares issued and outstanding, pro forma |
| |||||||||||||||||||||||||
Class A common stock, $0.001 par value per share, shares authorized, shares issued and outstanding, pro forma |
| (1) | (2) | |||||||||||||||||||||||
Class B common stock, $0.001 par value per share, shares authorized, shares issued and outstanding, pro forma |
| (1),(4) | ||||||||||||||||||||||||
Class C common stock, $0.001 par value per share, shares authorized, shares issued and outstanding, pro forma |
| (1),(4) | ||||||||||||||||||||||||
Members capital |
| (1),(4),(5) | ||||||||||||||||||||||||
Additional paid-in capital |
| (4),(5) | (2),(3),(8),(9) | |||||||||||||||||||||||
Accumulated other comprehensive income |
25 | (5) | ||||||||||||||||||||||||
Accumulated deficit |
(445,102 | ) | (1),(4),(5) | (7),(8),(9) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total members/stockholders (deficit) equity attributable to Pluralsight |
(445,077 | ) | ||||||||||||||||||||||||
Non-controlling interest |
| (5) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total members/stockholders(deficit) equity |
(445,077 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total liabilities, redeemable convertible preferred units, and members/ Stockholders (deficit) equity |
$ | 236,420 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated balance sheet
80
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(1) |
Reflects the Reorganization Transactions, including (i) the accretion of Series A redeemable convertible preferred units to fair value of $ per unit, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, (ii) the conversion of redeemable convertible preferred units, incentive units, and Class B incentive units into common limited liability company units and the reclassification of all outstanding common limited liability company units into LLC Units, (iii) the issuance of Class A common stock to Former Members in exchange for LLC Units and, solely to the extent they contributed a portion of their LLC Units to Pluralsight, Inc., certain Continuing Members, (iv) the issuance of Class B common stock to the Continuing Members (other than Aaron Skonnard and his affiliates), and (v) the issuance of Class C common stock to Aaron Skonnard and his affiliates. |
(2) |
Reflects the net effect on cash of the receipt of proceeds of $ from this offering, based on the assumed sale of shares of Class A common stock at an assumed initial public offering of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease the net proceeds we receive from this offering by approximately $ , assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same and after deducting offering expenses. 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 amount of our cash, total assets and total members/stockholders (deficit) equity by approximately $ , assuming an initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commission and estimated offering expenses payable by us. |
(3) |
Deferred costs associated with this offering, including certain legal, accounting and other related costs, have been recorded in other assets on the consolidated balance sheet. Upon completion of this offering, these deferred costs and any corresponding accruals for deferred costs not yet paid will be charged against the proceeds from this offering with a corresponding reduction to additional paid-in capital. |
(4) |
As a corporation, we will no longer record members capital in the consolidated balance sheet. To reflect the corporation structure of our equity, we will separately present the value of our common stock and additional paid-in capital. The portion of members deficit associated with additional paid-in capital was estimated as the remainder of capital contributions we have received less amounts attributed to the par value of common stock and the amount allocated to non-controlling interest (see Note 5 below). |
(5) |
After the offering and Reorganization Transactions, Pluralsight, Inc.s only material asset will be the direct and indirect ownership of % of the LLC Units and sole voting interest in Pluralsight Holdings and Pluralsight, Inc.s only business will be to act as the manager of Pluralsight Holdings. As a result of this voting interest and control, as well as the obligation to absorb losses of, and receive benefits from, Pluralsight Holdings that could be significant, we have determined that, after the Reorganization Transactions, Pluralsight Holdings will be a variable interest entity and that we will be the primary beneficiary of Pluralsight Holdings. Therefore, pursuant to FASB ASC 810, Consolidation , we will consolidate the financial results of Pluralsight Holdings into our consolidated financial statements. The ownership interest of the Continuing Members will be accounted for as a non-controlling interest in Pluralsight, Inc.s consolidated financial statements after this offering. Immediately following this offering, the non-controlling interest of Pluralsight Holdings will represent % of the outstanding LLC Units calculated as follows (in thousands): |
Number | Percent | |||||||
Interest in Pluralsight Holdings held by Pluralsight, Inc. |
% | |||||||
Non-controlling interest in Pluralsight Holdings held by the Continuing Members |
||||||||
|
|
|
|
|||||
100 | % | |||||||
|
|
|
|
81
If the underwriters were to exercise their option to purchase additional shares of our Class A common stock in full, Pluralsight, Inc. would own % economic interest of Pluralsight Holdings and the Continuing Members would own the remaining % of the economic interest of Pluralsight Holdings.
The adjustment to additional paid-in capital for the acquisition of non-controlling interest of Pluralsight Holdings (see Note 4 above) is as follows (in thousands):
Conversion of redeemable convertible preferred units into LLC Units, after giving effect to the accretion of Series A redeemable convertible preferred units (see Note 1 above) |
$ | |||
Less: Pro forma equity attributable to par value of common stock of Pluralsight, Inc. |
||||
Less: Pro forma equity attributable to % non-controlling interest of Pluralsight Holdings |
||||
|
|
|||
Adjustment to additional paid-in capital |
$ | |||
|
|
The adjustment to accumulated deficit for the acquisition of non-controlling interest of Pluralsight Holdings (see Note 4 above) is as follows (in thousands):
Accretion of Series A redeemable convertible preferred units to fair value (see Note 1 above) |
$ | |||
Less: Pro forma deficit attributable to % non-controlling interest of Pluralsight Holdings |
||||
Adjustment to accumulated deficit |
$ |
(6) |
Due to the uncertainty in the amount and timing of future exchanges of LLC Units by Continuing Members, the unaudited pro forma consolidated financial information assumes that no exchanges of interests have occurred and therefore no increases in tax basis in Pluralsight Holdings assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. Assuming exchanges occur in future periods, we will not be obligated to make any payments under the TRA until the tax benefits arising from such transactions that gave rise to the payment are realized. For financial reporting purposes, we will assess the tax attributes of Pluralsight, Inc. in accordance with ASC 740, Income Taxes , to determine if it is more likely than not that we will realize the benefit of any deferred tax assets. Following that assessment, we may recognize a liability under the TRA, reflecting the expected future realization of such tax benefits. Amounts payable under the TRA are contingent upon, among other things, (i) generation of sufficient future taxable income during the term of the TRA and (ii) future changes in tax laws. In addition, we do not expect obligations under the TRA to impact earnings per share because those obligations will be recorded against Pluralsight, Inc.s equity in accordance with ASC 810, Consolidation , as these are common control transactions. |
(7) |
Reflects the repayment of $ million of our term loan under our credit facility, which had an outstanding balance of $ , and the related prepayment premium of 1.5%. The term loan is stated net of debt issuance costs of $ , which will be reflected as a loss on extinguishment upon repayment of the loan. The prepayment premium and loss from the reduction of debt issuance costs are nonrecurring in nature and, as such, have not been included as an adjustment in the unaudited pro forma consolidated statements of operations. The prepayment premium is reduced to 1.0% of the outstanding balance if the repayment occurs after the first anniversary of the debt issuance, which occurs in June 2018. Although we intend to repay $ million of the outstanding indebtedness under the term loan with the proceeds of the offering, we will have the discretion to determine the timing of repayment, if any. |
(8) |
Reflects the settlement of outstanding non-transferable EARs issued by one of our subsidiaries, which will vest and be settled in cash upon the completion of this offering, which we estimate will be $ based on the number of EARs outstanding as of December 31, 2017 for which the service condition had been satisfied and that the price of our Class A common stock at the time of settlement was equal to $ , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. This adjustment is nonrecurring in nature and, as such, has not been included as an adjustment in the unaudited pro forma consolidated statements of operations. |
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(9) |
Our RSUs vest upon the satisfaction of both a time condition and a liquidity condition. Upon completion of this offering, the liquidity condition will have been met and a cumulative adjustment to equity-based compensation will be recorded for the portion of the award for which the derived service period has been rendered. The number of RSUs outstanding as of December 31, 2017 was . This adjustment reflects the estimated compensation charge of $ to be recognized in connection with the satisfaction of the liquidity condition. |
83
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
Pluralsight
Holdings Actual |
Reorganization
Transactions Adjustments |
As
Adjusted Before Offering |
Initial
Public Offering Adjustments |
Pluralsight,
Inc. Pro Forma |
||||||||||||||||||||||||
(in thousands, except per unit/share data) | ||||||||||||||||||||||||||||
Revenue |
$ | 166,824 | ||||||||||||||||||||||||||
Cost of revenue |
49,828 | (6 | ),(7) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Gross profit |
116,996 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||
Sales and marketing |
103,478 | (6 | ),(7) | |||||||||||||||||||||||||
Technology and content |
49,293 | (6 | ),(7) | |||||||||||||||||||||||||
General and administrative |
46,971 | (6 | ),(7) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total operating expenses |
199,742 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Loss from operations |
(82,746 | ) | ||||||||||||||||||||||||||
Other (expense) income: |
||||||||||||||||||||||||||||
Interest expense |
(11,665 | ) | (3) | |||||||||||||||||||||||||
Loss on debt extinguishment |
(1,882 | ) | ||||||||||||||||||||||||||
Other income, net |
81 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Loss before income taxes |
(96,212 | ) | ||||||||||||||||||||||||||
Provision for income taxes |
(324 | ) | (1) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net loss |
$ | (96,536 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Less: net loss attributable to non-controlling interest |
| (2) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net loss attributable to Pluralsight, Inc. |
$ | (96,536 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Less: accretion of Series A redeemable convertible preferred units |
(63,800 | ) | (5) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net loss attributable to common units/shares |
$ | (160,336 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net loss per unit/share, basic and diluted |
$ | (3.34 | ) | (4) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Weighted average common units/shares used in computing basic and diluted net loss per unit/share |
47,957 | |||||||||||||||||||||||||||
|
|
|
|
See accompanying notes to unaudited pro forma consolidated statements of operations
84
Notes to Unaudited Pro Forma Consolidated Statement of Operations
(1) |
Following this offering and the Reorganization Transactions, Pluralsight, Inc. will be subject to U.S. federal income taxes, in addition to state and local taxes, with respect to its allocable share of any net taxable income of Pluralsight Holdings. As a result, the pro forma statements of operations reflect an adjustment to provide for corporate income taxes at our estimated effective rate of % for 2017, which includes provision for U.S. federal income taxes and assumes the highest statutory rates apportioned to each state and local jurisdiction. |
The provision for income taxes differs from the amount of income tax computed by applying the applicable U.S. statutory federal income tax rate to income before provision for income taxes as follows:
Federal statutory rate |
% | |||
Partnership outside basis difference |
||||
Effect of non-controlling interest |
||||
|
|
|||
Pro forma effective tax rate |
% | |||
|
|
Our effective tax rate will differ from the federal statutory rate due to the fact that, after the Reorganization Transactions, approximately % of Pluralsight, Inc.s loss before income taxes will be attributable to the non-controlling interest in Pluralsight Holdings. Thus, the pro forma effective tax rate on the portion of loss attributable to Pluralsight, Inc. is expected to be % for 2017.
(2) |
After the offering and the Reorganization Transactions, Pluralsight, Inc. will become the manager of Pluralsight Holdings and will have a minority economic interest in Pluralsight Holdings but will have 100% of the voting power and control of the management of Pluralsight Holdings. Following this offering, the non-controlling interest, representing the Continuing Members of Pluralsight Holdings other than Pluralsight, Inc. will be %. |
(3) |
Reflects a decrease in interest expense of $ for 2017, assuming the repayment of $ million of our long-term debt occurred on January 1, 2017. |
(4) |
Pro forma basic loss per share is computed by dividing the net loss attributable to holders of Class A common stock by the weighted-average shares of Class A common stock outstanding during the period. As we have incurred losses for all periods presented, pro forma diluted loss per share is equal to pro forma basic loss per share because the effect of potentially dilutive securities would be anti-dilutive. Shares of Class B common stock and Class C common stock do not participate in earnings of Pluralsight, Inc. As a result, the shares of Class B common stock and Class C common stock are not considered participating securities and are not included in the weighted-average shares outstanding for purposes of computing pro forma net loss per share. |
(5) |
Upon conversion of redeemable convertible preferred units into common units, the holders of Series A redeemable convertible preferred units will forfeit any redemption rights. This adjustment reflects the removal of the effect of the accretion of Series A redeemable convertible preferred units to redemption value. |
(6) |
We intend to grant stock options in connection with this offering from our 2018 Plan that we anticipate will cover an aggregate of shares of Class A common stock, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. The actual number of shares subject to each stock option will be calculated based on the actual initial public offering price per share of our Class A common stock. The stock options will have an exercise price equal to the initial public offering price, which for purposes of the pro forma financial information has also been assumed to be $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. These stock options will be effective as of immediately following the determination of the initial public offering price of our Class A common stock. |
85
The stock options are expected to vest ratably in equal six month periods over a period of two years from the date of grant. The grant date fair values of the stock options were determined using the Black-Scholes valuation model using the following assumptions: |
Expected volatility |
||||
Expected dividend yield |
||||
Expected term (in years) |
||||
Risk-free interest rate |
In addition, we intend to grant RSUs in connection with this offering from our 2018 Plan, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. The actual number of RSUs will be calculated based on the actual initial public offering price per share of our Class A common stock. The RSUs are expected to vest over years from the date of grant. The grant date fair value of the RSUs will be equal to the initial public offering price. |
The adjustments assume the stock options and RSUs were granted on January 1, 2017. |
(7) |
Our RSUs vest upon the satisfaction of both a time condition and a liquidity condition. Upon completion of this offering, the liquidity condition will have been met. This adjustment reflects the estimated equity-based compensation expense that would have been recognized for RSUs had the offering occurred on January 1, 2017. |
86
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled Selected Consolidated Financial and Other Data and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled Risk Factors and Information Regarding Forward-Looking Statements included elsewhere in this prospectus.
Overview
We are a leading provider of technology skill development solutions for businesses and individuals. We enable businesses to innovate in an era of rapid technological change and digital transformation by equipping their employees with the latest technology skills. We provide businesses with visibility into the technical strengths of their workforce, allowing them to better align resources, provide targeted skill development in line with company goals, and advance the skills of individuals and teams.
We started operations in 2004 and focused initially on in-person ILT. Anticipating the increasing demand for online solutions, we began offering online courses in 2008 and shifted entirely to an online delivery model in 2011. Since 2011, we have extended our offering to include new content areas and additional features that have enabled us to expand our addressable market, attract new users, and deepen our foothold within businesses. We have expanded our platform both organically through internal initiatives and through acquisitions, which have all been focused on adding capabilities to our offerings. All of our features and content areas are fully integrated into our platform, allowing a seamless and unified experience for our customers.
The following is a timeline of certain key events in our history:
We derive substantially all of our revenue from the sale of subscriptions to our platform and a small portion of our revenue from providing professional services, which generally consist of content creation and other consulting services. We offer three subscription levels to our platform: individual, professional, and enterprise, which vary by the capabilities provided. Our published pricing ranges from $499 to $699 per user per year for
87
business subscriptions. We offer individual users subscriptions to our platform for $29 per month or $299 per year.
Our additions and improvements to our product offering have allowed us to accelerate our revenue growth and enabled us to deepen our relationships with our business customers. We sell subscriptions to our platform primarily to business customers through our direct sales team, as well as through our website. We also sell subscriptions to our platform to individual customers directly through our website. In addition, small teams often represent the top of the funnel for larger deployments, bringing our technology into their workplaces and proliferating usage of our platform within their companies. For the year ended December 31, 2017, 79% of our billings came from business customers, compared to 70% for the year ended December 31, 2016. We expect business customers to represent an increasing percentage of our billings and revenue in the future.
88
We are focused on attracting businesses, particularly large enterprises, to our platform and expanding their use of our platform over time. Our efforts to expand sales to large enterprises are particularly evident among companies within the Fortune 500. As of December 31, 2017, our business customers included more than 300 of the 2017 Fortune 500. As the chart below illustrates, the billings from our business customers that were included in the 2017 Fortune 500 list, including new 2017 Fortune 500 customers that we acquired after 2013, increased in the aggregate by 9.1 times from the billings we generated from those same companies in 2013.
We believe that there exists a significant opportunity to drive sales to large enterprises, including expanding relationships with existing customers and attracting new customers. Our ability to attract large enterprises to our platform and to expand their use of our platform will be important for the success of our business and our results of operations.
Our pricing and subscription periods vary for business customers and individual customers. Subscription periods for our business customers generally range from one to three years, with a majority being one year, as we only recently began offering subscription periods greater than one year. We typically invoice our business customers in advance in annual installments. Subscription periods for our individual customers range from one month to one year, and we invoice them in advance monthly or annually, with 45% of our billings from individual customers in the year ended December 31, 2017 being derived from annual subscriptions. For all customers, we recognize revenue from subscription fees ratably over the term of the contract. We typically experience a higher volume of billings in the fourth quarter of each year.
We have invested, and expect to continue to invest, in expanding our platform to include new course content and additional features, such as enhanced skill assessments and business analytics. A substantial portion of our cost of revenue relates to author fees. We utilize a revenue-sharing model for our author fees, with the fee paid to authors for each course determined based on the amount of time that our users view the course, the fee rate, and the revenue we generate from the course. As a result, we expect our author fees to increase in absolute dollars as
89
a growing number of users view our courses and our revenue increases, though we expect our author fees to decline as a percentage of revenue over the long term. We believe that our revenue-sharing model allows us to most effectively attract and retain authors, which is critical to the growth of our business.
We have achieved significant growth in recent periods. For the years ended December 31, 2016 and 2017, our billings were $149.2 million and $205.8 million, respectively, representing year-over-year growth of 38%, and our billings from business customers were $104.9 million and $163.0 million, respectively, representing year-over-year growth of 55%. For the years ended December 31, 2016 and 2017, our revenue was $131.8 million and $166.8 million, respectively, and our net loss was $20.6 million and $96.5 million, respectively, which reflect our substantial investments in the future growth of our business. For the years ended December 31, 2016 and 2017, cash provided by (used in) operations was $4.5 million and ($12.1 million), respectively. For the years ended December 31, 2016 and 2017, our free cash flow was ($7.9 million) and ($20.5 million), respectively, and our free cash flow included cash payments for interest on our long-term debt of $5.5 million and $6.9 million, respectively. See the section titled Selected Consolidated Financial and Other DataNon-GAAP Financial Measures for a description of free cash flow and for a reconciliation of free cash flow to net cash provided by (used in) operations, the most directly comparable financial measure calculated in accordance with GAAP.
Factors Affecting Our Performance
We believe that the growth of our business and our future success are dependent upon many factors. While each of these factors presents significant opportunities for us, these factors also pose important challenges that we must successfully address in order to sustain the growth of our business and improve our results of operations.
Pace of Adoption of Cloud-Based Skill Development Solutions by Businesses
Our ability to grow our customer base and drive market adoption of our platform is affected by the overall demand for cloud-based skill development solutions by businesses. The market for cloud-based skill development is less mature than the market for in-person ILT, and potential customers may be slow or unwilling to migrate from these legacy approaches. We believe that, as technology becomes increasingly critical to business operations, the need for cloud-based skill development solutions, particularly an integrated enterprise-grade platform such as ours, will increase and our customer base and the breadth and deployment of usage in our customer base will also increase. Furthermore, we believe that we have established a leadership position in the market for cloud-based technology learning. However, it is difficult to predict customer adoption rates and demand, the future growth rate and size of the market for cloud-based skill development solutions, or the entry of competitive solutions.
Expansion and Penetration of Our Customer Base
Our efforts to grow our business are focused primarily on business customers, particularly large enterprises. We deploy a land-and-expand strategy with our business customers that focuses on acquiring new customers and efficiently growing our relationships with existing customers, beginning with either individual users or departmental deployments. Our platform is used by individuals, developer groups, IT departments, line of business users, and human resources departments. Historically, we have expanded from individual to department to multi-department to enterprise-wide sales as our value is evangelized and proven within businesses. Building upon this success, we believe significant opportunity exists for us to acquire new customers, as well as expand our existing customers use of our platform by identifying new use cases in additional departments and divisions and increasing the size of deployments within our existing customers businesses. We often enter into customized contractual arrangements with our business customers, particularly large enterprises, in which we offer more favorable pricing terms in exchange for larger total contract values that accompany larger deployments. As we drive a greater portion of our revenue through our deployments with business customers, we expect that our
90
revenue will continue to grow significantly but the price we charge business customers per user may decline. This may result in reduced margins in the future if our cost of revenue increases. Our business and results of operations will depend on our ability to continue to drive higher usage of our platform within our existing customer base and our ability to add new customers.
As the chart below illustrates, we have a history of attracting new business customers and expanding their use of our platform over time. Specifically, the chart below illustrates the total billings of each cohort over the periods presented with each cohort representing customers who made their first purchase from us in a given fiscal year. For example, the 2014 cohort includes all business customers that purchased their first subscription from us between January 1, 2014 and December 31, 2014. The 2013 cohort combines all customer cohorts that purchased their first subscription from us on or prior to December 31, 2013. Our billings from business customers for the 2013 cohort, 2014 cohort, 2015 cohort, and 2016 cohort in 2017 represent an increase over each cohorts initial aggregate billings by 2.8x, 2.0x, 1.5x, and 1.1x, respectively.
Our ability to upsell our platform across our business customers, particularly our enterprise customers, and expand such customers usage of our platform across their organizations, is further highlighted by our strong dollar-based net retention rate. We use our dollar-based net retention rate to measure our ability to retain and expand the revenue generated from our existing business customers. Our dollar-based net retention rate compares our subscription revenue from the same set of customers across comparable periods. We calculate our dollar-based net retention rate on a trailing four-quarter basis. To calculate our dollar-based net retention rate, we first calculate the subscription revenue in one quarter from a cohort of customers that were customers at the beginning of the same quarter in the prior fiscal year, or cohort customers. We repeat this calculation for each quarter in the trailing four-quarter period. The numerator for dollar-based net retention rate is the sum of subscription revenue
91
from cohort customers for the four most recent quarters, or numerator period, and the denominator is the sum of subscription revenue from cohort customers for the four quarters preceding the numerator period. Dollar-based net retention rate is the quotient obtained by dividing the numerator by the denominator. Our dollar-based net retention rate for the year ended December 31, 2017 was 117%.
Investments in Growth
We believe that we are only beginning to penetrate our market opportunity, particularly with Global 2000 enterprise customers, and we intend to continue to invest in our future growth. We have invested, and expect to continue to invest, in our sales and marketing organization to increase sales to existing customers and acquire new customers. We also plan to continue to expand our course library, including content in new subject areas, such as technical engineering, big data, and vertical software, to address the most relevant topics for our existing users and to attract new users to our platform. We have also made investments, both organically and through acquisitions, to extend our platform capabilities and expand our course library, and expect to continue to do so in the future. Any investments we make in our sales and marketing organization, in developing new content, and in expanding our platform capabilities, will occur in advance of experiencing benefits from such investments, making it difficult to determine if we are efficiently allocating our resources in these areas.
Expansion of Our International Footprint
We generated 35% of our revenue outside the United States during each of the years ended December 31, 2016 and 2017. We see a significant opportunity to expand our offerings into other regions, particularly where there are large developer groups for multi-national organizations. We have invested, and plan to continue to invest, in personnel and marketing efforts to support our international growth, particularly in Europe. We recently expanded our operations to Ireland as part of our strategy to build our business and drive customer growth in Europe.
Key Business Metrics
We monitor business customers, billings, and certain related key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Year Ended December 31, |
Growth Rate for the
Year Ended December 31, 2017 |
|||||||||||
2016 | 2017 | |||||||||||
(dollars in thousands) | ||||||||||||
Business customers (end of period) |
12,043 | 14,463 | 20 | % | ||||||||
Billings |
$ | 149,231 | $ | 205,807 | 38 | % | ||||||
Billings from business customers |
$ | 104,861 | $ | 162,965 | 55 | % | ||||||
% of billings from business customers |
70 | % | 79 | % |
Business customers
We use the number of business customers to measure and monitor the growth of our business and the success of our sales and marketing activities, and believe that the growth of our business customer base is indicative of our long-term billings and revenue growth potential. We define a business customer as a unique account in our customer relationship management system that had an active paying subscription at the end of the period presented. Each unique account in our customer relationship management system is considered a unique business customer as the system does not create unique accounts for individual customers, and, in some cases, there may be more than one business customer within a single organization.
Billings
We use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers and our ability to sell subscriptions to our platform to both
92
existing and new customers. Billings represent our total revenue plus the change in deferred revenue in the period, as presented in our consolidated statements of cash flows. Billings in any particular period represent amounts invoiced to our customers and reflect subscription renewals and upsells to existing customers plus sales to new customers. Our pricing and subscription periods vary for business customers and individual customers. Subscription periods for our business customers generally range from one to three years, with a majority being one year, as we only recently began offering subscription periods greater than one year. We typically invoice our business customers in advance in annual installments. Subscription periods for our individual customers range from one month to one year and we typically invoice them in advance in monthly or annual installments.
We use billings from business customers and our percentage of billings from business customers to measure and monitor our ability to sell subscriptions to our platform to business customers. We believe that billings from business customers will be a significant source of future revenue growth and a key factor affecting our long-term performance. We expect our billings from business customers to continue to increase as a percentage of billings over the long term.
As our billings continue to grow in absolute terms, we expect our billings growth rate to decline over the long term as we achieve scale in our business. As we recognize revenue from subscription fees ratably over the term of the contract, due to the difference in timing of billings received and when we recognize revenue, changes to our billings and billings growth rates are not immediately reflected in our revenue and revenue growth rates.
Components of Results of Operations
Revenue
We derive substantially all of our revenue from the sale of subscriptions to our platform. A small portion of our revenue is derived from providing professional services, which generally consist of content creation or other consulting services. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably as revenue over the subscription period. Subscription terms typically range from one year to three years for business customers and one month to one year for individual customers, and begin on the date access to our platform is made available to the customer. Nearly all of our subscriptions to business customers are billed in annual installments even if customers are contractually committed by multi-year agreements.
Cost of Revenue, Gross Profit and Gross Margin
Cost of revenue includes certain direct costs associated with delivering our platform and includes costs for author fees, amortization of our content library, hosting and delivery fees, merchant processing fees, depreciation of capitalized software development costs for internal-use software, employee-related costs, including equity-based compensation expense associated with our customer support organization, and third-party transcription costs.
Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by various factors, including the mix of subscriptions we sell, the costs of author fees and costs associated with third-party hosting services, and the extent to which we expand our customer support and professional services organizations. We expect our gross margin to increase over the long term primarily due to a decrease in author fees as a percentage of revenue, although our gross margin may fluctuate from period to period depending on the interplay of the factors described above.
Operating Expenses
Our operating expenses are classified as sales and marketing, technology and content, and general and administrative. For each of these categories, the largest component is employee-related costs, which include salaries and bonuses, equity-based compensation expense, and employee benefit costs. We allocate shared overhead costs such as information technology infrastructure and facility-related costs based on headcount in that category.
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Sales and Marketing
Sales and marketing expenses consist primarily of employee compensation costs of our sales and marketing employees, including salaries, benefits, bonuses, commissions, equity-based compensation expense, and allocated overhead costs. Commissions earned by our sales force are expensed as incurred. Other sales and marketing costs include user events, search engine and email marketing, content syndication, lead generation, and online banner and video advertising. The increase in sales and marketing expenses in 2017 as compared to 2016 was driven primarily by increased employee compensation costs as we added headcount to support our growth as well as increased marketing and event related costs, including for Pluralsight LIVE, our first-ever user conference. We expect that our sales and marketing expenses will increase in absolute dollars for the foreseeable future and, in the near term, may increase as a percentage of our revenue as we hire additional sales and marketing personnel, increase our marketing activities, and grow our domestic and international operations. Additionally, our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period depending on the timing of expenditures. However, we expect sales and marketing expenses to decrease as a percentage of revenue over the long term.
Technology and Content
Technology costs consist principally of research and development activities including personnel costs, consulting services, other costs associated with platform development efforts, and allocated overhead costs. Content costs consist principally of personnel costs and other activities associated with content development, course production, curriculum direction, and allocated overhead costs. Technology and content costs are expensed as incurred, except for certain costs relating to the development of internal-use software, including software used to upgrade and enhance our platform and applications supporting our business, which are capitalized and amortized over the estimated useful lives of one to three years. The increase in technology and content expenses in 2017 as compared to 2016 was driven primarily by increased employee compensation costs as we added headcount to support our growth. We expect that our technology and content expenses will increase in absolute dollars for the foreseeable future and, in the near term, may decrease as a percentage of our revenue as we continue to increase the functionality of and enhance our platform and develop new content and features. Additionally our technology and content expense may fluctuate as a percentage of our revenue from period to period depending on the timing of expenditures. However, we expect technology and content expenses to decrease as a percentage of revenue over the long term.
General and Administrative
General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, people operations, and administrative personnel, including salaries, benefits, bonuses, and equity-based compensation expense; professional fees for external legal, accounting, recruiting, and other consulting services; and allocated overhead costs. The increase in general and administrative expenses in 2017 as compared to 2016 was driven primarily by increased employee compensation costs as we added headcount to support our growth as well as certain one-time equity-based compensation charges related to equity transactions involving two of our co-founders. Following the completion of this offering, we expect to incur additional general and administrative expenses as a result of our UP-C structure, including additional tax, accounting, and legal expenses, and operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and listing standards of the applicable stock exchange, additional insurance expenses, investor relations activities, and increased legal, audit, and consulting fees. We also expect to increase the size of our general and administrative function to support our increased compliance requirements and the growth of our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars for the foreseeable future and, in the near term, may increase as a percentage of our revenue. Additionally, our general and administrative expenses may fluctuate as a percentage of our revenue from period to period depending on the timing of expenditures. However, we expect general and administrative expenses to decrease as a percentage of revenue over the long term.
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Other (Expense) Income
Other (expense) income consists primarily of interest expense on long-term debt and gains or losses on foreign currency transactions. We expect that our interest expense will decrease following the completion of this offering as we intend to use some of the net proceeds from this offering to repay $ million of our long-term debt.
Results of Operations
The following tables set forth selected consolidated statements of operations data and such data as a percentage of revenue for each of the periods indicated:
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
(in thousands) | ||||||||
Revenue |
$ | 131,841 | $ | 166,824 | ||||
Cost of revenue (1)(2) |
40,161 | 49,828 | ||||||
|
|
|
|
|||||
Gross profit |
91,680 | 116,996 | ||||||
|
|
|
|
|||||
Operating expenses (1)(2) : |
||||||||
Sales and marketing |
51,234 | 103,478 | ||||||
Technology and content |
36,159 | 49,293 | ||||||
General and administrative |
18,130 | 46,971 | ||||||
|
|
|
|
|||||
Total operating expenses |
105,523 | 199,742 | ||||||
|
|
|
|
|||||
Loss from operations |
(13,843 | ) | (82,746 | ) | ||||
Other (expense) income: |
||||||||
Interest expense |
(6,320 | ) | (11,665 | ) | ||||
Loss on debt extinguishment |
| (1,882 | ) | |||||
Other income, net |
45 | 81 | ||||||
|
|
|
|
|||||
Loss before income taxes |
(20,118 | ) | (96,212 | ) | ||||
Provision for income taxes |
(494 | ) | (324 | ) | ||||
|
|
|
|
|||||
Net loss |
$ | (20,612 | ) | $ | (96,536 | ) | ||
|
|
|
|
(1) |
Includes equity-based compensation expense as follows: |
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
(in thousands) | ||||||||
Cost of revenue |
$ | 20 | $ | 20 | ||||
Sales and marketing |
1,462 | 2,624 | ||||||
Technology and content |
2,050 | 1,966 | ||||||
General and administrative |
2,206 | 17,171 | ||||||
|
|
|
|
|||||
Total equity-based compensation |
$ | 5,738 | $ | 21,781 | ||||
|
|
|
|
95
(2) |
Includes amortization of acquired intangible assets as follows: |
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
(in thousands) | ||||||||
Cost of revenue |
$ | 6,565 | $ | 7,008 | ||||
Sales and marketing |
643 | 721 | ||||||
Technology and content |
706 | 706 | ||||||
General and administrative |
120 | 91 | ||||||
|
|
|
|
|||||
Total amortization of acquired intangible assets |
$ | 8,034 | $ | 8,526 | ||||
|
|
|
|
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Revenue |
100 | % | 100 | % | ||||
Cost of revenue |
30 | 30 | ||||||
|
|
|
|
|||||
Gross profit |
70 | 70 | ||||||
|
|
|
|
|||||
Operating expenses: |
||||||||
Sales and marketing |
39 | 62 | ||||||
Technology and content |
27 | 30 | ||||||
General and administrative |
14 | 28 | ||||||
|
|
|
|
|||||
Total operating expenses |
80 | 120 | ||||||
|
|
|
|
|||||
Loss from operations |
(10 | ) | (50 | ) | ||||
Other (expense) income: |
||||||||
Interest expense |
(5 | ) | (7 | ) | ||||
Loss on debt extinguishment |
| (1 | ) | |||||
Other income, net |
| | ||||||
|
|
|
|
|||||
Loss before income taxes |
(15 | ) | (58 | ) | ||||
Provision for income taxes |
| | ||||||
|
|
|
|
|||||
Net loss |
(15 | )% | (58 | )% | ||||
|
|
|
|
Years Ended December 31, 2016 and December 31, 2017
Revenue
Year Ended
December 31, |
Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Revenue |
$ | 131,841 | $ | 166,824 | $ | 34,983 | 27 | % |
Revenue was $166.8 million for the year ended December 31, 2017, compared to $131.8 million for the year ended December 31, 2016, an increase of $35.0 million, or 27%. The increase in revenue was primarily due to a $36.2 million, or 41%, increase in revenue from business customers, driven by an increase of 2,420 business customers from 12,043 business customers as of December 31, 2016 to 14,463 business customers as of December 31, 2017, as well as increased sales to our existing business customers as evidenced by our 117% dollar-based net retention rate for the year ended December 31, 2017, partially offset by a $1.2 million decrease in revenue from individual customers, driven, in part, by our strategic shift to focus more of our sales and marketing efforts on business customers.
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Cost of Revenue and Gross Profit
Year Ended
December 31, |
Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of revenue |
$ | 40,161 | $ | 49,828 | $ | 9,667 | 24 | % | ||||||||
Gross profit |
91,680 | 116,996 | 25,316 | 28 | % |
Cost of revenue was $49.8 million for the year ended December 31, 2017, compared to $40.2 million for the year ended December 31, 2016, an increase of $9.7 million, or 24%. The increase in cost of revenue was primarily due to an increase of $6.2 million in author fees, an increase of $1.1 million in hosting and delivery fees to accommodate our growing customer base, an increase of $0.7 million in depreciation of capitalized software development costs primarily due to an increase in amounts capitalized for internal-use software related to features added to our platform, an increase of $0.6 million in amortization of acquired intangible assets and course creation costs, and an increase of $0.4 million in employee-related costs related to increased customer support headcount.
Gross profit was $117.0 million for the year ended December 31, 2017, compared to $91.7 million for the year ended December 31, 2016, an increase of $25.3 million, or 28%. The increase in gross profit was the result of the increase in our revenue during the year ended December 31, 2017. Gross margin remained consistent at 70% for each of the years ended December 31, 2016 and 2017.
Operating Expenses
Year Ended
December 31, |
Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Sales and marketing |
$ | 51,234 | $ | 103,478 | $ | 52,244 | 102 | % | ||||||||
Technology and content |
36,159 | 49,293 | 13,134 | 36 | ||||||||||||
General and administrative |
18,130 | 46,971 | 28,841 | 159 | ||||||||||||
|
|
|
|
|||||||||||||
Total operating expenses |
$ | 105,523 | $ | 199,742 | ||||||||||||
|
|
|
|
Sales and Marketing
Sales and marketing expenses were $103.5 million for the year ended December 31, 2017, compared to $51.2 million for the year ended December 31, 2016, an increase of $52.2 million, or 102%. The increase was primarily due to an increase of $36.3 million in employee compensation costs, including an increase in equity-based compensation expense of $1.2 million, as we added headcount to support our growth. In addition, there was an increase of $9.3 million in marketing and event costs, including for Pluralsight LIVE, our first-ever user conference, an increase of $4.1 million related to allocated overhead costs driven by our overall growth, and an increase of $2.3 million due to additional travel expenses related to additional headcount.
Technology and Content
Technology and content expenses were $49.3 million for the year ended December 31, 2017, compared to $36.2 million for the year ended December 31, 2016, an increase of $13.1 million, or 36%. The increase was primarily due to an increase of $12.6 million in employee compensation costs, including an increase in equity-based compensation expense of $0.2 million, as we added headcount to support our growth, and an increase of $0.7 million related to allocated overhead costs primarily driven by our overall growth, partially offset by an increase of $0.3 million in capitalized software development costs.
97
General and Administrative
General and administrative expenses were $47.0 million for the year ended December 31, 2017, compared to $18.1 million for the year ended December 31, 2016, an increase of $28.8 million, or 159%. The increase was primarily due to an increase of $10.5 million in employee compensation costs, including an additional $2.9 million in equity-based compensation expense, primarily due to additional headcount to support our growth, as well as one-time non-cash equity-based compensation charges of $9.9 million associated with a sale of common units held by an affiliate of one of our co-founders to certain of our existing investors at a price in excess of fair value, and $2.1 million related to the conversion of common units into Series B common units for our co-founder and Chief Executive Officer. The Series B common units allow for additional voting rights that effectively gives our co-founder and Chief Executive Officer control of the voting rights of the Company. In addition, there was an increase of $3.6 million related to allocated overhead costs primarily driven by our overall growth and an increase of $1.8 million for professional services.
Other (Expense) Income
Year Ended
December 31, |
Change | |||||||||||||||
2016 | 2017 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Interest expense |
$ | (6,320 | ) | $ | (11,665 | ) | $ | (5,345 | ) | 85 | % | |||||
Loss on debt extinguishment |
| (1,882 | ) | (1,882 | ) | NM | ||||||||||
Other income, net |
45 | 81 | 36 | 80 |
Interest expense increased primarily as a result of increased borrowings of long-term debt and higher interest rates. As of December 31, 2017, we had a principal balance of $116.6 million in long-term debt outstanding accruing interest at a rate of 10.20%, compared to $85.0 million as of December 31, 2016 at a rate of 5.50%. We also incurred a loss on debt extinguishment resulting from the refinancing of our long-term debt in June 2017. This loss is primarily the result of unamortized debt issuance costs and accrued interest on the date of extinguishment.
98
Quarterly Results of Operations
The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2017, as well as the percentage of revenue that each line item represents for each quarter. The information for each of these quarters has been prepared on the same basis as Pluralsight Holdings audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments necessary for the fair statement of the results of operations for these periods in accordance with GAAP. This data should be read in conjunction with Pluralsight Holdings audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results of operations are not necessarily indicative of our results of operations for a full year or any future period.
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31,
2016 |
June 30,
2016 |
Sept. 30,
2016 |
Dec. 31,
2016 |
March 31,
2017 |
June 30,
2017 |
Sept. 30,
2017 |
Dec. 31,
2017 |
|||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Revenue |
$ | 31,325 | $ | 32,994 | $ | 33,242 | $ | 34,280 | $ | 37,239 | $ | 38,891 | $ | 43,286 | $ | 47,408 | ||||||||||||||||
Cost of revenue (1)(2) |
9,489 | 9,862 | 10,167 | 10,643 | 11,209 | 11,887 | 12,582 | 14,150 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Gross profit |
21,836 | 23,132 | 23,075 | 23,637 | 26,030 | 27,004 | 30,704 | 33,258 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Operating expenses (1)(2) : |
||||||||||||||||||||||||||||||||
Sales and marketing |
11,581 | 12,878 | 11,576 | 15,199 | 17,826 | 23,018 | 29,410 | 33,224 | ||||||||||||||||||||||||
Technology and content |
9,962 | 8,898 | 8,011 | 9,288 | 10,205 | 11,326 | 12,448 | 15,314 | ||||||||||||||||||||||||
General and administrative |
4,216 | 4,203 | 4,316 | 5,395 | 6,267 | 9,412 | 19,094 | 12,198 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total operating expenses |
25,759 | 25,979 | 23,903 | 29,882 | 34,298 | 43,756 | 60,952 | 60,736 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Loss from operations |
(3,923 | ) | (2,847 | ) | (828 | ) | (6,245 | ) | (8,268 | ) | (16,752 | ) | (30,248 | ) | (27,478 | ) | ||||||||||||||||
Other (expense) income: |
||||||||||||||||||||||||||||||||
Interest expense |
(1,600 | ) | (1,587 | ) | (1,564 | ) | (1,569 | ) | (1,527 | ) | (3,597 | ) | (3,252 | ) | (3,289 | ) | ||||||||||||||||
Loss on debt extinguishment |
| | | | | (1,882 | ) | | | |||||||||||||||||||||||
Other income (expense), net |
7 | 10 | 32 | (4 | ) | 48 | 21 | 55 | (43 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Loss before income taxes |
(5,516 | ) | (4,424 | ) | (2,360 | ) | (7,818 | ) | (9,747 | ) | (22,210 | ) | (33,445 | ) | (30,810 | ) | ||||||||||||||||
Provision for income taxes |
(36 | ) | (196 | ) | (90 | ) | (172 | ) | (58 | ) | (68 | ) | (90 | ) | (108 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net loss |
$ | (5,552 | ) | $ | (4,620 | ) | $ | (2,450 | ) | $ | (7,990 | ) | $ | (9,805 | ) | $ | (22,278 | ) | $ | (33,535 | ) | $ | (30,918 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes equity-based compensation expense as follows: |
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31,
2016 |
June 30,
2016 |
Sept. 30,
2016 |
Dec. 31,
2016 |
March 31,
2017 |
June 30,
2017 |
Sept. 30,
2017 |
Dec. 31,
2017 |
|||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Cost of revenue |
$ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 5 | ||||||||||||||||
Sales and marketing |
246 | 261 | 317 | 638 | 664 | 715 | 631 | 614 | ||||||||||||||||||||||||
Technology and content |
379 | 479 | 487 | 705 | 464 | 526 | 499 | 477 | ||||||||||||||||||||||||
General and administrative |
178 | 628 | 441 | 959 | 579 | 3,133 | 11,762 | 1,697 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total equity-based compensation |
$ | 808 | $ | 1,373 | $ | 1,250 | $ | 2,307 | $ | 1,712 | $ | 4,379 | $ | 12,897 | $ | 2,793 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
(2) |
Includes amortization of acquired intangible assets as follows: |
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31,
2016 |
June 30,
2016 |
Sept. 30,
2016 |
Dec. 31,
2016 |
March 31,
2017 |
June 30,
2017 |
Sept. 30,
2017 |
Dec. 31,
2017 |
|||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Cost of revenue |
$ | 1,643 | $ | 1,640 | $ | 1,640 | $ | 1,642 | $ | 1,642 | $ | 1,642 | $ | 1,642 | $ | 2,082 | ||||||||||||||||
Sales and marketing |
160 | 161 | 161 | 161 | 161 | 161 | 161 | 238 | ||||||||||||||||||||||||
Technology and content |
177 | 176 | 176 | 177 | 176 | 176 | 176 | 178 | ||||||||||||||||||||||||
General and administrative |
33 | 34 | 27 | 26 | 27 | 27 | 27 | 10 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|||||||||||||||||
Total amortization of acquired intangible assets |
$ | 2,013 | $ | 2,011 | $ | 2,004 | $ | 2,006 | $ | 2,006 | $ | 2,006 | $ | 2,006 | $ | 2,508 | ||||||||||||||||
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|
|
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|
|
|
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31,
2016 |
June 30,
2016 |
Sept. 30,
2016 |
Dec. 31,
2016 |
March 31,
2017 |
June 30,
2017 |
Sept. 30,
2017 |
Dec. 31,
2017 |
|||||||||||||||||||||||||
Revenue |
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
Cost of revenue |
30 | 30 | 31 | 31 | 30 | 31 | 29 | 30 | ||||||||||||||||||||||||
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|
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|
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|
|
|
|
|
|||||||||||||||||
Gross profit |
70 | 70 | 69 | 69 | 70 | 69 | 71 | 70 | ||||||||||||||||||||||||
|
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|
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|
|
|
|
|
|
|
|
|
|||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||
Sales and marketing |
37 | 39 | 35 | 44 | 48 | 59 | 68 | 70 | ||||||||||||||||||||||||
Technology and content |
32 | 27 | 24 | 27 | 27 | 29 | 29 | 32 | ||||||||||||||||||||||||
General and administrative |
13 | 13 | 13 | 16 | 17 | 24 | 44 | 26 | ||||||||||||||||||||||||
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Total operating expenses |
82 | 79 | 72 | 87 | 92 | 112 | 141 | 128 | ||||||||||||||||||||||||
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Loss from operations |
(12 | ) | (9 | ) | (3 | ) | (18 | ) | (22 | ) | (43 | ) | (70 | ) | (58 | ) | ||||||||||||||||
Other (expense) income: |
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Interest expense |
(5 | ) | (5 | ) | (5 | ) | (5 | ) | (4 | ) | (9 | ) | (8 | ) | (7 | ) | ||||||||||||||||
Loss on debt extinguishment |
| | | | | (5 | ) | | | |||||||||||||||||||||||
Other income (expense), net |
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Loss before income taxes |
(17 | ) | (14 | ) | (8 | ) | (23 | ) | (26 | ) | (57 | ) | (78 | ) | (65 | ) | ||||||||||||||||
Provision for income taxes |
| (1 | ) | | (1 | ) | | | | | ||||||||||||||||||||||
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Net loss |
(17 | ) | (15 | ) | (8 | ) | (24 | ) | (26 | ) | (57 | ) | (78 | ) | (65 | ) | ||||||||||||||||
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Quarterly Revenue Trends
Our quarterly revenue increased sequentially for all periods presented due primarily to increases in billings from sales of subscriptions to our platform to business customers.
Quarterly Costs and Expenses Trends
Costs of revenue increased sequentially for all periods presented due primarily to the continued expansion of our content library and related author fees, hosting and delivery, and increased employee headcount within our customer support organization.
Sales and marketing expenses generally increased sequentially across the quarters presented, primarily due to the addition of personnel, increased field event costs, and increased marketing campaigns to support the
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growth of our business. For the three months ended June 30, 2016 and December 31, 2016, sales and marketing expenses decreased compared to the preceding three-month periods due to a decrease in estimated bonus payments for the year. For the three months ended June 30, 2017, September 30, 2017, and December 31, 2017 sales and marketing expenses increased significantly compared to the preceding three-month periods due to increased headcount to support our efforts to increase sales of subscriptions to our platform to business customers. In addition, sales and marketing costs increased during the three months ended September 30, 2017 which we attribute to Pluralsight LIVE.
Our technology and content expenses generally increased sequentially across the quarters presented, primarily due to the addition of personnel to support expanded operations and the development of our platform. For the three months ended June 30, 2016 and September 30, 2016, technology and content expenses decreased compared to the preceding three-month periods due to a decrease in estimated bonus payments for the year.
Our general and administrative expenses generally increased sequentially across the quarters presented, primarily due to the addition of personnel to support our growth. General and administrative expenses increased significantly in the three months ended June 30, 2017 due to an equity-based compensation charge resulting from the exchange of common units for Class B common units for our co-founder, Chief Executive Officer, and Chairman. The Series B common units allow for additional voting rights that effectively gives our co-founder and Chief Executive Officer control of the voting rights of the Company. General and administrative expenses also increased significantly during the three months ended September 30, 2017 due to a one-time equity-based compensation charge resulting from certain of our existing investors purchasing common units from an affiliate of one of our co-founders at a price in excess of fair value.
Seasonality
Our quarterly results of operations may fluctuate due to various factors affecting our performance. We have historically experienced seasonality in terms of when we enter into agreements with customers. We typically enter into a higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter of each year and usually during the last month of the quarter. The increase in customer agreements entered into in the fourth quarter is generally attributable to large enterprise buying patterns typical in the software industry. During the fourth quarter of 2017, we recognized 28% of our revenue, and recorded 34% of our total billings and 36% of our billings from business customers for 2017. As the terms of most of our customer agreements are measured in full year increments, agreements initially entered into in the fourth quarter will generally come up for renewal at that same time in subsequent years. This seasonality is reflected in our billings, and to a lesser extent, our revenue. We recognize revenue from subscription fees ratably over the term of the contract. Therefore, changes in our contracting activity in the near term may not impact changes to our reported revenue until future periods.
Key Business Metrics
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31,
2016 |
June 30,
2016 |
Sept. 30,
2016 |
Dec. 31,
2016 |
March 31,
2017 |
June 30,
2017 |
Sept. 30,
2017 |
Dec. 31,
2017 |
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(dollars in thousands) | ||||||||||||||||||||||||||||||||
Business customers (1) (end of period) |
10,937 | 11,296 | 11,641 | 12,043 | 12,580 | 13,214 | 13,887 | 14,463 | ||||||||||||||||||||||||
Billings (2) |
$ | 35,401 | $ | 33,650 | $ | 34,469 | $ | 45,711 | $ | 38,883 | $ | 46,029 | $ | 50,005 | $ | 70,890 | ||||||||||||||||
Billings from business customers |
$ | 24,417 | $ | 22,062 | $ | 24,266 | $ | 34,116 | $ | 29,327 | $ | 35,845 | $ | 39,920 | $ | 57,873 | ||||||||||||||||
% of billings from business customers |
69 | % | 66 | % | 70 | % | 75 | % | 75 | % | 78 | % | 80 | % | 82 | % |
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(1) |
See the section titled Key Business MetricsBusiness customers for additional information. |
(2) |
See the section titled Key Business MetricsBillings for additional information. |
Liquidity and Capital Resources
As of December 31, 2017, our principal sources of liquidity were cash, cash equivalents, and restricted cash totaling $28.5 million, which were held for working capital purposes. Our cash equivalents are comprised primarily of money market funds. In addition, we have access to a revolving line of credit of $5.0 million. As of December 31, 2017, we had no outstanding borrowings from the line of credit.
During the years ended December 31, 2016 and 2017, our free cash flow was negative as a result of our continued investments to support the growth of our business. We expect to continue such investments in order to sustain our growth. Following the completion of this offering, we expect that our free cash flow, along with our cash, cash equivalents, and restricted cash balances, will enable us to make such investments for the foreseeable future. We expect our free cash flow to improve as we experience greater scale in our business and improve operational efficiency, as well as reduce our cash paid for interest on our long-term debt following the repayment of $ million of the outstanding indebtedness under our credit facility in connection with this offering. We expect to generate positive free cash flow over the long term.
Since our inception, we have financed our operations primarily through private sales of equity securities and long-term debt facilities. We believe our existing cash, cash equivalents, and restricted cash will be sufficient to meet our projected operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support the expansion of sales and marketing activities, technology and content efforts, and the continuing market acceptance of our platform. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.
Upon the consummation of this offering and as a result of our UP-C structure, we will be a holding company and our principal asset will be a controlling equity interest in Pluralsight Holdings. As such, we will have no independent means of generating revenue. Our UP-C structure will provide us with certain tax benefits and associated cash flows, and following the completion of this offering, we will be obligated to pass along some of these tax benefits and cash flows by making future payments to the TRA Members under the TRA. Although the actual timing and amount of any payments we make to the TRA Members under the TRA will vary, such payments may be significant. Any payments we make to TRA Members under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us. See the sections titled Organizational Structure and Certain Relationships and Related Party TransactionsTax Receivable Agreement for additional information on our UP-C structure and the terms of the TRA.
The following table shows cash flows for the years ended December 31, 2016 and 2017:
Year Ended
December 31, |
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2016 | 2017 | |||||||
(in thousands) | ||||||||
Net cash provided by (used in) operating activities |
$ | 4,468 | $ | (12,139 | ) | |||
Net cash used in investing activities |
(13,044 | ) | (8,333 | ) | ||||
Net cash provided by financing activities |
19,621 | 29,498 | ||||||
Effect of exchange rate change on cash, cash equivalents, and restricted cash |
(37 | ) | 54 | |||||
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Net increase in cash, cash equivalents, and restricted cash |
$ | 11,008 | $ | 9,080 | ||||
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Operating Activities
Cash used in operating activities for the year ended December 31, 2017 of $12.1 million was primarily due to a net loss of $96.5 million, partially offset by a favorable change in operating assets and liabilities of $42.7 million, equity-based compensation of $21.8 million, amortization of acquired intangible assets of $8.5 million, amortization of course creation costs of $1.5 million, and depreciation of property and equipment of $6.7 million. The net change in operating assets and liabilities was primarily due to a favorable change in the deferred revenue balance of $39.0 million and an increase in accrued expenses of $18.0 million, partially offset by an unfavorable variance due to an increase in accounts receivable of $16.1 million.
Cash provided by operating activities for the year ended December 31, 2016 of $4.5 million was primarily due to a net loss of $20.6 million, more than offset by amortization of acquired intangible assets of $8.0 million, amortization of course creation costs of $1.3 million, equity-based compensation of $5.7 million, a favorable change in operating assets and liabilities of $5.1 million, and depreciation of property and equipment of $4.3 million. The net changes in operating assets and liabilities resulted from an increase in the deferred revenue balance of $17.4 million and an increase in accrued expenses and other liabilities of $1.3 million, partially offset by an increase in accounts receivable of $12.9 million and decreases in the compensation portion of related party notes payable of $1.6 million.
Investing Activities
Cash used in investing activities for the year ended December 31, 2017 of $8.3 million was primarily related to purchases of property and equipment of $6.0 million and purchases of content library and intangible assets of $2.4 million.
Cash used in investing activities for the year ended December 31, 2016 of $13.0 million was primarily related to purchases of property and equipment of $10.1 million, purchases of our content library and other intangible assets of $2.3 million and $0.6 million for a business acquisition.
Financing Activities
Cash provided by financing activities for the year ended December 31, 2017 of $29.5 million was due to $115.0 million in borrowing on long-term debt, partially offset by repayments of long-term debt of $85.0 million and payments of debt issuance costs of $0.9 million.
Cash provided by financing activities for the year ended December 31, 2016 of $19.6 million consisted primarily of net proceeds from the issuance of Series C redeemable convertible preferred units of $30.3 million and deemed landlord financing proceeds of $2.2 million, partially offset by repayments of long-term debt of $8.1 million and repayments of a related party note payable of $4.8 million.
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Commitments and Contractual Obligations
Our principal commitments and contractual obligations consist of obligations under leases for office facilities and repayments of long-term debt. The following table summarizes our non-cancellable contractual obligations as of December 31, 2017.
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) | ||||||||||||||||||||
Lease obligations (1) |
$ | 9,846 | $ | 4,481 | $ | 4,779 | $ | 586 | $ | | ||||||||||
Long-term debt |
116,620 | | | | 116,620 | |||||||||||||||
Interest payments related to long-term debt (2) |
53,143 | 9,211 | 19,163 | 20,132 | 4,637 | |||||||||||||||
Other contractual obligations |
3,561 | 2,061 | 1,500 | | | |||||||||||||||
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Total |
$ | 183,170 | $ | 15,753 | $ | 25,442 | $ | 20,718 | $ | 121,257 | ||||||||||
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(1) |
We had leases that expire at various dates through 2022. The amounts above include amounts payable under operating and build-to-suit leases. |
(2) |
Interest payments related to long-term debt are calculated and estimated for the periods presented based on the expected principal balance for each period and the interest rates as of December 31, 2017, given our debt is primarily at floating interest rates. |
The table above excludes any obligations under the TRA. Although the actual timing and amount of any payments we make to the TRA Members under the TRA will vary, such payments may be significant.
In June 2017, we entered into a new long-term debt facility with Guggenheim Corporate Funding, LLC pursuant to a credit agreement, or the Guggenheim Credit Agreement, consisting of a term loan facility of $115.0 million and a revolving credit facility of $5.0 million. Under the Guggenheim Credit Agreement, we incurred $115.0 million principal borrowings, which is reflected in the above table and is scheduled to terminate on June 12, 2023. The revolving loan facility is scheduled to terminate on June 12, 2022 and as of December 31, 2017 no borrowings have been incurred. The term loan and revolving facilities bear interest at a rate of adjusted LIBOR plus 8.50%. Adjusted LIBOR is defined as the LIBOR rate in effect for each interest period divided by one minus the statutory reserves (if any) for such Eurodollar borrowing for such interest period, and with respect to the term loan only, a minimum LIBOR floor of 1.00%. Under these borrowings, we can elect to pay 2.50% of the interest due on each interest payment date in kind rather than in cash. As of December 31, 2017, the interest rate on the long-term debt was 10.20%.
The Guggenheim Credit Agreement contains certain negative and affirmative covenants. As of December 31, 2017, we were in compliance with all covenants under the Guggenheim Credit Agreement. The Guggenheim Credit Agreement also contains certain events of default, including, but not limited to, defaults relating to non-payment of principal and interest, failure to observe or perform certain covenants, bankruptcy, judgments, a change of control, and defaults under other material indebtedness. In addition, the Guggenheim Credit Agreement is secured with a lien against substantially all of our assets, which assets could be available to the lender in an event of default.
We intend to use a portion of the proceeds from this offering to repay $ million of the long-term debt outstanding under the Guggenheim Credit Agreement. The long-term debt is subject to certain prepayment premiums to the lender if repaid prior to the agreements third anniversary. The prepayment premium is 3.00%, 2.00%, or 1.00% if repaid within the first, second, or third anniversary of the borrowing, respectively, provided that the prepayment premium will be reduced by 50% if repayment occurs in connection with our initial public offering or upon a change of control on or after the first anniversary of the borrowing.
As of December 31, 2017, we had $0.2 million of letters of credit outstanding with a financial institution. These outstanding letters of credit were issued for purposes of securing our obligations under facility leases.
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In January 2018, we entered into a new non-cancellable operating lease agreement to rent office space in Boston, Massachusetts for a period of 78 months. Total minimum lease payments under the lease agreement are $9.1 million, which are omitted from the table of contractual obligations as of December 31, 2017 above. Our lease payments will range from $0.7 million to $1.6 million per year from 2018 to 2024. In connection with the lease agreement, we entered into a letter of credit with a financial institution for $0.5 million, which is collateralized by our cash and cash equivalents.
In February 2018, we entered into a first amendment to the Guggenheim Credit Agreement and increased our term loan facility and our borrowings thereunder by an additional $20.0 million, which are not reflected in the table of contractual obligations above. In connection with the amendment, we issued warrants to purchase 424,242 Class A common units at a per unit exercise price of $8.25. The warrants are fully vested and exercisable, in whole or in part, prior to their expiration. The warrants will expire upon the earlier of (i) February 5, 2023, (ii) our acquisition by another entity, or the sale, lease, or other disposition of all or substantially all of our and our subsidiaries assets, and (iii) six months after the effectiveness of the registration statement of which this prospectus forms a part.
Purchase orders, which represent authorizations to purchase rather than binding agreements, are not included, in the table above. The other contractual obligation amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum, or variable price provisions, and the approximate timing of the transaction. Obligations under contracts that we can cancel without significant penalty are not included in the table above.
In the ordinary course of business, we enter into agreements in which we may agree to indemnify customers, vendors, lessors, partners, lenders, equity interest holders, and other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. In addition, we have entered into indemnification agreements with our directors, executive officers, and other officers that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated financial statements.
Off-Balance Sheet Arrangements
Through December 31, 2017, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our managements discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving managements judgments and estimates.
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Revenue Recognition
We derive substantially all of our revenue from subscription services (which include support services) from providing customers access to our platform. A small portion of our revenue is derived from providing professional services, which generally consist of content creation and other consulting services.
We commence revenue recognition when all of the following conditions are met: (i) persuasive evidence of an arrangement exists; (ii) services are provided to the customer; (iii) the amount of fees to be paid by the customer is fixed or determinable; and (iv) collection is reasonably assured.
Our subscription arrangements do not provide customers with the right to take possession of the software supporting our platform and, as a result, are accounted for as service arrangements. Revenue for subscription fees is recognized ratably over the subscription term, which typically varies from one month to three years, and begins on the date access to our platform is made available to the customer. Professional services are generally billed on a fixed-fee basis and are recognized as services are complete, provided the other revenue recognition criteria are met. Our arrangements are generally noncancellable and nonrefundable.
For arrangements with multiple deliverables, we evaluate whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple-element arrangement as separate units of accounting, the deliverables must have stand-alone value upon delivery and, in situations in which a general right of return exists for the delivered item, delivery or performance of the undelivered item is considered probable and substantially within our control. Our subscription services have stand-alone value as we routinely sell subscriptions separately. Our professional services have stand-alone value because we have routinely sold these services separately. Customers have no general rights of return for delivered items.
If the deliverables have stand-alone value upon delivery, we account for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered based on the relative selling price, which we determine by using the best estimate of selling price, as neither vendor-specific objective evidence nor third-party evidence is available. We have determined our best estimate of selling price for our deliverables based on customer size, the size and volume of its transactions, overarching pricing objectives and strategies, market and industry conditions, product-specific factors, historical sales of the deliverables and discounting practices.
For sales in jurisdictions that assess value-added taxes, we record taxes in revenue and cost of revenue. Taxes collected from customers in all other jurisdictions are excluded from revenue.
Deferred Revenue
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services described above, including amounts billed to customers in accordance with the terms of their underlying contracts where the service period has not yet commenced but will in the near future. Deferred revenue is recognized as revenue as the revenue recognition criteria are met. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as non-current deferred revenue.
Capitalized Software Development Costs
We capitalize certain development costs incurred in connection with the development of our platform and software used in operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once software has reached the development stage, internal and external costs of application development are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. We also capitalize costs related to specific upgrades and enhancements
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when it is probable the expenditures will result in additional functionality. We capitalized costs of $3.2 million and $3.4 million for the years ended December 31, 2016 and 2017, respectively, which were included in property and equipment. Maintenance and training costs are expensed as incurred.
Equity-Based Compensation
Equity awards to employees are measured and recognized in the consolidated financial statements based on the fair value of the award on the grant date. For time-based awards, the fair value of the award on the grant date is expensed on a straight-line basis over the requisite service period of the award. For awards subject to performance conditions, we will record expense when the performance condition becomes probable. We record forfeitures related to equity-based compensation for awards based on actual forfeitures as they occur.
Incentive units vest upon the occurrence of a service condition. The grant date fair value of incentive units is determined
using a hybrid method consisting of both an option-pricing method, or OPM, and probability-weighted expected return method, or PWERM. Under the PWERM methodology, the fair value of our securities are estimated based upon an analysis of our future
values, assuming various outcomes. The security values are based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of security. The
future value of the securities under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for our securities. The outcomes evaluated under
the PWERM methodology are an initial public offering, or IPO, in the near term, and a liquidity event in the longer term with less visibility into the timing and type of exit event using the OPM methodology. For the IPO scenario, the value of the
share classes is assumed based on the expected pricing and timing of a potential IPO using revenue multiples of peer companies. The OPM valuation involves a
two-step
process. First, our
equity
value is established by calculating the enterprise value and adding cash and deducting debt. The enterprise value is established using generally accepted valuation methodologies including discounted cash flow analysis and comparable market analysis.
Second, an allocation of the equity value among the securities that comprise our capital structure using the OPM is performed. The aggregate value of the redeemable convertible preferred units, common units, and incentive units derived from the OPM
are then divided by the number of respective units outstanding to arrive at the per unit value.
The grant date fair value of RSUs is determined using the fair value of our common units. The fair value of our common units is calculated using the same hybrid method used to value incentive units. RSUs vest upon the satisfaction of both a service condition and a liquidity condition. The service condition is satisfied over four years, whereby 25% of the share units vest on the first anniversary from the grant date and then ratably vest on a quarterly basis thereafter through the end of the vesting period. The liquidity condition is satisfied upon the occurrence of a qualifying liquidity event, defined as a change of control transaction (including (i) an acquisition of securities which represent a majority of the voting power of all securities entitled to vote for our board of managers, (ii) the consummation of a merger, consolidation, or similar transaction, (iii) a sale of all or substantially all of our assets, or (iv) the approval by the Members of our liquidation or dissolution, in each case subject to customary exceptions as set forth in the third amended and restated limited liability company agreement), or an initial public offering, after the expiration of the lock-up period. The liquidity condition is viewed as a performance-based criterion for which equity-based compensation expense has not been recognized as of December 31, 2017, as the event is not yet probable of occurring. For accounting purposes, the satisfaction of the liquidity condition becomes probable upon completion of our initial public offering, at which point we will record a cumulative adjustment to equity-based compensation expense using the straight-line attribution method. The remaining unrecognized equity-based compensation expense related to RSUs will be recognized over the remaining requisite service period. The equity-based compensation will be measured using the grant date fair value of the RSUs.
We also record equity-based compensation expense when we or a holder of an economic interest in our company purchases units from an employee for an amount in excess of the fair value of the common units at the
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time of purchase. We recognize any excess value transferred in these transactions as equity-based compensation expense in our consolidated statement of operations.
Because our member equity units are not publicly traded, we must estimate the fair value of our member equity units. Historically, for all periods prior to this offering, the fair values of member equity units were estimated on each grant date by our board of managers. In order to determine the fair value of our member equity units, our board of managers considered, among other things, contemporaneous valuations of our member equity units prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or AICPA Guide. Our board of managers exercised reasonable judgment and considered several objective and subjective factors to determine the best estimate of the fair value of our member equity units, including:
|
relevant precedent transactions involving our member equity units; |
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our historical and expected results of operations and financial performance; |
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current business conditions; |
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our state of development and business strategy; |
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market multiples of comparable companies in our industry; |
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the lack of an active public market for our member equity units; |
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recent secondary sales of our member equity units; |
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the market performance of comparable publicly-traded peer companies; and |
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macroeconomic conditions. |
For equity awards granted after the completion of this offering, our board of directors intends to determine the fair value of each share of underlying common stock based on the closing price of our Class A common stock as reported on the date of grant.
Based on an assumed initial public offering price of $ per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, the aggregate intrinsic value of incentive units outstanding as of December 31, 2017 was $ million, with $ million related to vested incentive units, and the aggregate intrinsic value of RSUs outstanding as of December 31, 2017 was $ million. As of December 31, 2017, we had $35.1 million of unrecognized compensation cost related to incentive units, which will be recognized over a weighted-average period of 3.0 years. As of December 31, 2017, we had $40.1 million of unrecognized compensation cost related to RSUs, and if our initial public offering had occurred on December 31, 2017, we would have recorded an estimated $3.9 million of equity-based compensation expense related to RSUs that vest upon the satisfaction of both a service condition and a liquidity condition. We expect our equity-based compensation expense to increase in absolute dollars over the long term as currently outstanding RSUs and other equity-based awards vest and as we issue additional equity-based awards to attract and retain employees.
We expect that the RSUs for which the service condition has been satisfied, or the Vested RSUs, will initially be settled on or about , 2018. On the settlement date, we may elect to withhold income taxes at applicable minimum statutory rates based on the then-current value of the Class A common stock underlying the Vested RSUs by selling shares of Class A common stock on behalf of RSU holders to cover any income taxes owed. In connection with this potential sale to cover, we would expect to sell shares of Class A common stock on behalf of the RSU holders and remit the resulting proceeds to the relevant tax authorities in cash to satisfy withholding tax obligations due at settlement. We currently expect that the average of these withholding tax rates will be approximately %. If the price of our Class A common stock at the time of settlement of the Vested RSUs were equal to the assumed initial public offering price of $ , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, we estimate that this tax obligation would be approximately $ million in the aggregate. Such a sale to cover would result in an
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additional shares of Class A common stock being sold in the marketplace at the time of settlement of the Vested RSUs. Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the estimated tax obligation by approximately $ million.
We may also elect to withhold shares of Class A common stock in net settlement from holders of Vested RSUs to satisfy income taxes associated with the settlement of such Vested RSUs, which would result in the aggregate tax obligation estimated above being paid by us in cash.
Business Combinations
We include the results of operations of the businesses that we acquire as of the respective dates of acquisition. We allocate the fair value of the purchase price of our acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. The determination of the value and useful lives of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.
Content Library, Intangible Assets, and Goodwill
The content library assets have been acquired from our network of independent authors (course creation costs) and through various business combinations. We amortize the content library and other intangible assets acquired in business combinations on a straight-line basis over their estimated useful lives, which is generally five years.
Periodically we assess potential impairment of our long-lived assets, which include our content library and intangible assets. We perform an impairment review whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include, but are not limited to, significant under-performance relative to historical or projected future results of operations, significant changes in the manner of our use of acquired assets or our overall business strategy, and significant industry or economic trends. When we determine that the carrying value of a long-lived asset (or asset group) may not be recoverable based upon the existence of one or more of the above indicators, we determine the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate and recognize an impairment charge equal to the amount by which the carrying amount exceeds the fair value of the asset.
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. We test goodwill for impairment annually as of October 1, or whenever events or changes in circumstances indicate that goodwill may be impaired. We initially assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of our sole reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, then we perform the first step of a two-step analysis by comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value, the second step analysis is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. In assessing the qualitative factors, we consider the impact of certain key factors including macroeconomic conditions, industry and market considerations, management turnover, changes in regulation, litigation matters, changes in enterprise value, and overall financial performance.
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Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound Sterling, Euro, Swedish Krona, Australian Dollar, Singapore Dollar, and Indian Rupee. Due to the relative size of our international operations to date, our foreign currency exposure has been fairly limited and thus we have not instituted a hedging program. We expect our international operations to continue to grow in the near term and we are continually monitoring our foreign currency exposure to determine when we should begin a hedging program. Today, our international contracts are denominated in U.S. dollars, while our international operating expenses are often denominated in local currencies. In the future, we plan to begin denominating certain of our international contracts in local currencies, and over time, an increasing portion of our international contracts may be denominated in local currencies. Additionally, as we expand our international operations a larger portion of our operating expenses will be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars.
Interest Rate Sensitivity
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of December 31, 2017, we had cash, cash equivalents, and restricted cash of $28.5 million, which consisted primarily of bank deposits and money market funds. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant.
In June 2017, we entered into the Guggenheim Credit Agreement pursuant to which we borrowed the $115.0 million term loan capacity available under the credit agreement. We have elected to incur borrowings under the credit agreement at an adjusted LIBOR rate plus 8.50%. Adjusted LIBOR rate is defined as the LIBOR rate in effect for each interest period divided by one minus the statutory reserves (if any) for such Eurodollar borrowing for such interest period, and with respect to the term loan only, a minimum LIBOR floor of 1.00%. Under these borrowings, we can elect to 2.50% of the interest due on each interest payment date in-kind rather than in cash. The paid-in-kind interest will be added to the unpaid principal amount of the borrowings and continue to accrue interest. If the term loan under the credit agreement had been fully borrowed as of January 1, 2017 and remained outstanding for all of 2017, the effect of a hypothetical 100 basis point increase or decrease in interest rates in our floating interest rate on these borrowings would increase or decrease interest expense by approximately $1.2 million on an annual basis.
JOBS Act Accounting Election
We meet the definition of an emerging growth company under the JOBS Act, which permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.
Recent Accounting Pronouncements
See Note 1 to Pluralsight Holdings consolidated financial statements included elsewhere in this prospectus for more information.
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CO-FOUNDER, CHIEF EXECUTIVE OFFICER, AND CHAIRMAN
Thank you for considering an investment in Pluralsight.
More than 13 years ago, my co-founders and I created Pluralsight as an in-person, instructor-led training business. We soon realized with advancements in internet speed, cloud computing, streaming capabilities, and video and sound quality that our impact on the world could be much bigger. We pivoted to an entirely cloud delivery model in 2011 with the vision of making technology skills accessible to all people, everywhere. Our belief at Pluralsight is that technology can help solve some of the worlds big challenges. Our platform empowers technologists and businesses to do great work on meaningful problems, bring products and innovations to market faster, and create a better future for everyone.
Over the years, Pluralsight has become a leading cloud-based technology learning platform for both businesses and individuals. The capabilities of the platform continue to expand to meet the growing needs of our customers. Our cloud-based technology learning platform provides businesses the tools that they need to deliver and execute strategies more effectively and individuals the resources to advance their careers. With the recent launch of Iris, and Pluralsight IQ, businesses and individuals can more effectively quantify and develop skills across technologies at breakthrough speed.
This is just the beginning.
As technology increases its prevalence throughout the globe and across all industries, the market for technology skills continues to expand at a rapid pace. Our platform enables businesses to assess and upskill their teams at a rate that in-person ILT simply cannot match. We have and will continue to make investments in our platform and our global footprint to close the technology skills gap and improve the technology capabilities of our customers.
Our employees are a key reason for our continued success and I want to thank them for their incredible contributions in making Pluralsight what it is today. At Pluralsight, we believe in being committed to something bigger and being accountable for excellence. Our employees live our values and execute with a single mission in mind: to democratize technology skills.
As we continue to live this mission, we realize the vast potential that technology has to not only help businesses and individuals excel and innovate, but also to create freedom, equality, and opportunity around the globe. That is why we created Pluralsight One our commitment to drive significant, lasting social impact by equipping people and nonprofits with the technology skills they need to participate more fully as digital citizens in our technology-driven future.
With the launch of Pluralsight One, we joined the Pledge 1% movement, a community of likeminded organizations that have made philanthropy a part of their core, reshaping the future of business by balancing purpose alongside profit. As a member of this community, my co-founder, Fritz Onion, and I have together committed one percent of the Companys equity from our personal holdings, and Pluralsight has committed one percent of its profit, time, and product to Pluralsight One initiatives. This is an important element of our strategy to democratize technology skills across todays digital divide.
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As a potential investor, you should understand our mission and philosophy. We are committed to closing the technology skills gap globally. To do so, we have and will continue to make investments in our business with the intention of creating long-term value for our stockholders while expanding access to technology skills and improving the impact technology has on the world.
We are excited about whats ahead and invite you to join with us as we create this future.
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Our Value Proposition
Pluralsight is an enterprise software company committed to closing the global technology skills gap. This gap is holding back companies and entire industries from reaching their full potential.
The skills gap exists because technology is changing faster than the worlds ability to acquire and adapt to new skills. To address this challenge, many companies still use traditional in-person ILT models, which dont move fast enough or scale quickly enough to meet the ever-increasing demand.
We disrupt these in-person ILT models by offering a cloud-based technology learning platform that is broadly accessible. Learners on our platform can quickly acquire todays most valuable technology skills through high-quality learning experiences delivered by subject-matter experts, available on any device at any time. We provide businesses with visibility into the strengths of their workforce, allowing them to better align resources, provide targeted skill development, and advance the skills of their teams.
Our learning experiences empower customers to adapt and thrive in the midst of unprecedented technological change and digital transformation. As a result, technology leaders now see us as their supply chain for intellectual property.
Closing the technology skills gap requires more than success in our commercial business. That is why we created Pluralsight One, our social impact initiative, committed to serving marginalized populations that our commercial business wont reach. Pluralsight One will be funded by two of our co-founders who have together committed to donate one percent of the Companys equity from their personal holdings. We will also donate one percent of our profit, time, and product to Pluralsight One endeavors.
Ultimately, our mission is to democratize technology skills. The more individuals we reach through our platform, the bigger our future opportunity becomes as we enable our customers to access an ever-expanding talent pool.
Overview
We are a leading provider of technology skill development solutions. We empower the people who power businesses by democratizing professional technology learning and enabling businesses around the world to drive innovation through a smarter workforce. We believe that everyone should have the opportunity to build a career that they are passionate about. We are disrupting traditional skill development models to provide people the skill development they need, when they need it, because learning should not be confined to a classroom, a one size fits all curriculum, or to a select minority of people. Our cloud-based technology learning platform provides a broad range of tools, including skill assessments, a curated library of courses, learning paths, and business analytics. Our platform is powered by Iris, our proprietary machine-learning driven skill assessment algorithm and recommendation engine, which enables businesses to more effectively quantify and develop skills across technologies. Through our platform we provide both businesses and individuals with the ability to stay smart, stay relevant, and drive results.
Technology has dramatically changed businesses. Companies of any scale across industries are embracing digital transformation as a way to remain competitive. Processes are now incorporated into applications, customer engagement happens over the web, marketing programs are launched on mobile devices, manual workflows are automated, and data drives real-time decisions. This can only happen through technology, and we are in a period of unprecedented technological transformation. To be successful through digital transformation, companies have had to dramatically adapt their workforces to incorporate more technology professionals. As the pace of technological change increases, companies are striving to improve the skills of their workforces and stay ahead of the latest technology trends.
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Simply hiring more technologists is not enough. Companies need to assess the skill set of employees, address skills gaps on an individual level, and continuously help employees advance by building skills on relevant topics. Technology changes rapidly and businesses are under pressure to keep up with this change. From 2004 to 2016, there was an average of four new major software development frameworks created each year, in addition to newly developed derivations of existing software languages. As a result, computer science courses become obsolete quickly. According to a study by the Economist Intelligence Unit, 94% of executives cite a moderate or severe digital skills gap in their businesses, and a survey by Tech Pro Research indicates 59% of IT employees worry that their current skills will become obsolete. To counter this trend, businesses are focused on improving technology skill development and increasing its efficacy.
Our cloud-based technology learning platform provides businesses the solutions that they need to improve employee skills and drive better business outcomes. The key components of our platform include:
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Skill Assessments : Our assessment tool uses machine learning and advanced algorithms to measure a users skills, benchmark that user against others in the industry, and recommend opportunities for growth. Users are provided with a Pluralsight IQ that quantifies if a user is a beginner, intermediate, or advanced within technologies such as Angular JS, C#, and Java. We provide a modern skill assessment experience that gives businesses a credible, adaptable, and efficient model for validating technology skills. |
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Course Library: Our course library includes over 6,500 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. Videos are organized by modules and clips and are searchable, so users can either take an entire course, or target an area for a specific need. The majority of our courses are transcribed, and once transcribed, are available with closed captioning in over 100 languages. In addition, the majority of our courses also include hands-on exercise files so the user can follow along as concepts are being taught. We have built our exclusive course library primarily by engaging our world-class community of subject-matter experts, or authors, who create content for us and share in our success by receiving revenue-share amounts based on the viewing of their content. |
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Learning Paths : Based on either an assessment or a users goals, our learning paths are curated to take users through a set of courses designed to help them master a particular subject area and not spend time reviewing content that they already know. Businesses can map learning paths to meet company-specific objectives. |
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Business Analytics : Our business analytics tools enable business customers to evaluate the technology skills of their teams, align learning to key business objectives, determine the usage of our platform, examine trends in skill development, and quantify the impact of our platform on their business. |
We developed our proprietary machine-learning technology, Iris, to power our platform and improve the value of our skill assessments and course recommendations. Iris powers our skill assessments algorithm and guides users on how to develop desired skills. Iris uses machine learning, modern testing approaches, advanced statistical analysis, and data to create a smarter, more personalized development journey.
Our platform can be used by anyone, at any skill level, who has an interest in improving their technology skills. We offer a range of courses from beginner to advanced skill levels, with significant granularity within each topic so users can access content most relevant to their specific needs. We utilize a cloud-based delivery model that enables us to regularly make new content available to users and allows businesses to deliver consistent skill development across distributed workforces. Users can access our platform to learn anytime and anywhere. Pluralsight applications are delivered on demand and across a range of devices and operating systems, including iOS, Android, Windows, and Mac. In addition, Pluralsight applications are available for TV applications, including Amazon Fire TV, Apple TV, Chromecast, and Roku.
Our platform is used by businesses to train their software developers, IT professionals, data scientists, data engineers, technical engineers, business users, and technology executives. Our platform is also used by
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individuals to develop and enhance their technology skills. Small teams often represent the top of the funnel for larger deployments, bringing our technology into the workplace and proliferating usage within a business. We deploy a direct sales team focused on landing new business customers and expanding business-wide deployments. We have been successful in attracting businesses, particularly large enterprises, to our platform and expanding their use of our platform over time. As of December 31, 2017, our customers included more than 300 of the 2017 Fortune 500. From 2013 to 2017, the billings from our 2017 Fortune 500 customers, including new 2017 Fortune 500 customers that we acquired after 2013, increased by 9.1 times in the aggregate from the billings we generated from those companies in 2013. For the year ended December 31, 2017, 79% of our billings came from business customers and 21% came from individual users. Customers subscribe to our platform unassisted through our website or through our direct sales channel. We make adoption easy, with free trials and transparent pricing for all of our features.
We believe that we have substantial opportunities for growth. According to Training Industry, global spend on corporate training initiatives was estimated to be $359 billion in 2016. We believe as companies adopt more effective, on-demand, and cost-advantageous solutions for employees, we will take a significant share of market spend. Evans Data Corporation estimates that in 2017, there were over 102 million members of technical teams globally. Based in part on this information from Evans Data Corporation, we estimate that our current total addressable market exceeds $24 billion.
In recent years, we have reached significant scale in users and authors on our platform. As of December 31, 2017, more than 695,000 users in over 150 countries had access to our platform. Our content is developed and sourced from a network of over 1,350 authors. Today, we have over 6,500 on-demand and online courses on our platform and are adding on average more than 80 new courses each month. Our scale, growth, and rapid adoption are a testament to the applicability and effectiveness of our platform in the market for businesses and individuals.
We have achieved significant growth in recent periods. For the years ended December 31, 2016 and 2017, our billings were $149.2 million and $205.8 million, respectively, representing year-over-year growth of 38%, and our billings from business customers were $104.9 million and $163.0 million, respectively, representing year-over-year growth of 55%. For the years ended December 31, 2016 and 2017, our revenue was $131.8 million and $166.8 million, respectively, and our net loss was $20.6 million and $96.5 million, respectively, which reflect our substantial investments in the future growth of our business. For the years ended December 31, 2016 and 2017, cash provided by (used in) operations was $4.5 million and ($12.1 million), respectively. For the years ended December 31, 2016 and 2017, our free cash flow was ($7.9 million) and ($20.5 million), respectively, and our free cash flow included cash payments for interest on our long-term debt of $5.5 million and $6.9 million, respectively. See the section titled Selected Consolidated Financial and Other DataNon-GAAP Financial Measures for a description of free cash flow and for a reconciliation of free cash flow to net cash provided by (used in) operations, the most directly comparable financial measure calculated in accordance with GAAP.
Industry Background
Companies have to drive innovation through technology to remain competitive
As technology evolves, competition across businesses intensifies. Industry leaders that were once measured by their scale, product quality, and reputation are increasingly measured by the success of their transition into the digital age. Companies across industries, from aerospace and defense to agriculture, are realizing that they must improve their use of data and software to create digital experiences, enable mobile capabilities, increase efficiencies, increase cyber security, and make better decisions. Software is displacing manual processes throughout businesses and every company is becoming a technology company. Businesses across industries are forming on the basis of new and disruptive technology. As a result, companies are seeking to hire and retain talent that can drive lasting innovation in technology. Managers need to empower their employees to innovate in order to create or maintain a competitive advantage.
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The number of technical positions is growing across all industries
Demand for qualified technology professionals is growing as companies race to become bigger, better, and faster. Technical and software development jobs are growing at twice the national average of other job growth, as the scope of technical skills required is expanding for data scientists, data engineers, web designers, mobile application developers, and experts on new forms of software technology including Python, Apache, NoSQL, and Elastic. The number of technology-related functions across industries is expanding as companies move into the digital age. To remain competitive, businesses must adapt to changing needs and ensure that they get the best long-term return on their investment in human capital by hiring and retaining the best talent with the best skills and helping employees maintain and enhance their skill sets.
Technology skills are in high demand, but become obsolete quickly
The market for technology talent is growing and constantly evolving due to the continuously changing needs of firms and their employees. According to code.org, there are more than 500,000 open computing jobs in the United States. The Bureau of Labor Statistics projects that between 2016 and 2026, the number of computer and information technology occupation related jobs in the United States is expected to grow by more than 500,000 and that by 2020, there will be 1.4 million computer science related jobs available. Simply filling positions, however, is not enough. Today, there are over 250 programming languages in use, including 10 different variations of Java alone. Technology evolves and becomes obsolete quickly, and new technologies are perpetually emerging. As such, technology professionals must constantly keep their skills current.
Professionals in many other industries, such as medicine, law, and education, are required to undertake continuing education to maintain their professional licenses. There is no such requirement for technology professionals despite how quickly their skills can become obsolete and must be replaced. Businesses need a way to assess the ongoing technological proficiency of their workforces.
High levels of employee skill development result in better performing companies
Employee skill development has a direct impact on a companys overall performance. Employee skill development has a direct impact to a companys overall performance. Results can be measured by employee productivity and stock price returns. According to Deloitte, organizations with a strong learning culture are 56% more likely to be the first to market with their products versus their peers, and outperform the profitability of their peers, by 17%. As a result, businesses that fail to proactively improve the skills of their employees often lag behind competitors, and the consequences of this failure can be significant.
The way content is created and delivered impacts the effectiveness on the learner
In-person ILT remains the primary method to deliver content to individuals. These trainings are typically designed to address a group, usually delivered in a large, college-style lecture hall with little user engagement. This approach often fails to deliver satisfactory results because the creators of the content lack sufficient expertise in the subject or because the learning methods employed are antiquated or ineffective. Certain modern learning approaches provide lasting retention of information. These modern learning approaches provide diversity in delivery and improve efficacy of instruction for students, and include:
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Short segments of digestible content to hold attention; |
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Use of visuals to target one of the four forms of learning styles (visual, auditory, written, and kinesthetic); |
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Learning from other people; |
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Delivery of content by subject-matter experts with relevant experience; |
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Information delivered when it is most useful; and |
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Subject matter that is relatable to an individual. |
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The ability to incorporate these qualities into technology skill development can have lasting effects on user engagement with content, understanding of key concepts, and long-term knowledge retention.
Businesses need end-to-end solutions to incorporate assessment, skill development, and analytics
Businesses need a way to accurately measure the skills of their employees in order to deliver relevant skill development and appropriately staff teams for success. In many businesses today, skills are not tested once someone is employed. With the fast pace of technological innovation, frequently assessing skills and elevating employee knowledge will be critical. Businesses need ways to measure employees against peer groups, identify where there are gaps in knowledge, and assign targeted skill development to best suit the needs of individuals. They also need to ensure that the skill development is effective and that employees understand the concepts they have been taught.
The Shortcomings of Existing Solutions
Many current approaches to technology skill development are inadequate. The creators of content often lack sufficient subject-matter expertise, the approaches do not focus on the needs of technology professionals, the learning methods are insufficient for the needs of modern businesses, and the offerings do not effectively enable businesses to measure concept mastery by their employees. Shortcomings of these approaches include:
In-person, instructor-led training is costly and does not scale
Still the most widely used form of corporate skill development with 49% of total training hours in 2016, in-person ILT has numerous disadvantages, according to the Association for Talent Development. In-person ILT is costly, not scalable through a large or distributed business, not available on-demand, not tailored to an individuals needs, and does not typically include capabilities for assessment and on-demand help.
Legacy business e-learning is standardized, not personalized
These solutions typically consist of general, corporate-mandated static courses. These courses quickly become outdated and are designed to be accessed from desktops at work. This approach typically sacrifices depth and personalization in an attempt to make the content relevant to a large audience.
Consumer-centric e-learning does not provide advanced technology skill development or scale
A number of online learning solutions have emerged for individuals, such as solutions offering crash courses in coding or web design in an attempt to prepare people for entry-level programming jobs. These solutions do not provide advanced levels of technology skill development for technology professionals, or scale to meet the needs of businesses.
Free resources can be shallow, inconsistent, and inaccurate, and are not curated for specific needs
Free courses are available online from sources such as YouTube and can be accessed via Google searches. Free courses may not have been created by subject-matter experts, generally do not provide the level of depth that is required for skill development by technology professionals, and lack efficient discoverability, relevancy to a specific need, quality control, and measurement of success or concept mastery.
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The Pluralsight Platform
Our solution consists of a cloud-based technology learning platform that provides businesses with tools to train their workforces and individuals with tools to advance their careers. These tools include skill assessments, a curated library of courses, learning paths, and business analytics. We enable businesses to evaluate the technical abilities of their teams, align learning to key business objectives, develop talent, and close skills gaps in critical technology areas, such as cloud, mobile, security, IT, and data. With our large network of technology subject-matter experts, extensive and growing course library, and our ability to quantify the impact and value of our solution, we are helping business leaders to succeed in the digital age.
We developed our proprietary machine-learning technology, Iris, to power our platform and improve the value of our skill assessments and course recommendations. Iris powers our skill assessments algorithm and guides users on how to develop desired skills. Iris uses machine learning, modern testing approaches, advanced statistical analysis, and data to create a smarter, more personalized development journey.
All of our courses are delivered on demand and across a range of devices and operating systems, including iOS, Android, Windows, and Mac. In addition, Pluralsight applications are available for TV applications, including Amazon Fire TV, Apple TV, Chromecast, and Roku.
Skill Assessments
Through our skill assessments, we are able to assess an individuals proficiency in a topic through adaptive tests, identify gaps in skill sets, benchmark against peers, and provide him or her with a Pluralsight IQ. Pluralsight IQ is a numeric assessment of a skill and includes the skill area or technology, rating, skill level, and benchmarked percentile. Our assessment technology measures a learners skills, benchmarks against others in the industry, and provides opportunities for growth. Powered by Iris, our skill assessments provide highly indicative
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results on knowledge in specialized areas within 20 questions in under 10 minutes. With this technology, we are able to show users gaps in their knowledge and provide the required learnings for them to become experts. Pluralsight IQ provides a modern skill assessment experience that gives businesses a credible, adaptable, and efficient model for validating technology skills. Businesses are able to quickly assess the skill sets of employees, align resources appropriately, and recommend targeted skill development based on need.
Below is a sample question from one of our skill assessments and a resulting Pluralsight IQ:
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As part of skill assessments, we also offer certification practice exams through our platform. Users utilize these practice exams to assess and validate their IT, management, and technical skills. Businesses can leverage certification practice exams to help certify their employees in areas of strategic importance to the business. Example certification practice exams include CISA, Cisco, CISSP, CompTIA, Microsoft, PMP, SSCP, and VMware VCP.
Course Library
Our course library includes over 6,500 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. A course generally consists of between two and four hours of video, broken into multiple modules consisting of two- to five-minute clips on specific topics, presented by an author who is an expert on the subject. These videos and modules are searchable, so users can either take an entire course, or target a particular segment for a specific need. For certain courses, users have access to hands-on exercise files to follow along and practice concepts in real-time. Assistance is available through discussion forums so users feel engaged and supported while learning new materials. At the end of a course, users take a knowledge check to determine if they have mastered the material and are presented recommendations for future skill development. Also, the majority of courses are transcribed and closed captioning is available in over 100 languages for transcribed courses.
We have built our exclusive course library primarily by engaging our world-class community of authors to create content for us and share in our success by receiving revenue-share amounts based on the viewing of their content. Our philosophy is that the more our authors earn, the more they are incentivized to create new content, which drives customer growth and user adoption.
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Learning Paths
Based on either an assessment or an individuals goals, our learning paths are curated to take users through a set of courses designed to help them master a particular subject area. Our learning paths take into account the skill level of each individual to guide users to the content that is most relevant to them, and not require them to spend time reviewing content that they already know. In addition, periodic learning assessments are available to ensure that users are on target with their learning objectives.
Our platform also allows businesses to create channels, which are a curated list of courses, modules, clips, and links to external resources. Channels can be shared with specific teams and throughout the business to enable custom skill development that aligns to specific objectives, which allows companies to reach their learning goals and business objectives more effectively and efficiently.
Business Analytics
Our business analytics tools enable business customers to evaluate the technical abilities of their teams, align skill development to key business objectives, determine the usage of our platform, examine trends in employee learning, and quantify the impact of our personalized learning solution on their teams skills. This enables our business customers to develop their employees talent and close any skills gap.
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Key Benefits of Our Platform
We have developed our platform to empower businesses in driving innovation in this period of digital transformation with a smarter workforce. Key benefits of our platform include:
The most relevant skill development for a wide range of technology professionals
We believe we have the most relevant course library for the greatest number of technology professionals. We are a company founded by software engineers, and we understand first-hand the importance of keeping up with constantly changing technologies. We are focused on delivering learning content addressing the technology languages, tools, and frameworks used by the majority of technology professionals in the workplace. We began this business with a focus on software developers who constitute the largest segment of the technology market. Next, we expanded into the next three largest segments of IT operations, data, and security and our platform is capable of easily expanding to address new technical areas over time.
Integrated technology learning platform
We view learning as a holistic process. Taking a course on its own does not ensure that a user understands the content or that it was the right course to take in the first place. Our integrated platform combines skill assessments, a curated library of courses, learning paths, and business analytics to ensure that learners are taking the courses most useful to them and demonstrating comprehension of the subject matter. Through our skill assessments engine, powered by Iris, we are able to assess proficiency of a topic through adaptive tests and provide a Pluralsight IQ. By gathering such insights from our platform, businesses can understand skills gaps, benchmark employees against consistent standards, and address skill development needs in an efficient and targeted manner. Of surveyed Pluralsight users, 84% reported that they used the skills they learn on our platform within six weeks and 55% report that they used their new skills within one week.
High quality curated content
Our content is the product of our industry-leading authors. We have spent many years identifying, cultivating, and growing our author network, and over 1,350 authors have contributed to our current course library. One of the primary challenges for businesses and individuals seeking to enhance technology skills is finding the right resources. We address that challenge for them. Our extensive relationships within the developer and technical community allow us to source and retain the best subject-matter experts to produce relevant content for our users. We provide quality assurance on our authors expertise through our selection process and by having our in-house technology professionals and practitioners, as well as other authors, perform reviews on the quality and effectiveness of all content before it is published to our platform. This process ensures that our users are receiving high-quality, consistent results from our platform.
Cost effective technology learning platform
We believe our pricing model provides a significant cost advantage compared to traditional technology skill development offerings. Organizations spent an average of $1,273 per employee in 2016 on direct learning expenditures, according to the Association for Talent Development. While we currently only address a portion of our customers skill development needs, we believe that technology skill development represents a significant and growing portion of our customers skill development expenditures. Additionally, we have expanded, and intend to continue to expand, our course library to address a wider range of our customers skill development needs. As our customers industries and business models evolve, they require a learning solution that helps them deliver key innovations with demanding time and budgetary constraints. Our published pricing ranges from $499 to $699 per user per year for business subscriptions, providing what we believe to be a significant cost advantage over alternative solutions. In addition, our platform can be deployed with little to no implementation or other professional services required, as evidenced by substantially all of our revenue to date being derived from the sale of subscriptions to our platform.
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Optimized for on-demand accessibility
We offer our courses the way users want to consume content. Our cloud-based technology learning platform is an on-demand solution that allows globally distributed users to access courses anytime they want from almost any device, maximizing utilization of our product and workplace efficiency. Our mobile applications are available on iOS and Android operating systems, and our desktop application is available on Mac and PCs. Courses can be temporarily downloaded and viewed offline. Our Apple TV application allows users to participate and take notes while watching our courses. These applications allow our users to take our courses when convenient for them. According to a 2015 survey, approximately 80% of our users report using Pluralsight during work, 88% outside of work hours, and 25% during commute and travel time.
Our Market Opportunity
In 2016, an estimated $359 billion was spent on corporate training initiatives, according to Training Industry. The majority of corporate spending today is on in person ILT and legacy e-learning solutions. We believe as companies adopt more effective, on-demand, and cost-advantageous solutions for employees, we will take a significant share of market spend.
Today our course library primarily addresses topics applicable to professionals in software development and IT operations and their teams, or technical teams. Evans Data Corporation estimates that in 2017, there were over 102 million members of technical teams globally. Based in part on this information from Evans Data Corporation, we estimate that our current total addressable market exceeds $24 billion. We have expanded and expect to expand into adjacent topics and expand our course library to increase our total addressable market over the long term.
Competitive Strengths
We believe our competitive advantages will enable us to maintain and extend our position as a leading provider of technical learning and talent management solutions for global industries. Our competitive strengths include:
Focus on addressing the needs of businesses
We are focused on enhancing skills development for technology professionals within businesses. We provide services to help ensure that our customers realize the full value of our platform. Our cloud-hosted, multi-tenant application platform is designed for enterprise scalability to accommodate significant growth in user base, support businesses with highly distributed locations, and provide service-level agreements around system availability. We are committed to maintaining an effective security program, dedicated to ensuring that our customers have the highest confidence in our data protection practices. Our security program is aligned to the ISO 27001/2 and GDPR standards and is regularly subject to penetration testing by third-party security auditors.
Our 2015 survey found that 86% of skill development managers in businesses have seen more positive ROI with Pluralsight as compared to other online learning offerings, demonstrating the advantages our content and broad range of tools provide to our business customers.
Target ongoing development of technology professionals
The skill development needs within a business are different from those of recent high school graduates, recreational learners, or individuals changing careers. We address the growing skills gap that exists within businesses created by technology obsolescence. Our content is focused on ensuring employees can master the latest emerging technologies and improve their skills in existing areas. Our course library includes over 6,500 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and
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data. We have built our extensive course library primarily by engaging our world-class community of authors, who create content for us. Our course library and community of authors enables us to provide high-quality content across a range of technology subject areas so our users can improve their performance in these key areas.
Consistent innovation and product expansion
Since 2012, we have expanded our course library at a CAGR of 32% while maintaining high quality, adding major skill development categories, and expanding our end-to-end portfolio to include assessments and analytics. We have grown our course library to include over 6,500 on-demand and online courses, including cloud, mobile, security, IT, and data, and broadened the tools available on our platform to include skill assessments, a curated library of courses, learning paths, and business analytics capabilities through a combination of acquisitions and our organic development initiatives. Our cloud-based delivery model combined with our distributed and scalable technology architecture allows us to regularly introduce new content and platform features to our customers quickly and seamlessly.
Advance skill assessments with personalized learning paths
Our ability to analyze, track, and benchmark employees differentiates our platform in the market, drives lasting value to businesses, and supports our high level of revenue retention from our business customers. Through our skill assessments, businesses are able to identify talent within their organizations and assess proficiency of a topic through adaptive tests, identify gaps in skills, and invest intelligently in their teams learning. With every assessment and course completed, Iris absorbs information about the state of technology skills of a specific business customers users and further personalizes the platform to each customers needs. We empower leaders to understand the varying skill levels within their business, provide employees with tailored courses to meet specific individual needs, better align teams on projects, and track learning progression over time. Our advanced business analytics enable businesses to manage skills at scale and drive business outcomes.
Highly efficient content development model
Our content development model allows us to source and distribute content in a highly efficient manner without having to hire content authors as full-time employees. We identify authors that are subject-matter experts in various technology areas, and engage them to develop content for our platform. Authors on our platform are paid a fee for the viewing of their content. In addition, by publishing their courses on our platform, we provide authors with exposure to our broad user base, thereby enabling our authors to build their reputations and increase their name recognition as a trusted source in the market. In addition, we share our success with our authors, who receive revenue-share amounts based on the viewing of their content. This incentivizes authors to create new high-quality content, which drives customer growth and user adoption. The strength of our platform and our approach to our author relationships enables us to attract and retain leading authors. The number of authors on our platform has increased from over 100 as of December 31, 2012 to over 1,350 as of December 31, 2017. Of the over 1,350 authors, over 750 have produced more than one course, and over 550 authors have produced a course in 2017.
Blue-chip customer base
Our customers include more than 300 of the 2017 Fortune 500. We derived approximately $35.8 million of our billings from our Fortune 500 customers in the year ended December 31, 2017. We believe there exists a significant opportunity to drive sales to large enterprises, including expanding relationships with existing customers and attracting new customers.
Mission-driven culture
Our mission of democratizing technology skills inspires everything we do. This is our North Starit is the why and how behind all of our decisions. We have chosen to grow in a way that we believe will make our
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mission a reality. This includes creating a values-based culture that empowers our team to do the best, most purposeful work of their careers.
We are a team of lifelong learners. We welcome challenges. We crave fresh ideas. We take risks. And sometimes we fail. But we learn, and we keep moving forward. We love what we do and we create products that have the power to change lives, including our own.
Our Core Values
Our core values drive and guide everything we do.
Committed to Something Bigger
Our mission comes first and we believe in the power of shared purpose. The work we do is collaborative, dedicated, and empowering. We acknowledge others and recognize the power to create and make an impact exists within everyone.
Accountable for Excellence
We set success metrics and take responsibility to ensure that our actions align with the priorities of Pluralsight; we seek to make clear agreements to deliver solutions that are creative, forward-thinking, and meaningful to the business. We see the success of others and the company as part of our responsibility.
Create with Possibility
We are proactive, adaptive, and continuously maintain a learners mindset. We actively explore new ideas and push boundaries. We see ourselves as creators, and we seek to overcome limiting thoughts or beliefs.
Be our Word
We can be counted on to keep our word. We are authentic and sincere. Asking for help, granting trust, and assuming positive intent allow us to be responsible employees and to act in the best interest of Pluralsight.
Seek Context with Intention
We strive to live life with the mindset of creation, without complaint. We are inquisitive and data-driven. We are always seeking to relate to those we work with.
We are purpose and performance driven. We created a vision to help team members make their mark on a company that impacts the world. We believe in giving people the freedom and autonomy to create solutions that bring us closer to the mission and vision. We make agreements and set clear goals. We seek intention before letting our perceptions be clouded, and we notice how personal integrity affects everyone on a team. Our self-awareness creates safety, trust, and openness for the team. This environment gives the business effective speed and little ego or drama. Its a true embodiment of our values. We believe in the impact of our work, our power to create together, and where technology can take us.
Growth Strategy
We are pursuing the following principal strategies to drive our growth:
Expand deployments within our customer base
We utilize a land-and-expand strategy within businesses, beginning with either individual users or departmental deployments. Our platform is used by individuals, developer groups, IT departments, line of
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business users, and human resources. Historically we have expanded from small teams to department to multi-department to business-wide deployments of our platform. For example, from 2013 to 2017, the billings from our business customers that were included in the 2017 Fortune 500 list, including new 2017 Fortune 500 customers that we acquired after 2013, increased by 9.1 times in the aggregate from the billings from those same companies in 2013. We intend to drive increased sales to existing customers by targeting new users, departments, and geographies within our customers.
Grow our business customer base
We have significantly expanded our direct sales force to focus on business sales and have aligned our sales teams compensation structure to fit this objective. In addition to expanding our sales force, we have also been able to drive substantial increases in the productivity and effectiveness of our sales personnel over time as they gain more experience selling subscriptions to our platform. We intend to pursue a greater proportion of large scale, recurring business transactions and to more effectively drive business customer engagement throughout the life of the relationship. We will continue to expand our platform capabilities to deliver additional value to our customers. Our sales force educates business customers on the strengths of our platform to help customers make informed decisions and create a customized and unified end-to-end learning experience for their businesses.
Geographic Expansion
For the year ended December 31, 2017, we generated 65% of our revenue from customers in the United States. We see a significant opportunity to expand our reach into other regions, particularly where there are large developer groups for multi-national businesses. We have users in over 150 countries around the world and are building out sales teams in Europe and Asia to further address these large markets impacted by rapidly changing technologies.
We recently expanded our operations to Ireland as part of our strategy to build our business and drive customer growth in Europe. We intend to continue to selectively expand in key markets to grow our customer base and increase our revenue.
Expand course library with new content areas and offer additional platform features
We plan to continue to expand our course library to address the most relevant topics for users. Since January 1, 2013, we have added an average of over 80 new courses every month, with an average of over 230 new hours of video per month. We anticipate continued strong growth in our technology learning platform as we build out content in new areas like data science, data engineering, artificial intelligence, machine learning, and security.
We have introduced and acquired several platform features that have been integrated into our cloud-based technology learning platform, including skill assessments and learning paths. We will continue to add additional features to our technology learning platform over time which we believe will provide us the opportunity to generate more revenue from our customers.
Strategic Acquisitions
Strategic acquisitions have enabled us to quickly scale our business, expand our course library, add features to our cloud-based technology learning platform, and address new areas of technology in high demand by our customers. Over the past five years, we have made targeted strategic acquisitions, which have allowed us to expand our content catalog, author base, and platform capabilities. For example, the acquisition of Smarterer gave us the core of our assessment capability that is now an integral part of our technology learning platform and a key differentiator in the market. We have proven success with identifying core capabilities in the market, acquiring talent and technology, and integrating these assets onto our platform for a seamless user experience. We will continue to selectively add content and capabilities through acquisitions that enhance value to our customers.
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Pluralsight One
We believe technology has the power to create freedom, equality, and opportunity around the globe. Pluralsight One is our social impact initiative dedicated to closing the technology skills gap. The initiative will support nonprofit organizations and amplify their impact by equipping them and the people they serve with the technology skills needed to solve the worlds greatest challenges. The more individuals we reach through our platform, the bigger our future opportunity becomes as we enable our customers to access an expanding talent pool.
Pluralsight One is the brand by which we will fulfill our commitment to the Pledge 1% integrated philanthropy movement. Two of our co-founders have together committed to donate one percent of the Companys equity from their personal holdings and we have committed to donate one percent of our product, time, and profit upon the completion of this offering to help uplift communities around the world.
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Product : Pluralsight One will provide discounted and donated subscriptions to our platform to nonprofit organizations. We will support the needs of the social and nonprofit sectors by providing our platform to the people and organizations working on critical social issues. Any revenue from subscriptions provided to organizations in connection with Pluralsight One will be donated back to the community through charitable grants. |
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Time : Employees and authors will be encouraged to donate one percent of their time to qualified nonprofits through volunteer activities in their communities and around the globe, supported by a paid volunteer time off policy, and potential matching dollars for hours volunteered. |
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Profit : We will dedicate, annually, one percent of our net profits, if any, to Pluralsight One, which will infuse a portion of our earnings back into our social impact initiative, the nonprofits it will support through funding grants, and the communities where our employees and authors live and work. |
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Equity : Two of our co-founders, Aaron Skonnard and Frederick Onion, each intend to donate a portion of their Pluralsight equity to Pluralsight One Fund, a donor advised fund owned and operated by a 501(c)(3) public charity. We will have advisory privileges over the fund, with the ability to recommend investment strategy of the donated assets, and the ability to recommend cash grants to support qualified charities, however we will not control the Pluralsight One Fund sponsor, and accordingly we will not consolidate the donor advised funds activities into our consolidated financial statements. |
Technology and Content
Our cloud-hosted, multi-tenant application platform is designed for enterprise scalability to enable significant growth in our user base, support businesses with widely distributed locations, and provide high levels of system performance and availability. Our distributed and scalable technology architecture allows our global user base to access courses anytime they want from almost any device, maximizing utilization of our platform.
Iris
Our platform is powered by Iris, which underlies our skill assessments algorithm and guides users on how to develop desired skills. With every assessment and course completed, Iris absorbs information about the state of technology skills of our overall user base, a specific business customers users, and individual users, thereby allowing our platform to adapt to the needs of our customers. Iris leverages the following to create a smarter, more personalized development journey for users:
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Machine Learning. Iris uses a modified Bayes Network algorithm to predict assessment responses by updating certainty, question difficulty, and skill ratings as it collects user feedback. Using a text mapping technique, Iris recommends content based on a specific users Pluralsight IQ. |
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Modern Test Theory. Iris builds on Item Response Theory, or IRT, and applies Bayesian approximation. Learners are scored against a representative global estimate of all users of a given |
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technology or skill, and questions are usable far sooner than with traditional IRT-based methods while maintaining similar levels of accuracy and reliability. |
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Bayesian Statistics. Iris applies Bayesian statistics to assign scores to learners and characterize questions quickly and accurately. Iris is able to power adaptive assessments by using a modified scoring algorithm that applies a Monte Carlo method to evaluate each users skill level, providing adaptively selected questions to achieve a high level of certainty of that skill level. |
Content Creation
Our course library has been created primarily by our world-class community of authors. By publishing their courses on our platform, we provide authors with exposure to our broad user base, thereby enabling our authors to build their reputations and increase their name recognition as a trusted source in the market. In addition, we share our success with our authors, who receive revenue-share amounts based on the viewing of their content. This incentivizes authors to create new high-quality content, which drives customer growth and user adoption, creating a virtuous cycle that promotes our continued growth.
We identify and select prospective authors based on their experience, following in user communities, popularity, ability to effectively communicate, and commitment to advancing knowledge about their discipline.
Once selected to produce content on our platform, we provide authors with a set of tools and skill development materials to instruct them on our course design methodology. They are assigned to one of our content leaders to help them select topics and craft an outline. One of our production editors then guides them through the video production and editing process. External peer reviewers, who are generally authors, help ensure technical accuracy. Authors produce videos and presentations from their own location on their own time, making the process scalable and efficient.
Based on the size of our author community and the related depth and breadth of technical knowledge, we have the ability to consistently deliver current and relevant content to keep pace with technologys fast pace of change. On average, from the day we decide to create a course, we can identify and sign a new author who meets our specifications in approximately 65 days and that author can publish a new course on our platform within approximately 120 days.
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Technology and Content Team
Our technology and content team regularly engages with customers, users, and industry analysts to understand customer needs and general industry trends to enhance our platform and course library. Our technology and content team use a human-centered design and development approach to engage with customers, users, and industry analysts through interviews and surveys on a frequent basis to understand customer needs and general industry trends to enhance our platform and course library. This allows us to build a platform that is uniquely positioned to deliver a highly personalized journey that focuses on the user and provides deep business analytics. The primary function of our technology team is to evaluate new technologies, determine the best technologies to create for our platform, incorporate new features and functionality into our platform to improve user experience, and ensure our solutions are delivered seamlessly, as well as to ensure that our platform is resilient and available to our customers at any time. Our content team tracks subject-matter experts across a variety of categories, researches the latest technology trends and adoption within businesses, and works with our authors to create high-quality content which addresses the needs of our customers.
As of December 31, 2017, we had 270 employees in our technology and content organization. We intend to continue to invest in our technology and content organization to strengthen our existing platform and add new capabilities to enhance our value to customers.
Customers
As of December 31, 2017, we had 14,463 business customers on our platform. We have experienced rapid growth within large businesses. Our client base is diversified across every industry: financial services, internet, technology, healthcare, media and entertainment, consumer goods and retail, transportation and logistics, government contractors, manufacturing, energy, education, and professional services.
Sales and Marketing
Our platform is designed to be easy to access and use, which allows both individual and business customers to seamlessly purchase subscriptions to, and deploy, our platform. Accordingly, for the year ended December 31, 2017, approximately 26% of our revenue was derived from self-service subscriptions to our platform without any direct interaction with our sales team.
We also deploy a direct sales team focused on landing new business customers, renewing existing subscriptions, and expanding business-wide deployments, as well as a field sales team responsible for sourcing new prospects and upsell opportunities. We expect to increase penetration into our business customers by expanding their use of our platform to address additional use cases and increasing the number of their employees who utilize our platform.
Our marketing efforts are focused on generating awareness of our cloud-based technology learning platform, creating sales leads, establishing and promoting our brand, and cultivating a community of loyal customers and authors. We utilize both online and offline marketing initiatives, including search engine and email marketing, online banner and video advertising, blogs, corporate communications, white papers, case studies, user events including Pluralsight LIVE, and webinars.
Employees
As of December 31, 2017, we had 825 full-time employees. We also engage contractors and consultants. None of our employees are represented by a labor union. We have not experienced any work stoppages, and we believe that our employee relations are good.
Competition
The market for professional skill development is highly competitive, rapidly evolving, and fragmented. We expect competition to continue to accelerate in the future as competitors bundle new and more competitive
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offerings with their existing products and services, and as products and product enhancements are introduced into our market.
We compete directly or indirectly against:
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Instructor-led training vendors, such as Global Knowledge, General Assembly, and New Horizons; |
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Legacy e-learning services, such as Skillsoft and Cornerstone On Demand; |
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Individual-focused e-learning services, such as LinkedIn Learning, Udemy, and Udacity; and |
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Free solutions, such as YouTube. |
We believe that the principal competitive factors in our market include the following:
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breadth, depth, and quality of content library; |
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platform features and functionality; |
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reliability and scalability; |
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performance; |
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user experience; |
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brand; |
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security and privacy; |
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price; |
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accessibility across several devices, operating systems, and applications; |
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third-party and customer integration; |
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customer, technology, and platform support; and |
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continued innovation. |
We believe we compete favorably across these factors and are largely uninhibited by legacy constraints. However, many of our competitors and potential competitors are larger and have greater brand name recognition, longer operating histories, larger marketing budgets and established marketing relationships, access to larger customer bases, and significantly greater resources for the development of their offerings. Moreover, because our market is changing rapidly, it is possible that new entrants, especially those with substantial resources, more efficient operating models, more rapid technology and content development cycles, or lower marketing costs, could introduce new products and services that disrupt our market and better address the needs of our customers and potential customers.
Intellectual Property
We rely on trademarks, copyrights, trade secrets, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements, and employee non-disclosure and invention assignment agreements to establish and protect our proprietary rights. We believe that our intellectual property rights are valuable and important to our business.
As of December 31, 2017, we had nine pending patent applications in the United States and abroad. These patent applications seek to protect our proprietary inventions relevant to our business.
We have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names, taglines, and logos in the United States and other countries to the extent we determine appropriate and cost effective. We also have common law rights in some unregistered trademarks that were established over years of use.
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We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged. In addition, the laws of various foreign countries where our products are distributed may not protect our intellectual property rights to the same extent as laws in the United States.
Legal Proceedings
We are, from time to time, subject to legal proceedings and claims arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our future business, results of operations, financial condition, or cash flows.
Future litigation may be necessary, among other things, to defend ourselves or our users by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Our Facilities
Our corporate headquarters occupies approximately 72,000 square feet in Utah under operating leases that expire at various times through 2021. We also lease offices around the world, including in Boston, Ireland, and India.
We believe that our existing facilities are sufficient for our current needs. In the future, we may need to add new facilities and expand our existing facilities as we add employees, grow our infrastructure, and evolve our business, and we believe that suitable additional or substitute space will be available on commercially reasonable terms to meet our future needs.
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Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors, as of March 31, 2018:
Name |
Age |
Position(s) |
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Executive Officers |
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Aaron Skonnard |
45 |
Co-Founder, Chief Executive Officer, and Chairman |
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James Budge |
51 |
Chief Financial Officer |
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Nate Walkingshaw |
40 |
Chief Experience Officer |
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Joe DiBartolomeo |
56 |
Chief Revenue Officer |
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Non-Employee Directors |
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Gary Crittenden (1)(2) |
64 |
Director |
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Arne Duncan (2) |
53 |
Director |
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Ryan Hinkle (3)(4) |
37 |
Director |
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Tim Maudlin (3) |
67 |
Director |
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Frederick Onion |
49 |
Co-Founder, Director |
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Brad Rencher (4) |
44 |
Director |
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Karenann Terrell (3) |
57 |
Director |
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Scott Dorsey (2)(4) |
50 |
Director |
(1) |
Lead Independent Director |
(2) |
Member of the Nominating and Corporate Governance Committee |
(3) |
Member of the Audit Committee |
(4) |
Member of the Compensation Committee |
Executive Officers
Aaron Skonnard co-founded our company in 2004 and has served as our Chief Executive Officer since October 2009. Mr. Skonnard has served as Chairman of our board of directors since its formation in December 2017, as a member of the board of managers for Pluralsight Holdings since August 2014, and as a member of the board of managers of Pluralsight, LLC since October 2009. Mr. Skonnard also serves as a co-founder and executive board member of Silicon Slopes, a nonprofit designed to empower Utahs startup and tech community. Mr. Skonnard holds a B.S. degree in Computer Science from Brigham Young University.
We believe that Mr. Skonnard is qualified to serve as a member of our board of directors because of his perspective and experience as our co-founder and Chief Executive Officer as well as our largest stockholder.
James Budge has served as our Chief Financial Officer since April 2017. From January 2016 to February 2017, Mr. Budge served as Chief Financial Officer and Co-President of Anaplan, Inc., a financial planning and performance management company. From May 2012 to January 2016, Mr. Budge served as Chief Operating Officer and Chief Financial Officer of Genesys, Inc., a provider of contact center solutions. From September 2005 to May 2012, Mr. Budge served as Chief Operating Officer and Chief Financial Officer of Rovi Corporation, a provider of digital entertainment technology which subsequently acquired and renamed itself TiVo corporation. Mr. Budge holds a B.S. degree in Accounting from Brigham Young University.
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Nate Walkingshaw has served as our Chief Experience Officer since February 2016. Previously, Mr. Walkingshaw served as our Chief Product Officer from January 2015 to February 2016. Prior to joining our company, Mr. Walkingshaw founded and served as Chief of Research and Innovation at O.C. Tanner Company, an innovation incubator for recognition and wellness ventures, from November 2013 to January 2015. From May 2011 to August 2013, Mr. Walkingshaw served in various capacities at Brightface, Inc., a software and application development company, which he co-founded. Mr. Walkingshaw studied International Business at Westminster College.
Joe DiBartolomeo has served as our Chief Revenue Officer since June 2016. Prior to joining our company, Mr. DiBartolomeo served as President-Americas for Qlik Technologies Inc., a business intelligence and analytics company, from July 2011 to June 2016. Mr. DiBartolomeo studied Computer Science and Electrical Engineering at The New York Institute of Technology.
Non-Employee Directors
Gary Crittenden has served as a member of the board of directors since its formation in December 2017, and as a member of the board of managers of Pluralsight Holdings since June 2016. Since January 2017, Mr. Crittenden has served as an Executive Director at HGGC, LLC, a private equity firm. Mr. Crittenden previously served as the Chairman and Managing Partner of HGGC, LLC from December 2013 to December 2016, as its Chief Executive Officer from April 2012 to December 2013, and as its Managing Partner from 2009 to April 2012. Since July 2013 Mr. Crittenden has served on the board of directors of Primerica, Inc., a distributor of financial products, and since August 2016, Mr. Crittenden has served on the board of directors of Zions Bancorporation, a financial holding company. Mr. Crittenden previously served as chairman of Citi Holdings, and as Chief Financial Officer at Citigroup, American Express Company, Monsanto, Sears Roebuck, Melville Corporation, and Filenes Basement. Mr. Crittenden holds a B.S. degree in Management from Brigham Young University, an M.B.A. degree from Harvard Business School, and an Honorary Doctorate from Weber State University.
We believe Mr. Crittenden is qualified to serve as a member of our board of directors because of his public company operating experience, financial and accounting expertise, and his leadership experience within large enterprises.
Scott Dorsey has served as a member of the board of directors since its formation in December 2017 and as a member of the board of managers of Pluralsight Holdings since September 2017. Since April 2015, Mr. Dorsey has served as Managing Partner of High Alpha, a venture studio that launches, scales, and invests in enterprise cloud companies. From July 2013 to August 2014, Mr. Dorsey served as the Chief Executive Officer of Salesforce ExactTarget Marketing Cloud, a cloud marketing platform and division of salesforce.com, inc., an enterprise cloud computing company. Prior to ExactTargets acquisition by salesforce.com in 2013, Mr. Dorsey co-founded ExactTarget, Inc., a marketing software company, and served as its Chairman and Chief Executive Officer from December 2000 to July 2013. Mr. Dorsey holds a B.S. degree in Marketing from Indiana University and an M.B.A. degree from the Kellogg School of Management at Northwestern University.
We believe Mr. Dorsey is qualified to serve as a member of our board of directors because of his public company operating experience and his experience in the venture capital industry analyzing and investing in technology companies.
Arne Duncan has served as a member of the board of directors since its formation in December 2017 and as a member of the board of managers of Pluralsight Holdings since June 2016. Since March 2016, Mr. Duncan has served as a Managing Partner at the Emerson Collective, a non-profit organization focused on improving the quality of public education. Mr. Duncan previously served as the U.S. Secretary of Education from January 2009 to December 2015. Mr. Duncan currently serves on the board of directors of several private companies. Mr. Duncan holds a B.A. degree in Sociology from Harvard University.
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We believe Mr. Duncan is qualified to serve as a member of our board of directors because of his in-depth knowledge of, and experience in, education.
Ryan Hinkle has served as a member of the board of directors since its formation in December 2017, as a member of the board of managers of Pluralsight Holdings since August 2014, and as a member of the board of managers of Pluralsight, LLC since December 2012. Mr. Hinkle joined Insight Venture Management, LLC, a venture capital and private equity firm, in 2003 and has served as a Managing Director since December 2012. Mr. Hinkle holds a B.S. degree in Economics and a B.A.S. degree in Electrical Engineering from the University of Pennsylvania.
We believe that Mr. Hinkle is qualified to serve as a member of our board of directors because of his experience in the venture capital industry analyzing and investing in technology companies, as well as his perspective as a representative of one of our largest stockholders.
Timothy Maudlin has served as a member of the board of directors since its formation in December 2017 and as a member of the board of managers of Pluralsight Holdings since June 2016. From January 1989 to December 2007, Mr. Maudlin served as the Managing General Partner of Medical Innovation Partners, a venture capital firm. Mr. Maudlin has served as a member of the board of directors of Alteryx, Inc., a data analytics software company, since December 2015, and as a member of the board of directors of Web.com Group, Inc., an internet services company, since February 2002. Mr. Maudlin previously served as a member of the board of directors of ExactTarget, Inc., a marketing software company, from May 2008 to July 2013, and Sucampo Pharmaceuticals, Inc., a biopharmaceutical company, from September 2006 to February 2013. Mr. Maudlin holds a B.A. degree in Economics from St. Olaf College and an M.M. degree in Accounting, Finance, and Management from the Kellogg School of Management at Northwestern University. Mr. Maudlin is trained as a certified public accountant.
We believe that Mr. Maudlin is qualified to serve as a member of our board of directors because of his experience in the venture capital industry analyzing and investing in technology companies, his extensive experience as a member of numerous public company boards of directors, and his significant financial and accounting expertise.
Frederick Onion co-founded our company in 2004 has served as a member of the board of directors since its formation in December 2017, as a member of the board of managers of Pluralsight Holdings since August 2014, and as a member of the board of managers of Pluralsight, LLC since June 2014. Mr. Onion has served as our Content Advisor since June 2014, and previously served as our Chief Content Officer from May 2008 to May 2014. In August 2014, Mr. Onion founded the Onion Foundation, a private non-profit family foundation. Mr. Onion holds an A.B. degree in Computer Science from Harvard University and an M.S. degree in Computer Science from the University of California, Irvine.
We believe that Mr. Onion is qualified to serve as a member of our board of directors because of his knowledge of the industry in which we operate and his perspective, and experience as our co-founder.
Bradley Rencher has served as a member of the board of directors since its formation in December 2017 and as a member of the board of managers of Pluralsight Holdings since June 2016. Mr. Rencher has served as Executive Vice President and General Manager of Digital Marketing at Adobe Systems Inc., a software company, since August 2011. Mr. Rencher currently serves as a member of the board of directors of the Utah Symphony and as an executive board member of Silicon Slopes, a nonprofit designed to empower Utahs startup and tech community. Mr. Rencher holds a B.S. degree in Business Management and Finance from Brigham Young University and an M.B.A. degree from the Kellogg School of Management at Northwestern University.
We believe that Mr. Rencher is qualified to serve as a member of our board of directors because of his knowledge of the industry in which we operate.
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Karenann Terrell has served as a member of the board of directors since its formation in December 2017, and as a member of the board of managers of Pluralsight Holdings since October 2017. Since September 2017, Ms. Terrell has served as Chief Digital and Technology Officer for GlaxoSmithKline plc, a global pharmaceutical and healthcare company. Ms. Terrell previously served as the Chief Information Officer of Wal-Mart Stores, Inc., a global retail company, from February 2012 to March 2017. Ms. Terrell holds a B.S. degree in Electrical Engineering from Kettering University and an M.S. degree in Electrical Engineering from Purdue University.
We believe Ms. Terrell is qualified to serve as a member of our board of directors because of her public company operating experience, her expertise in digital, data, and analytics strategy, and her leadership experience within large enterprises.
Other Director Matters
Gary Crittenden served as the Chief Financial Officer of Citigroup from March 2007 to March 2009. In July 2010, Mr. Crittenden entered into an order with the SEC in which the SEC found that Mr. Crittenden should have known that certain statements made by Citigroup, while he was chief financial officer, were materially misleading and Mr. Crittenden paid a civil monetary penalty of $100,000. Mr. Crittenden did not admit any wrongdoing in connection with the matter or disgorge any amount to Citigroup, and he did not face a ban from any future activities. In electing Mr. Crittenden, our board of directors considered the SEC order and related matters and concluded that they did not raise any concerns about Mr. Crittendens qualification to serve on our board of directors.
Board of Directors
Our business and affairs are managed under the direction of our board of directors. The number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws that will become effective immediately prior to the completion of this offering. Our board of directors consists of nine directors, six of whom qualify as independent under Nasdaq listing standards.
In accordance with our amended and restated certificate of incorporation and our amended and restated bylaws, immediately after the completion of this offering our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows:
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the Class I directors will be Messrs. Crittenden, Maudlin, and Rencher and their terms will expire at the annual meeting of stockholders to be held in 2019; |
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the Class II directors will be Messrs. Duncan and Onion and Ms. Terrell and their terms will expire at the annual meeting of stockholders to be held in 2020; and |
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the Class III directors will be Messrs. Dorsey, Hinkle, and Skonnard and their terms will expire at the annual meeting of stockholders to be held in 2021. |
Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
The classification of our board of directors with staggered three-year terms may have the effect of delaying or preventing changes in control of our company.
Upon completion of this offering, Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, together with his affiliates, will control a majority of the combined voting power of our outstanding capital stock. As a result, Mr. Skonnard will be able to control any action requiring the general approval of our stockholders, including the election of our board of directors.
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Director Independence
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our board of directors has determined that each of Gary Crittenden, Scott Dorsey, Ryan Hinkle, Tim Maudlin, Brad Rencher, and Karenann Terrell does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is independent as that term is defined under the rules of Nasdaq.
In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director and their affiliates, and the transactions involving them described in the section titled Certain Relationships and Related Party Transactions.
Board Oversight of Risk
One of the key functions of our board of directors is informed oversight of our risk management process. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure. Our executive officers are responsible for the day-to-day management of the material risks we face. Our board of directors administers its oversight function directly as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. For example, our Audit Committee is responsible for overseeing the management of risks associated with our financial reporting, accounting, and auditing matters; our Compensation Committee oversees the management of risks associated with our compensation policies and programs; and our Nominating and Corporate Governance Committee oversees the management of risks associated with director independence, conflicts of interest, composition, and organization of our board of directors and director succession planning.
Lead Independent Director
Our board of directors intends to adopt corporate governance guidelines that will provide that one of our independent directors should serve as our Lead Independent Director at any time when our Chief Executive Officer serves as the Chairperson of our board of directors or if the Chairperson is not otherwise independent. Our board of directors has appointed Gary Crittenden to serve as our Lead Independent Director. As Lead Independent Director, Mr. Crittenden will preside over periodic meetings of our independent directors, serve as a liaison between our Chairperson and our independent directors and perform such additional duties as our board of directors may otherwise determine and delegate.
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. Our board of directors and its committees set schedules for meeting throughout the year and can also hold special meetings and act by written consent from time to time, as appropriate. Our board of directors has delegated various responsibilities and authority to its committees as generally described below. The committees will regularly report on their activities and actions to the full board of directors. Members serve on these committees until their resignation or until otherwise determined by our board of directors.
Audit Committee
The members of our Audit Committee are Messrs. Hinkle and Maudlin and Ms. Terrell, with Mr. Maudlin serving as Chairperson, each of whom meets the requirements for independence under the listing standards of Nasdaq and SEC rules and regulations. Each member of our Audit Committee also meets the financial literacy
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and sophistication requirements of the listing standards of Nasdaq. In addition, our board of directors has determined that Mr. Maudlin is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act. Following the completion of this offering, our Audit Committee will be responsible for, among other things:
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selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; |
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helping to ensure the independence and performance of the independent registered public accounting firm; |
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discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing with management and the independent registered public accounting firm, our interim and year-end results of operations; |
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reviewing our financial statements and our critical accounting policies and estimates; |
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reviewing the adequacy and effectiveness of our internal controls; |
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developing procedures for employees to submit concerns anonymously about questionable accounting, internal accounting controls, or audit matters; |
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reviewing our policies on risk assessment and risk management; |
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reviewing and approving related party transactions; and |
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approving or, as required, pre-approving, all audit and all permissible non-audit services, to be performed by the independent registered public accounting firm. |
Our Audit Committee will operate under a written charter, to be effective prior to the completion of this offering, which satisfies the applicable rules and regulations of the SEC and the listing standards of Nasdaq.
Compensation Committee
The members of our Compensation Committee are Messrs. Dorsey, Hinkle, and Rencher, with Mr. Rencher serving as Chairperson, each member of our Compensation Committee is independent under the rules and regulations of the SEC and the listing standards of Nasdaq applicable to compensation committee members. Each member of our Compensation Committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act, or Rule 16b-3. Following the completion of this offering, our Compensation Committee will be responsible for, among other things:
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reviewing, approving, and determining, or making recommendations to our board of directors regarding, the compensation of our executive officers; |
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administering our equity compensation plans; |
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reviewing, approving, and making recommendations to our board of directors regarding incentive compensation and equity compensation plans; |
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establishing and reviewing general policies relating to compensation and benefits of our employees; and |
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making recommendations regarding non-employee director compensation to our full board of directors. |
Our Compensation Committee will operate under a written charter, to be effective prior to the completion of this offering, which satisfies the applicable rules and regulations of the SEC and the listing standards of Nasdaq.
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Nominating and Corporate Governance Committee
The members of our Nominating and Corporate Governance Committee are Messrs. Crittenden, Dorsey, and Duncan, with Mr. Crittenden serving as Chairperson. We have determined that Mr. Duncan is not independent as that term is defined under the rules and regulations of Nasdaq, and we intend to rely on the phase-in schedules set forth in Nasdaq Marketplace Rule 5615(b)(1) with respect to the independence of our Nominating and Corporate Governance Committee, which allows a company listing on the exchange in connection with its initial public offering to phase in its compliance with Nasdaq independent committee requirements such that all members of the Nominating and Corporate Governance Committee shall be independent within one year of listing. Following the completion of this offering, our Nominating and Corporate Governance Committee will be responsible for, among other things:
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identifying, evaluating, and selecting, or making recommendations to our board of directors regarding nominees for election to our board of directors and its committees; |
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evaluating the performance of our board of directors and of individual directors; |
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considering and making recommendations to our board of directors regarding the composition of our board of directors and its committees; |
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reviewing developments in corporate governance practices; |
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evaluating the adequacy of our corporate governance practices and reporting; |
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approving our committee charters; |
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overseeing compliance with our Code of Business Conduct and Ethics; |
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contributing to succession planning; |
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reviewing actual and potential conflicts of interest of our directors and officers other than related party transactions reviewed by our Audit Committee; and |
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developing and making recommendations to our board of directors regarding corporate governance guidelines and matters. |
Our Nominating and Corporate Governance Committee will operate under a written charter, to be effective prior to the completion of this offering, which satisfies the applicable listing standards of Nasdaq.
Code of Business Conduct and Ethics
Our board of directors has adopted a Code of Business Conduct and Ethics, or the Code. The Code applies to all of our employees, officers, directors, contractors, consultants, suppliers, and agents. Upon the completion of this offering, the full text of our code of conduct will be posted on our website at www.pluralsight.com under the Investor Relations section. We intend to disclose future amendments to, or waivers of, our Code, as and to the extent required by SEC regulations, at the same location on our website identified above or in public filings. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, or in the past year has served, as a member of the board of directors or compensation committee of any other entity that has or has had one or more executive officers serving as a member of our board of directors or our Compensation Committee.
A member of our board of directors and our compensation committee, Ryan Hinkle, is a Managing Director of Insight Venture Management, LLC, which is an affiliate of certain record and beneficial owners of more than 5% of our capital stock. Entities affiliated with Insight Venture Management, LLC purchased 2,653,927 Series C redeemable convertible preferred units for a total purchase price of $24,999,992 in March 2016 and 6,540,881 Class A common units for a total purchase price of $53,962,268 in August 2017.
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A member of our board of directors and our compensation committee, Brad Rencher, is affiliated with Centerpine LLC, which purchased 53,003 common units for a total purchase price of $299,997 in November 2016. Centerpine LLC also purchased an additional 103,244 Class A common units for a total purchase price of $699,994 in September 2017.
A member of our board of directors and our compensation committee, Scott Dorsey, is affiliated with AREO Ventures, LLC, which purchased 147,492 Class A common units for a total purchase price of $999,996 in September 2017.
Non-Employee Director Compensation
Prior to this offering, we had not implemented a formal policy with respect to compensation payable to our non-employee directors for service as directors. We have a policy of reimbursing all of our non-employee directors for their reasonable out-of-pocket expenses in connection with attending board of directors and committee meetings. From time to time, we have granted incentive units to certain of our non-employee directors, typically in connection with a non-employee directors initial appointment to our board of directors.
We intend to approve a non-employee director compensation program to become effective following this offering. Pursuant to this program, our non-employee directors will receive both cash and equity compensation for their service as directors.
The following table provides information regarding the total compensation that was awarded to each of our directors who was not serving as an executive officer during 2017. Mr. Skonnard has been excluded from this table because he was an employee of the Company in 2017 and his compensation as an employee is reflected in the section titled Executive Compensation2017 Summary Compensation Table. Mr. Skonnard did not receive any compensation for his services as a director in 2017.
Fees Earned or Paid in Cash |
Unit Awards (1) |
Total | ||||||||||
Name |
($) | ($) | ($) | |||||||||
Gary Crittenden |
| | | |||||||||
Scott Dorsey (2) |
| 1,264,450 | 1,264,450 | |||||||||
Arne Duncan |
| | | |||||||||
Ryan Hinkle |
| | | |||||||||
Tim Maudlin |
| | | |||||||||
Frederick Onion |
| | | |||||||||
Brad Rencher |
| | | |||||||||
Karenann Terrell (3) |
| 1,264,450 | 1,264,450 |
(1) |
Amounts reflect the full grant-date fair value of incentive units granted during 2017 computed in accordance with FASB ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provided information regarding the assumptions used to calculate the value of all incentive unit grants made to our directors in Note 8 to Pluralsight Holdings consolidated financial statements included elsewhere in this prospectus. |
(2) |
During fiscal year 2017, Mr. Dorsey received a grant of 209,000 incentive units, which vests in equal quarterly installments over three years, with the first tranche vesting on October 1, 2017. |
(3) |
During fiscal year 2017, Ms. Terrell received a grant of 209,000 incentive units, which vests in equal quarterly installments over three years, with the first tranche vesting on January 1, 2018. |
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The table below shows the aggregate numbers of unvested incentive units held as of December 31, 2017, by each non-employee director who was serving as of December 31, 2017. Mr. Skonnard, our Chief Executive Officer, is excluded from this table because he was an employee of the Company in 2017 and did not receive any incentive units for his services as a director. Mr. Skonnards outstanding incentive equity is fully reflected in the section titled Executive CompensationOutstanding Equity Awards at Fiscal Year-End.
Unvested Incentive Units Outstanding at Fiscal Year End |
||||
Name |
(#) | |||
Gary Crittenden |
104,500 | |||
Scott Dorsey |
191,584 | |||
Arne Duncan |
231,256 | (1)(2) | ||
Ryan Hinkle |
| |||
Tim Maudlin |
87,084 | |||
Frederick Onion |
| |||
Brad Rencher |
104,500 | |||
Karenann Terrell |
209,000 |
(1) |
Of this amount, 104,500 unvested incentive units relate to Mr. Duncans May 2016 grant of 209,000 incentive units for his initial appointment to our board of directors. |
(2) |
Of this amount, 126,756 unvested incentive units relate to Mr. Duncans December 2016 grant of 169,007 incentive units in connection with Mr. Duncan providing certain services to us, including making appearances on our behalf. See the section titled Certain Relationships and Related Party TransactionsExecutive and Director Compensation for additional information. |
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This section discusses the material components of the executive compensation program for our executive officers who are named in the section titled 2017 Summary Compensation Table below. The table summarizes the compensation paid to our principal executive officer and each of our other named executive officers determined under 402(m)(2) of Regulation S-K during 2017. We refer to these individuals as our named executive officers. In fiscal year 2017, our named executive officers and their positions were as follows:
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Aaron Skonnard, our co-Founder, Chief Executive Officer, and Chairman; |
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James Budge, our Chief Financial Officer; and |
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Nate Walkingshaw, our Chief Experience Officer. |
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. Actual compensation programs we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion.
2017 Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for 2017.
Name and Principal Position |
Salary
($) |
Bonus
($) |
Restricted
Share Unit Awards (1) ($) |
Incentive
Unit Awards (2) ($) |
Non-Equity
Incentive Plan Compensation ($) |
Change in
Pension Value and Nonqualified Deferred Compensation Earnings ($) |
All Other
Compensation (3) ($) |
Total
($) |
||||||||||||||||||||||||
Aaron Skonnard |
226,875 | 784,464 | 24,720,000 | 18,150,000 | | | 2,083,969 | (4) | 45,965,308 | |||||||||||||||||||||||
Co-Founder, Chief Executive Officer, and Chairman |
||||||||||||||||||||||||||||||||
James Budge |
3,456 | (5) | 280,000 | | 6,016,079 | | | 17,931 | 6,317,466 | |||||||||||||||||||||||
Chief Financial Officer |
||||||||||||||||||||||||||||||||
Nate Walkingshaw |
350,004 | 380,000 | (6) | 485,400 | | | | 250,251 | 1,465,655 | |||||||||||||||||||||||
Chief Experience Officer |
(1) |
The amounts in the Restricted Share Unit Awards column reflect the aggregate grant-date fair value of RSUs awarded to our named executive officers during 2017 as computed in accordance with FASB ASC Topic 718. We provide information regarding the assumptions used to calculate the value of all RSU awards made to executive officers in Note 8 to Pluralsight Holdings consolidated financial statements included elsewhere in this prospectus. |
(2) |
The amounts in the Incentive Unit Awards column reflect the aggregate grant-date fair value of Class A and Class B incentive units granted during 2017 computed in accordance with FASB ASC Topic 718, rather than the amounts paid or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all incentive unit awards made to executive officers in Note 8 to Pluralsight Holdings consolidated financial statements included elsewhere in this prospectus. |
(3) |
For each of our named executive officers, the amount includes matching contributions under our 401(k) plan ($9,698 for Mr. Skonnard, $8,260 for Mr. Budge, and $9,091 for Mr. Walkingshaw) and gift cards ($500 for each of Mr. Skonnard, Mr. Budge, and Mr. Walkingshaw). For Mr. Budge, the amount also includes housing expenses ($9,037) and a reimbursement for gym membership and related expenses ($134). For Mr. Walkingshaw, the amount also includes the premiums from the redemption of 147,000 incentive units on August 31, 2017, totaling $185,220, and from the redemption of an additional 49,500 incentive units in November 2017, totaling $55,440. |
(4) |
For Mr. Skonnard, the amount in this column also includes a one-time compensation expense of $2,073,771 that we recorded in 2017 in connection with the conversion of 12,961,071 common units beneficially owned by Mr. Skonnard into Class B common units in June 2017. This amount represents the difference in fair value between the Class A common units and Class B common units at the time of conversion. We provide information regarding the conversion and assumptions used to calculate the value of the different classes of common units in Note 7 to Pluralsight Holdings consolidated financial statements included elsewhere in this prospectus. |
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(5) |
This amount represents payments necessary to allow Mr. Budge to make standard applicable employee contributions under our broad-based employee benefits plans. |
(6) |
This amount represents (i) total quarterly cash bonuses of $100,000 and (ii) an annual bonus of $280,000. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding the incentive units, Class B incentive units, Class A RSUs, and Class B RSUs held by each of our named executive officers as of December 31, 2017.
Incentive Unit Awards | RSU awards | |||||||||||||||||||||||
Name |
Grant
Date |
Number of
Unvested Incentive Units (#) |
Threshold
Price Per Unit ($) |
Catch-Up
Price Per Unit ($) |
Number of
Unearned Units or Other Rights That Have Not Vested (#) |
Market Value
of Unearned Units or Other Rights That Have Not Vested (1) ($) |
||||||||||||||||||
Aaron Skonnard |
09/29/17 | 3,000,000 | (2) | 9.42 | 2.64 | |||||||||||||||||||
09/29/17 | 3,000,000 | (3) | $ | 25,560,000 | ||||||||||||||||||||
James Budge |
04/25/17 | 1,652,769 | (4) | 9.42 | 3.55 | |||||||||||||||||||
Nate Walkingshaw |
05/28/15 | 153,689 | (5) | 7.86 | 4.81 | |||||||||||||||||||
09/30/16 | 138,375 | (6) | 9.42 | 3.95 | ||||||||||||||||||||
09/06/17 | 30,000 | (7) | $ | 252,000 | ||||||||||||||||||||
09/06/17 | 30,000 | (8) | $ | 252,000 |
(1) |
This amount reflects the fair market value of our RSUs of $8.40 per unit and Class B RSUs of $8.52 per unit as of December 31, 2017, multiplied by the amount shown under the heading Number of Unearned Units or Other Rights That Have Not Vested. |
(2) |
Amounts reflect Class B incentive units. These incentive units vest as follows: 750,000 incentive units (representing approximately 25% of the total incentive units under this grant) will vest on July 25, 2018; provided, that Mr. Skonnard remains in continuous service with us through that vesting date; and the remaining incentive units will vest in equal quarterly installments of 187,500 incentive units each (representing approximately 6.25% of the total grant) on January 25, April 25, July 25, and October 25 of each year, commencing October 25, 2018, and continuing through July 25, 2021; provided, that Mr. Skonnard remains in continuous service with us through the quarterly vesting date in question. All unvested Class B units will immediately vest in the event that we terminate Mr. Skonnards employment without cause (other than due to death or disability) or Mr. Skonnard terminates his employment with us for good reason (each as defined in Mr. Skonnards Class B Incentive Unit Offer, dated September 29, 2017, or the Skonnard Class B Incentive Unit Offer). Upon, or in connection with, a sale of the company (as defined in the Fourth LLC Agreement), all unvested Class B incentive units will immediately vest in full. |
(3) |
Amounts reflect Class B RSUs. The securities underlying these RSUs vest as follows: (i) prior to the initial vesting date, none of the RSUs shall be vested; (ii) as of the initial vesting date (which requires both the occurrence of a liquidity event (as defined in Mr. Skonnards Amended and Restated RSU Agreement, dated , 2018, or the Skonnard RSU Agreement) prior to September 29, 2024 and Mr. Skonnards completion of at least one year of vesting service), Mr. Skonnard shall vest in 25% of the RSUs plus an additional 6.25% of the RSUs for each full quarter of additional vesting service that Mr. Skonnard has completed on or before the initial vesting date; provided, that Mr. Skonnards employment or consulting engagement with us has not terminated prior to such date; and (iii) as of any subsequent vesting date, Mr. Skonnard shall vest in an additional 6.25% of the RSUs; provided, that Mr. Skonnards employment or consulting engagement with us has not terminated prior to such date. The time- and service-based vesting requirements shall be deemed satisfied with respect to any then unvested RSUs in the event that we terminate Mr. Skonnards employment without cause (other than death or disability) or Mr. Skonnard terminates his employment with us for good reason (each as defined in the Skonnard RSU Agreement). |
(4) |
Amounts reflect incentive units. 25% of these units will become eligible to vest on April 17, 2018, and the remaining 75% of these units shall vest in 12 equal installments on each quarterly anniversary of April 17, 2018 through April 17, 2021. All unvested incentive units will immediately vest in the event we terminate Mr. Budges employment without cause or Mr. Budge terminates his employment with us for good reason (each as defined in the Budge Employment Agreement (as defined below)), in each case within 12 months of a sale of the company (as defined in the 2013 Plan (as defined below)). |
(5) |
Amounts reflect incentive units. 25% of these units vested on January 1, 2016, and the remaining 75% of these units vest in 12 equal installments on each quarterly anniversary of January 1, 2016 through January 1, 2019. Pursuant to Mr. Walkingshaws Incentive Unit Offer, dated May 28, 2015, all unvested incentive units under this grant will be forfeited automatically in the event Mr. Walkingshaws employment with us terminates prior to January 1, 2019, for any reason, whether voluntarily or involuntarily, with or without cause, provided, however, in the event of a sale of the company (as defined in the 2013 Plan) on or prior to Mr. Walkingshaws termination date, our board of directors may, in its discretion, accelerate the vesting of all or a portion of Mr. Walkingshaws then unvested incentive units under this grant. |
(6) |
Amounts reflect incentive units. 25% of these units vested on January 1, 2017, and the remaining 75% of these units vest in 12 equal installments on each quarterly anniversary of January 1, 2017 through January 1, 2020. Pursuant to Mr. Walkingshaws Incentive Unit |
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Offer, dated September 30, 2016, all unvested incentive units under this grant will be forfeited automatically in the event Mr. Walkingshaws employment with us terminates prior to January 1, 2020, for any reason, whether voluntarily or involuntarily, with or without cause, provided, however, in the event of a sale of the company (as defined in the 2013 Plan) on or prior to Mr. Walkingshaws termination date, our board of directors may, in its discretion, accelerate the vesting of all or a portion of Mr. Walkingshaws then unvested incentive units under this grant. |
(7) |
Amounts reflect RSUs. The shares underlying these RSUs vest as follows: (i) prior to the initial vesting date, none of the RSUs shall be vested; (ii) as of the initial vesting date (which requires both the occurrence of a liquidity event (as defined in Mr. Walkingshaws time-based Restricted Share Unit Agreement, dated September 6, 2017) prior to September 6, 2024 and Mr. Walkingshaws completion of at least one year of vesting service), Mr. Walkingshaw shall vest in 25% of the RSUs plus an additional 6.25% of the RSUs for each full quarter of additional vesting service that Mr. Walkingshaw has completed on or before the initial vesting date; provided, that Mr. Walkingshaws employment or consulting engagement with us has not terminated prior to such date; and (iii) as of any subsequent vesting date, Mr. Walkingshaw shall vest in an additional 6.25% of the RSUs; provided, that Mr. Walkingshaws employment or consulting engagement with us has not terminated prior to such date. |
(8) |
Amounts reflect RSUs. The shares underlying these RSUs vest as follows: (i) 50% of the RSUs vest on April 1, 2019 and; (ii) 50% of the RSUs vest on April 1, 2020, subject in all cases to (A) Mr. Walkingshaws continued employment or consulting engagement through the applicable vesting date, (B) the Companys achievement of a specified performance condition, and (C) the occurrence of a liquidity event (as defined in Mr. Walkingshaws performance-based Restricted Share Unit Agreement, dated September 6, 2017) prior to September 6, 2024. |
Executive Compensation Arrangements
Aaron Skonnard Executive Employment Agreement
Mr. Skonnard, our co-founder, Chief Executive Officer and Chairman, entered into an executive employment agreement with us, dated August 16, 2017, or the Skonnard Employment Agreement. Pursuant to the Skonnard Employment Agreement, Mr. Skonnard receives no base salary and is eligible to participate in standard benefit plans and perquisite programs made available to our employees generally. We provide Mr. Skonnard an amount of up to $3,000 per year for flexible spending account contributions. We also provide Mr. Skonnard with payment or reimbursement for private air travel of up $500,000 per year for his business travel. Mr. Skonnard also is eligible to participate in any annual bonus plan offered by us to our employees generally, with an annual target bonus of $400,000, and with individual goals, performance assessment, and discretionary bonus payments, if any, to be determined by our board of directors.
The Skonnard Employment Agreement provides for at-will employment and may be terminated at any time, for any or no reason, by either us or Mr. Skonnard on 30 days written notice to the other party. However, we may terminate Mr. Skonnards employment immediately and without prior notice for cause (as defined in the Skonnard Employment Agreement) or at our sole discretion by providing Mr. Skonnard with pay in lieu of the 30-day notice period. In addition, Mr. Skonnard may terminate his employment immediately and without prior notice for good reason (as defined in the Skonnard Employment Agreement). In the event Mr. Skonnard terminates the Skonnard Employment Agreement for any reason other than for good reason, then during the 30-day notice period, we may terminate Mr. Skonnards employment at any time, in which case all our obligations to Mr. Skonnard under the Skonnard Employment Agreement other than accrued obligations through the date of termination will cease.
If we terminate the Skonnard Employment Agreement without cause or if Mr. Skonnard terminates the Skonnard Employment Agreement for good reason, then we will pay to Mr. Skonnard: (i) severance pay in an amount equal to $200,000, less applicable withholdings, in six (6) equal monthly installments; and (ii) if Mr. Skonnard properly elects continuation coverage under our group medical insurance plan under applicable law, the percentage of the premium for such medical plan coverage which we bear for similarly situated active employees of ours and their enrolled family members immediately before the termination date for up to six (6) months. These severance payments, however, will be reduced by the amount of any compensation Mr. Skonnard earns from other employment during the period such severance payments are payable. In addition, if we determine following the termination of the Skonnard Employment Agreement that cause existed on or before such termination, the severance payments described in this paragraph will cease and/or become repayable to us by Mr. Skonnard, as applicable.
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To receive the severance payments described in the immediately preceding paragraph, Mr. Skonnard must timely execute and deliver to us a separation agreement and release of all claims in a form acceptable to us and must not revoke such agreement.
The Skonnard Employment Agreement requires Mr. Skonnard to covenant to not compete with or against us for one year following Mr. Skonnards termination of employment with us, and to cooperate with us in good faith to resolve any dispute, controversy, or litigation we may be involved in (excluding any proceeding where Mr. Skonnard is an adverse party) for two years following his termination of employment with us.
Mr. Skonnard is also entitled to vesting acceleration benefits for certain of his equity awards under certain circumstances as described in the Outstanding Equity Awards at Fiscal Year-End table above.
James Budge Executive Employment Agreement
Mr. Budge, our Chief Financial Officer, entered into an executive employment agreement with us, dated September 15, 2017, or the Budge Employment Agreement. Pursuant to the Budge Employment Agreement, Mr. Budge is to receive no base salary, other than any payments necessary to allow for standard applicable employee contributions under our broad-based employee benefits plans, and is eligible to participate in standard benefit plans and perquisite programs made available to our employees generally. We provide Mr. Budge an amount of up to $3,000 per year for flexible spending account contributions. Through August 31, 2018, or such later date as determined our Chief Executive Officer, we will also provide Mr. Budge a housing reimbursement of up to $2,500 per month and reasonable travel reimbursement between California and Utah. We will also cover Mr. Budges reasonable relocation expenses when he relocates to Utah. Mr. Budge is also eligible to participate in any annual bonus plan offered by us to our employees generally, with individual goals, performance assessment, and discretionary bonus payments, if any, determined by our Chief Executive Officer or our board of directors.
The Budge Employment Agreement provides for at-will employment and may be terminated at any time, for any or no reason, by either us or Mr. Budge on 30 days written notice to the other party. However, we may terminate Mr. Budges employment immediately and without prior notice for cause (as defined in the Budge Employment Agreement) or at our sole discretion by providing Mr. Budge with pay in lieu of the 30-day notice period. In addition, Mr. Budge may terminate his employment immediately and without prior notice for good reason (as defined in the Budge Employment Agreement). In the event Mr. Budge terminates the Budge Employment Agreement for any reason other than for good reason, then during the 30-day notice period, we may terminate Mr. Budges employment at any time, in which case all our obligations to Mr. Budge under the Budge Employment Agreement other than accrued obligations through the date of termination will cease.
If we terminate the Budge Employment Agreement without cause or if Mr. Budge terminates the Budge Employment Agreement for good reason, then we will pay to Mr. Budge: (i) severance pay in an amount equal to $175,000, less applicable withholdings, in six (6) equal monthly installments; and (ii) if Mr. Budge properly elects continuation coverage under our group medical insurance plan under applicable law, the percentage of the premium for such medical plan coverage which we bear for similarly situated active employees of ours and their enrolled family members immediately before the termination date for up to six (6) months. These severance payments, however, will be reduced by the amount of any compensation Mr. Budge earns from other employment during the period such severance payments are payable. In addition, if we determine following the termination of the Budge Employment Agreement that cause existed on or before such termination, the severance payments described in this paragraph will cease and/or become repayable to us by Mr. Budge, as applicable.
To receive the severance payments described in the immediately preceding paragraph, Mr. Budge must timely execute and deliver to us a separation agreement and release of all claims in a form acceptable to us and must not revoke such agreement.
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The Budge Employment Agreement requires Mr. Budge to covenant to not compete with or against us for one year following Mr. Budges termination of employment with us, and to cooperate with us in good faith to resolve any dispute, controversy or litigation we may be involved in (excluding any proceeding where Mr. Budge is an adverse party) for two years following his termination of employment with us.
Mr. Budge is also entitled to vesting acceleration benefits for certain of his equity awards under certain circumstances as described in the Outstanding Equity Awards at Fiscal Year-End table above.
Nate Walkingshaw Executive Employment Agreement
Mr. Walkingshaw, our Chief Experience Officer, entered into an executive employment agreement with us, dated September 15, 2017, or the Walkingshaw Employment Agreement. Pursuant to the Walkingshaw Employment Agreement, Mr. Walkingshaw is eligible to participate in standard benefit plans and perquisite programs made available to our employees generally and, effective as of January 1, 2018, Mr. Walkingshaw receives an annual base salary of $330,000. Mr. Walkingshaw also is eligible to participate in any annual bonus plan offered by us to our employees generally, with individual goals, performance assessment, and discretionary bonus payments, if any, determined by our Chief Executive Officer or our board of directors.
The Walkingshaw Employment Agreement provides for at-will employment and may be terminated at any time, for any or no reason, by either us or Mr. Walkingshaw on 30 days written notice to the other party. However, we may terminate Mr. Walkingshaws employment immediately and without prior notice for cause (as defined in the Walkingshaw Employment Agreement) or at our sole discretion by providing Mr. Walkingshaw with pay in lieu of the 30-day notice period. In addition, Mr. Walkingshaw may terminate his employment immediately and without prior notice for good reason (as defined in the Walkingshaw Employment Agreement). In the event Mr. Walkingshaw terminates the Walkingshaw Employment Agreement for any reason other than for good reason, then during the 30-day notice period, we may terminate Mr. Walkingshaws employment at any time, in which case all our obligations to Mr. Walkingshaw under the Walkingshaw Employment Agreement other than accrued obligations through the date of termination will cease.
If we terminate the Walkingshaw Employment Agreement without cause or if Mr. Walkingshaw terminates the Walkingshaw Employment Agreement for good reason, then we will pay to Mr. Walkingshaw: (i) severance pay in an amount equal to six (6) months of Mr. Walkingshaws then-current base salary, less applicable withholdings, in six (6) equal monthly installments; and (ii) if Mr. Walkingshaw properly elects continuation coverage under our group medical insurance plan under applicable law, the percentage of the premium for such medical plan coverage which we bear for similarly situated active employees of ours and their enrolled family members immediately before the termination date for up to six (6) months. These severance payments, however, will be reduced by the amount of any compensation Mr. Walkingshaw earns from other employment during the period such severance payments are payable. In addition, if we determine following the termination of the Walkingshaw Employment Agreement that cause existed on or before such termination, the severance payments described in this paragraph will cease and/or become repayable to us by Mr. Walkingshaw, as applicable.
To receive the severance payments described in the immediately preceding paragraph, Mr. Walkingshaw must timely execute and deliver to us a separation agreement and release of all claims in a form acceptable to us and must not revoke such agreement.
The Walkingshaw Employment Agreement requires Mr. Walkingshaw to covenant to not compete with or against us for one year following Mr. Walkingshaws termination of employment with us, and to cooperate with us in good faith to resolve any dispute, controversy or litigation we may be involved in (excluding any proceeding where Mr. Walkingshaw is an adverse party) for two years following his termination of employment with us.
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Equity Plans and Arrangements
The principal features of our equity plans and arrangements are summarized below. These summaries are qualified in their entirety by reference to the actual verbiage of the plans, which are filed as exhibits to the registration statement of which this prospectus forms a part.
Incentive Unit Plan
In May 2013, the board of managers of Pluralsight Holdings adopted, and the members of Pluralsight Holdings approved, our Incentive Unit Plan, or the 2013 Plan, which was amended in February and November of 2014. The 2013 Plan will be terminated in connection with this offering, and accordingly, no additional awards will be granted under the 2013 Plan. However, the 2013 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2013 Plan. As of December 31, 2017, under the 2013 Plan, we had 15,791,871 incentive units outstanding.
Plan Administration . The board of managers of Pluralsight Holdings administers the 2013 Plan. Subject to the provisions of the 2013 Plan, the board of managers of Pluralsight Holdings has the power to determine (i) which employees and consultants of Pluralsight Holdings will be granted unit awards; (ii) when and how each unit award will be granted; (iii) the terms of each unit award (including the strike price of and number of incentive units underlying unit awards); (iv) the fair market value of incentive units; and (v) the redemption price for vested incentive units. In addition, the board of managers of Pluralsight Holdings may construe and interpret the 2013 Plan and unit award agreements thereunder; establish, amend, and revoke rules and regulations for the administration of the 2013 Plan; accelerate the vesting of unit awards (including in connection with a sale of Pluralsight Holdings); approve forms of unit award agreement and amend unit award agreements; and take such other actions it deems necessary or expedient under the 2013 Plan.
Unit Awards . Unit awards have been granted under the 2013 Plan. The board of managers of Pluralsight Holdings generally determines the terms and conditions of unit awards (including vesting criteria, which may be service- or performance-based). All incentive units issued under the 2013 Plan are subject to the terms and conditions of the operating agreement of Pluralsight Holdings. The receipt of a unit award is conditioned upon the recipient executing a unit award agreement approved by the board of managers of Pluralsight Holdings and agreeing to timely file an election under Section 83(b) of the Code. Any distributions (other than certain tax distributions) made with respect to unvested incentive units subject to a unit award will be held in escrow until such incentive units either become vested or are forfeited.
In the event the continuous service of a unit award holder is terminated for any reason, the unit award holder will automatically forfeit the unvested incentive units underlying the unit award (unless provided otherwise in the unit award agreement).
Upon the unit award holders (i) death or permanent disability, (ii) termination of continuous service for any reason, (iii) transfer of his or her incentive units in violation of the applicable unit award agreement, the 2013 Plan, or the operating agreement of Pluralsight Holdings, or (iv) violation of any restrictive covenant in favor of Pluralsight Holdings, the board of managers of Pluralsight Holdings may elect to redeem and repurchase the applicable unit award holders vested incentive units in accordance with the terms and conditions in the 2013 Plan.
Non-Transferability of Unit Awards . Unit awards may not be transferred before vesting or in violation of the other restrictions on transfer contained in the operating agreement of Pluralsight Holdings.
Adjustment of Units . In the event of a capitalization adjustment, as defined in the 2013 Plan, the board of managers of Pluralsight Holdings will proportionately and appropriately adjust the maximum number and classes of membership units subject to the 2013 Plan.
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Sale of Pluralsight Holdings . The 2013 Plan provides that in the event of a sale of the Company (as defined in the 2013 Plan), outstanding unit awards may accelerate vesting if so provided in the applicable unit award agreement or if our board of managers otherwise determines.
Amendment; Termination . The board of managers of Pluralsight Holdings may suspend or terminate the 2013 Plan at any time, provided that such action may not impair rights and obligations under any unit award except with the written consent of the affected holder. Unless sooner terminated, the 2013 Plan automatically will terminate in January 2023, provided that all incentive units will terminate immediately after the sale of Pluralsight Holdings.
2017 Equity Incentive Plan
In June 2017, the board of managers of Pluralsight Holdings adopted, and the members of Pluralsight Holdings approved, our 2017 Equity Incentive Plan, or the 2017 Plan. The 2017 Plan will be terminated in connection with this offering, and accordingly, no additional awards will be granted under the 2017 Plan. However, the 2017 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2017 Plan. As of December 31, 2017, under the 2017 Plan, we had outstanding RSU awards covering an aggregate of 2,178,450 Class A common units.
Plan Administration . A committee appointed by the board of managers of Pluralsight Holdings (or the board of managers if no committee is appointed) administers the 2017 Plan. Subject to the provisions of the 2017 Plan, the committee has the authority to (i) construe and interpret the 2017 Plan and any award agreement thereunder; (ii) prescribe, amend, and rescind rules and regulations relating to the 2017 Plan; (iii) grant waivers of any conditions of the 2017 Plan or any award; (iv) establish sub-plans to satisfy the blue sky, securities, tax, or other laws of any jurisdiction (domestic or foreign) in which we intend to grant awards; and (v) modify and make all other determinations necessary or advisable for the administration of 2017 Plan.
Restricted Share Units . RSUs have been granted under the 2017 Plan. An RSU is an award of a contingent right to receive at a designated future time a specified number of our units or payment equal to the then fair market value of a specified number of our units. Payment (i.e., settlement) of vested RSUs will be made in the form of units or, if otherwise determined by the committee in its discretion and not prohibited by our governance documents, with equity securities of an Upstream Public Affiliate or other securities to which units have been or are being converted or with a combination of Units and such other securities. The committee determines the terms and conditions of RSUs, including the number of units granted, the vesting criteria, and the form and timing of payment. Upon termination, a holder of RSUs generally will automatically and immediately forfeit all of his or her unvested RSUs.
Non-Transferability of Awards . Awards are not transferable other than by the laws of decent and distribution, and only the recipient of an award may exercise it during his or her lifetime.
Adjustment of Units . In the event of certain changes in the capital structure of Pluralsight Holdings without consideration, as set forth in the 2017 Plan, the number of units subject to outstanding awards generally will be proportionately adjusted.
Change in Control Transactions . The 2017 Plan provides that in the event of a change in control, outstanding awards generally will be treated as the committee determines, including that awards may be assumed or substituted for by the successor or acquiring entity or terminated and cashed out for a payment equal to the per unit transaction consideration over the excess of the award exercise price, if any. In addition, the committee may in its discretion provide for the accelerated vesting, exercisability, or payment of all or any portion of an award in connection with a change in control.
Amendment; Termination . The board of managers of Pluralsight Holdings may amend or terminate the 2017 Plan at any time, provided such action may not affect any unit previously issued or any award previously granted under the 2017 Plan. Unless earlier terminated, the 2017 Plan will expire automatically in 2027.
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2018 Equity Incentive Plan
Prior to the consummation of this offering, we expect our board of directors to adopt, and our stockholders to approve, our 2018 Plan, which will become effective on the date immediately prior to the date of this prospectus and is not expected to be utilized until after the completion of this offering. Our 2018 Plan provides for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares to our employees, directors, and consultants, and our parent and subsidiary corporations employees and consultants.
Authorized Shares . A total of shares of our Class A common stock will be reserved for issuance pursuant to the 2018 Plan. The number of shares available for issuance under the 2018 Plan also includes an annual increase on the first day of each fiscal year beginning in 2019, equal to the least of:
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shares; |
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% of the outstanding shares of our capital stock as of the last day of our immediately preceding year; or |
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a lower number of shares determined by the 2018 Plans administrator. |
Plan Administration . Our Compensation Committee administers our 2018 Plan. Subject to the provisions of our 2018 Plan, the administrator has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each such award, the exercisability of the awards, and the form of consideration, if any, payable upon exercise. The administrator also has the authority to amend existing awards to reduce their exercise price, to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator, and to institute an exchange program by which outstanding awards may be surrendered in exchange for awards with a higher or lower exercise price.
Stock Options . Stock options may be granted under our 2018 Plan. The exercise price of options granted under our 2018 Plan must at least be equal to the fair market value of our Class A common stock on the date of grant. Subject to the provisions of our 2018 Plan, the administrator determines the term of all other options.
After the termination of service of an employee, director, or consultant, he or she may exercise his or her option for the period of time stated in his or her award agreement. Generally, if termination is due to death or disability, the option will remain exercisable for twelve months. In all other cases, the option will generally remain exercisable for three months following the termination of service. However, in no event may an option be exercised later than the expiration of its term.
Stock Appreciation Rights . Stock appreciation rights may be granted under our 2018 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair value of our Class A common stock between the exercise date and the date of grant. Subject to the provisions of our 2018 Plan, the administrator determines the terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our Class A common stock, or a combination thereof, except that the per share exercise price of a stock appreciation right will be no less than 100% of the fair market value of our Class A common stock on the date of grant. After the termination of service of an employee, director or consultant, he or she may exercise his or her stock appreciation right for the period of time stated in his or her award agreement. Generally, stock appreciation rights will be subject to the same post-termination exercise restrictions as options as described above.
Restricted Stock . Restricted stock may be granted under our 2018 Plan. Restricted stock awards are grants of shares of our Class A common stock that vest in accordance with terms and conditions established by the administrator. The administrator determines the number of shares of restricted stock granted and may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions
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based on the achievement of specific performance goals or continued service to us). The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.
Restricted Stock Units . Restricted stock units may be granted under our 2018 Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our Class A common stock. The administrator determines the terms and conditions of restricted stock units, including the number of units granted, the vesting criteria (which may include accomplishing specified performance criteria or continued service to us), and the form and timing of payment. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.
Performance Units and Performance Shares . Performance units and performance shares may be granted under our 2018 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or performance shares. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares, or in some combination thereof.
Non-Employee Directors . Our 2018 Plan provides that all non-employee directors are eligible to receive all types of awards under the 2018 Plan. In order to provide an annual maximum limit on the awards that can be made to our non-employee directors, our 2018 Plan provides that, in any given year, a non-employee director will not receive awards having a grant-date fair value greater than $ , increased to $ in connection with his or her initial service, as determined under GAAP. The maximum limits do not reflect the intended size of any potential grants or a commitment to make grants to our non-employee directors under our 2018 Plan in the future.
Non-Transferability of Awards . Unless the administrator provides otherwise, our 2018 Plan generally does not allow for the transfer of awards, and only the recipient of an award may exercise an award, if applicable, during his or her lifetime.
Certain Adjustments . In the event of certain changes in our capitalization as set forth in our 2018 Plan, to prevent diminution or enlargement of the benefits or potential benefits available under our 2018 Plan, the administrator will adjust the number and class of shares that may be delivered under our 2018 Plan and/or the number, class, and price of shares covered by each outstanding award, and the numerical share limits set forth in our 2018 Plan in such a manner as it deems equitable.
Dissolution or Liquidation . In the event of our proposed liquidation or dissolution, the administrator will notify participants that all awards will terminate immediately prior to the consummation of such proposed transaction to the extent not exercised.
Merger or Change in Control . Our 2018 Plan provides that in the event of a merger or change in control, as defined in the 2018 Plan, each outstanding award will be treated as the administrator determines, except that if a successor corporation or its subsidiary does not continue any outstanding award in accordance with the 2018 Plan, then such award will fully vest, all restrictions will lapse, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and the award will become fully exercisable, as applicable. If the service of an outside director is terminated on or following a change in control, other than pursuant to a voluntary resignation, his or her options, stock appreciation rights, and restricted stock units, if any, will vest and become immediately exercisable, all restrictions on his or her restricted stock will lapse, all performance goals or other vesting requirements for his or her performance shares and units will be deemed achieved at 100% of target levels, and all other terms and conditions will be deemed met, as applicable.
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Forfeiture and Clawback. All awards granted under our 2018 Plan are subject to recoupment under any clawback policy that we are required to adopt under applicable law. In addition, the administrator may provide in an award agreement that the recipients rights, payments, and benefits with respect to such award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events. In the event of any accounting restatement, the recipient of an award will be required to repay a portion of the proceeds received in connection with the settlement of an award earned or accrued under certain circumstances.
Amendment; Termination . The automatic increase in shares under the 2018 Plan will expire in 2028. The 2018 Plan will not expire until terminated by the administrator, which has the authority to amend, suspend, or terminate our 2018 Plan, provided such action does not materially impair the existing rights of any participant, subject to certain exceptions in accordance with the terms of our 2018 Plan.
Skonnard RSU Agreement
On September 29, 2017, we granted Mr. Skonnard 3,000,000 Class B RSUs subject to the terms and conditions of the Skonnard RSU Agreement. The Class B RSUs subject to the Skonnard RSU Agreement vest on the terms set forth on footnote 3 to the Outstanding Equity Awards at Fiscal Year-End table above. Upon settlement of each Class B RSU, Mr. Skonnard will receive an LLC Unit and a share of Class C common stock. In addition, in connection with the settlement a certain number of LLC Units and shares of Class C common stock automatically will be redeemed and exchanged for Class A common stock and immediately sold to cover the applicable tax withholding obligations in connection the vesting and settlement of the Class B RSUs. The Class B RSUs generally are not transferrable. Upon a stock split, stock dividend, reclassification, or similar transaction, including any adjustment in connection with the Reorganization Transactions, the securities underlying the Class B RSUs generally will be proportionately adjusted. In the event of a change in control, the Class B RSUs may be assumed, converted, replaced, or substituted for by the successor or acquiring entity. In the event of a change in control in which the successor or acquiring entity (if any) does not assume, convert, replace, or substitute the Class B RSUs, then the vesting and/or payment of the Class B RSUs will accelerate immediately prior to the consummation of such change in control. In addition, the Class B RSUs may be subject to accelerated vesting or payment of all or any portion of an award in connection with a change in control.
2018 Employee Stock Purchase Plan
Prior to the consummation of this offering, we expect our board of directors to adopt, and our stockholders to approve, our ESPP, which will become effective on the date of its adoption by our board of directors. We believe that allowing our employees to participate in the ESPP provides them with a further incentive towards ensuring our success and accomplishing our corporate goals.
Authorized Shares . A total of shares of our Class A common stock are available for sale under the ESPP. In addition, our ESPP provides for annual increases in the number of shares available for issuance under the plan on the first day of each fiscal year beginning in 2019, equal to the least of:
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shares; |
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% of the outstanding shares of our capital stock on the last day of our immediately preceding year; or |
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an amount determined by the ESPPs administrator. |
Plan Administration . Our Compensation Committee administers the ESPP, and has full and exclusive authority to interpret the terms of the plan and determine eligibility to participate, subject to the conditions of the plan as described below.
Eligibility . Generally, all of our employees are eligible to participate if they are employed by us, or any designated subsidiary, for at least 20 hours per week and more than five months in any calendar year.
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Offering Periods . Our ESPP allows us to make offerings that are not intended to qualify under Section 423 of the Code, as described in our ESPP. Our ESPP provides for consecutive, non-overlapping -month offering periods. The offering periods are scheduled to start on the first trading day on or after and of each year, except for the first offering period, which will commence on the effective date of the registration statement of which this prospectus forms a part and will end on the first trading day on or before , and the second offering period, which will commence on the first trading day on or after . Each offering period will include purchase periods, which will commence on or after and and end on the first trading date on or after and , respectively; provided, however, that the first exercise date under the ESPP will be the first trading day on or after .
Our ESPP permits participants to purchase shares of Class A common stock through payroll deductions of up to % of their eligible compensation. A participant may purchase a maximum of shares during each purchase period.
Exercise of Purchase Right . Amounts deducted and accumulated by the participant will be used to purchase shares of our common stock at the end of each purchase period. The purchase price of the shares will be % of the lower of the fair market value of our Class A common stock on the first trading day of each offering period or on the purchase date. If the fair market value of our Class A common stock on the exercise date is less than the fair value on the first trading day of the offering period, participants will be withdrawn from the current offering period following their purchase of shares of our Class A common stock on the purchase date and will be automatically re-enrolled in a new offering period. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of Class A common stock. Participation will end automatically upon termination of employment with us.
Non-Transferability . A participant may not transfer rights granted under the ESPP. If the Compensation Committee permits the transfer of rights, it may only be done by will, the laws of descent and distribution, or as otherwise provided under the ESPP.
Merger or Change in Control . In the event of our merger or change in control, as defined under the ESPP, a successor corporation may assume or substitute each outstanding purchase right. If the successor corporation refuses to assume or substitute for the outstanding purchase right, the offering period then in progress will be shortened, and a new exercise date will be set. The administrator will notify each participant that the exercise date has been changed and that the participants option will be exercised automatically on the new exercise date unless prior to such date the participant has withdrawn from the offering period.
Amendment; Termination . Our ESPP will automatically terminate in 2038, unless we terminate it sooner. Our board of directors will have the authority to amend, suspend, or terminate our ESPP, except that, subject to certain exceptions described in the ESPP, no such action may adversely affect any outstanding rights to purchase stock under our ESPP.
2018 Executive Bonus Plan
In December 2017, our board of directors adopted an Executive Bonus Plan for 2018, which we refer to as the 2018 Bonus Plan. Our named executive officers are participants in the 2018 Bonus Plan. The 2018 Bonus Plan provides for non-equity incentive compensation based upon the combined achievement of billings and free cash flow targets in 2018, which we refer to as the financial goal.
The threshold level of achievement of the financial goal is at least 84.44%. If we achieve less than 84.44% of the financial goal, no participant in the 2018 Bonus Plan will receive any portion of the target incentive. If we achieve 84.44% of the financial goal, participants will receive 50% of the target incentive. For achievement of the financial goal between the threshold and target, the overall incentive payment scales linearly between 50% and 100%. For achievement of the financial goal between the target and 115.56% of the financial goal, the
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overall incentive payment scales linearly between 100% and 200%. The maximum level of achievement of the financial goal is 115.56%. If we fail to achieve a minimum target for billings or free cash flow, the maximum target incentive will be 50%, even if the overall level of achievement of the financial goal is greater than the threshold.
All bonuses under the 2018 Bonus Plan are subject to the participant maintaining minimum performance standards, as determined by us, and remaining employed through the date a bonus is paid out.
401(k) Plan
We maintain a 401(k) plan for employees. The 401(k) is intended to qualify under Section 401(k) of the Code, so that contributions to the 401(k) plan by employees or by us, and the investment earnings thereon, are not taxable to the employees until withdrawn, and so that contributions made by us, if any, will be deductible by us when made. Employees may elect to reduce their current compensation by up to the statutorily prescribed annual limits and to have the amount of such reduction contributed to their 401(k) plans. The 401(k) plan permits us to make contributions up to the limits allowed by law on behalf of all eligible employees. We made matching contributions to the plan totaling $1.2 million and $2.3 million for the years ended December 31, 2016 and 2017, respectively.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements and indemnification arrangements, discussed in the sections titled Management and Executive Compensation, the following is a description of each transaction since January 1, 2015 and each currently proposed transaction in which:
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we, Pluralsight Holdings, or any subsidiaries thereof have been or will be a participant; |
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the amount involved exceeded or will exceed $120,000; and |
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any of our directors, executive officers, or beneficial holders of more than 5% of any class of our capital stock, or their affiliates, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest. |
Reorganization Transactions
Prior to the consummation of this offering, we will consummate the Reorganization Transactions described under the section titled Organizational Structure.
Fourth Amended and Restated LLC Agreement
In connection with the Reorganization Transactions, Pluralsight, Inc. and the Continuing Members will enter into the Fourth LLC Agreement. Among the Continuing Members who will be a party to the Fourth LLC Agreement are , , and .
As a result of the Reorganization Transactions, including the entry into the Fourth LLC Agreement, we will hold LLC Units in Pluralsight Holdings and will be the sole managing member of Pluralsight Holdings. Accordingly, we will operate and control all of the business and affairs of Pluralsight Holdings and, through Pluralsight Holdings and its operating subsidiaries, conduct our business.
As the sole managing member of Pluralsight Holdings, Pluralsight, Inc. will have the right to determine when distributions will be made to the unit holders of Pluralsight Holdings and the amount of any such distributions (subject to the requirements with respect to the tax distributions described below). If Pluralsight, Inc. authorizes a distribution, such distribution will be made to the holders of LLC Units, including Pluralsight, Inc., pro rata in accordance with their respective ownership of Pluralsight Holdings, provided that Pluralsight, Inc. as sole manager will be entitled to non-pro rata distributions for certain fees and expenses.
Upon the consummation of this offering, Pluralsight, Inc. will be a holding company and its principal asset will be a controlling equity interest in Pluralsight Holdings. As such, Pluralsight, Inc. will have no independent means of generating revenue. Pluralsight Holdings will be treated as a partnership for U.S. federal income tax purposes and, as such, will generally not be subject to U.S. federal income tax. Instead, taxable income will be allocated to holders of LLC Units, including Pluralsight, Inc. Accordingly, Pluralsight, Inc. will incur income taxes on its allocable share of any net taxable income of Pluralsight Holdings and will also incur expenses related to its operations. Pursuant to the Fourth LLC Agreement, Pluralsight Holdings will make cash distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations in respect of the cumulative taxable income in excess of the cumulative taxable losses of Pluralsight Holdings that is allocated to them, to the extent previous tax distributions from Pluralsight Holdings have been insufficient. In addition to tax expenses, Pluralsight, Inc. also will incur expenses related to its operations, plus payments under the TRA, which may be significant. Pluralsight, Inc. intends to cause Pluralsight Holdings to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow Pluralsight, Inc. to pay its taxes and operating expenses, including distributions to fund any ordinary course payments due under the TRA.
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The Fourth LLC Agreement generally will not permit transfers of LLC Units by Continuing Members, except for transfers to permitted transferees, transfers pursuant to the participation right described below and transfers approved in writing by us, as sole managing manager, and other limited exceptions. In the event of a permitted transfer, such Continuing Member will be required to simultaneously transfer shares of Class B common stock or Class C common stock, as applicable, to such transferee equal to the number of LLC Units that were transferred. Except for certain exceptions, any transferee of LLC Units must assume, by operation of law or executing a joinder to the Fourth LLC Agreement, all of the obligations of a transferring Member with respect to the transferred LLC Units, and such transferee shall be bound by any limitations and obligations under the Fourth LLC Agreement even if the transferee is not admitted as a Member. A Member shall remain as a Member with all rights and obligations until the transferee is accepted as a substitute Member in accordance with the Fourth LLC Agreement.
The Fourth LLC Agreement further provides that, in the event that a tender offer, share exchange offer, issuer bid, takeover bid, recapitalization, or similar transaction with respect to our Class A common stock, each of which we refer to as a Pubco Offer, is approved by our board of directors or otherwise effected or to be effected with the consent or approval of our board of directors, each holder of LLC Units shall be permitted to participate in such Pubco Offer by delivering an exchange notice, which shall be effective immediately prior to, and contingent upon, the consummation of such Pubco Offer. If a Pubco Offer is proposed by Pluralsight, Inc., then Pluralsight, Inc. is required to use its reasonable best efforts expeditiously and in good faith to take all such actions and do all such things as are necessary or desirable to enable and permit the holders of such LLC units to participate in such Pubco Offer to the same extent as or on an economically equivalent basis with the holders of shares of Class A common stock, provided that in no event shall any holder of LLC Units be entitled to receive aggregate consideration for each LLC unit that is greater than the consideration payable in respect of each share of Class A common stock pursuant to the Pubco Offer.
The Continuing Members, from time to time following this offering, may, subject to the terms of the Fourth LLC Agreement, exchange or redeem their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable, for, at our option, cash or shares of Class A common stock, on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications, and other similar transactions. Any such exchange or redemption may be effected by, at our option, having such LLC Units exchanged or redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us, or, alternatively, a direct exchange by Pluralsight, Inc. of such Class A common stock or such cash, as applicable, for such LLC Units. Our decision to make a cash payment in connection with a Continuing Members exchange or redemption will be made by a majority of our board members, other than Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman. When an LLC Unit, together with a share of our Class B common stock or Class C common stock, as applicable, is exchanged or redeemed for cash or a share of our Class A common stock or redeemed for cash or Class A common stock, the corresponding share of our Class B common stock or Class C common stock, as applicable, will be cancelled.
The Fourth LLC Agreement will provide that as a general matter a Member will not have the right to exchange LLC Units if we determine that such exchange would be prohibited by law or regulation or would violate other agreements with us to which the Member may be subject, including the Fourth LLC Agreement.
Each Continuing Members exchange and redemption rights will be subject to certain customary limitations, including the expiration of any contractual lock-up period relating to the shares of our Class A common stock that may be applicable to such Continuing Member (including a lockup period of not more than 180 days in connection with any registration of our equity securities) and the absence of any liens or encumbrances on such LLC Units redeemed. In addition, Continuing Members cannot exercise exchange or redemption rights during applicable black-out periods. Each Continuing Members exchange and redemption rights are further limited, unless the exchange or redemption is in connection with one of the following events, each of which we refer to as an Unrestricted Redemption: (1)(a) an exchange or redemption of more than 2% of the total outstanding LLC Units (excluding any LLC Units held by us as long as we are the manager and own more than 10% of all
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outstanding LLC Units), (b) the exchange or redemption is in connection with a Pubco Offer, or (c) the exchange or redemption is otherwise permitted by us or (2) the exchange or redemption and Pluralsight Holdings each meet the requirements of the private placement safe harbor set forth in applicable Treasury Regulations.
If an exchange or redemption request delivered by a Continuing Member is in connection with an Unrestricted Redemption, the Continuing Member may elect to have the redemption or exchange effectuated not less than three business days or more than 10 business days after delivery of the notice. However, if the redemption request is not in connection with an Unrestricted Redemption, then the Continuing Member may elect to have the redemption or exchange effectuated once per quarter, after sixty days advance notice. Furthermore, if we effectuate a secondary offering in a calendar quarter, then the ability of Continuing Equity Owners to effect an exchange or redemption that is not an Unrestricted Redemption in the succeeding calendar quarterly exchange will be cancelled. In no taxable year will there be more than four opportunities to pursue exchanges or redemptions that are not Unrestricted Redemptions, including quarterly exchanges and redemptions by Continuing Members and related sales of Class A common stock (including secondary offerings). Additionally, in only limited circumstances may a Continuing Member revoke or delay its exchange or redemption following the delivery of its request for such exchange or redemption.
We may impose additional restrictions on exchanges or redemptions that we determine to be necessary or advisable so that Pluralsight Holdings is not treated as a publicly traded partnership for U.S. federal income tax purposes. As a holder exchanges LLC Units and Class B common stock or Class C common stock, as applicable, for shares of Class A common stock or a redemption transaction is effected, the number of LLC Units held by Pluralsight, Inc. is correspondingly increased as it acquires the exchanged LLC Units or funds the redemption transaction, and a corresponding number of shares of Class B common stock or Class C common stock, as applicable, are cancelled.
The Fourth LLC Agreement will also require that Pluralsight Holdings take actions with respect to its LLC Units, including issuances, reclassifications, distributions, divisions, or recapitalizations, such that (i) we at all times maintain a ratio of one LLC Unit owned by us, directly or indirectly, for each share of Class A common stock issued by us, and (ii) Pluralsight Holdings at all times maintains (a) a one-to-one ratio between the number of shares of Class A common stock issued by us and the number of LLC Units owned by us and (b) a one-to-one ratio between the number of shares of Class B common stock and Class C common stock owned by the Continuing Members and the number of LLC Units owned by the Continuing Members. As such in certain circumstances, we as sole manager have the authority to take all actions such that, after giving effect to all issuances, transfers, deliveries, or repurchases, the number of outstanding LLC Units we own equals, on a one-for-one basis, the number of outstanding shares of Class A common stock.
The Fourth LLC Agreement will also provide that as a general matter a Member will not have the right to transfer LLC Units if Pluralsight, Inc. determines that such transfer would be prohibited by law or regulation, would violate other agreements with Pluralsight, Inc. to which the Member may be subject, would cause or increase the possibility for Pluralsight Holdings to be treated as a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, or would cause a technical tax termination of Pluralsight Holdings.
Tax Receivable Agreement
Pluralsight Holdings and certain of its subsidiaries that are treated as partnerships for U.S. federal income tax purposes intend to have in effect an election under Section 754 of the Code effective for each taxable year in which a redemption or exchange (including deemed exchange) of LLC Units for Class A common stock or cash occurs. We may obtain an increase in our share of the tax basis of the assets of Pluralsight Holdings in the future, when (as described above in the section titled Fourth Amended and Restated LLC Agreement), a Continuing Member receives Class A common stock or cash, as applicable, from us in connection with an exercise of such Continuing Members right to have LLC Units in Pluralsight Holdings held by such Continuing Member
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exchanged, or, at our option, redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us (which we intend to treat as our direct purchase of LLC Units from such Continuing Member for U.S. federal income and other applicable tax purposes, regardless of whether such LLC Units are surrendered by a Continuing Member to Pluralsight Holdings for redemption or sold to us directly), which basis increases we refer to as Basis Adjustments. Any Basis Adjustment may have the effect of reducing the amounts that we would otherwise pay in the future to various tax authorities. The Basis Adjustments may also decrease the gains (or increase the losses) on future dispositions of our assets to the extent tax basis is allocated to those assets.
In connection with the transactions described above, we will enter into a TRA with Pluralsight Holdings and each of the Continuing Members that will provide for the payment by Pluralsight Inc. of % of the amount of certain tax benefits, if any, that Pluralsight Inc. actually realizes, or in some circumstances is deemed to realize, as a result of the transactions described above, including the Basis Adjustments and certain other tax benefits attributable to payments made under the TRA. In general, the Continuing Members rights under the TRA may not be assigned, sold, pledged, or otherwise alienated to any person, other than certain permitted transferees, without our prior written consent (not to be unreasonably withheld, conditioned, or delayed) and subject to our right of first refusal, and such transferees becoming a party to the TRA and agreeing to succeed to the applicable Continuing Members interest therein. Payments under the TRA are not conditioned upon one or more of the Continuing Members maintaining a continued ownership interest in Pluralsight Holdings. If a Continuing Member transfers LLC Units of Pluralsight Holdings but does not assign to the transferee of such LLC Units its rights under the TRA, such Continuing Member generally will remain the TRA Member with respect to such rights and will continue to be entitled to receive payments under the TRA arising in respect of a subsequent exchange of such LLC Units.
The actual Basis Adjustments, as well as any amounts paid to the TRA Members under the TRA will vary depending on a number of factors, including:
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the timing of any future redemptions or exchanges for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of Pluralsight Holdings and its subsidiaries at the time of each redemption or exchange; |
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the price of shares of our Class A common stock at the time of any future redemptions or exchanges the Basis Adjustments, as well as any related increase in any tax deductions, are directly related to the price of shares of our Class A common stock at the time of such purchases or future redemptions or exchanges; |
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the extent to which such redemptions or exchanges are taxable if a redemption or exchange is not taxable for any reason, increased tax deductions will not be available ; and |
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the amount and timing of our income the TRA generally will require us to pay % of the tax benefits as and when those benefits are treated as realized by us under the terms of the TRA. If Pluralsight, Inc. does not have sufficient taxable income to utilize any of the applicable tax benefits, it generally will not be required (absent a change of control or other circumstances requiring an early termination payment and treating any outstanding LLC Units of Pluralsight Holdings held by members other than Pluralsight, Inc. as having been exchanged for Class A common stock for purposes of determining such early termination payment) to make payments under the TRA for that taxable year because no tax benefits will have been actually realized. However, any tax benefits that do not result in realized tax benefits in a given taxable year may generate tax attributes that may be utilized to generate tax benefits in future taxable years. The utilization of any such tax attributes in such other taxable years will result in payments under the TRA. |
For purposes of the TRA, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no Basis
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Adjustments, had the TRA not been entered into, and had there been no tax benefits to us as a result of any payments made under the TRA. These calculations will be based upon the actual U.S. federal income tax rate in effect for the applicable period and an assumed, weighted-average state and local income tax rate based on applicable period apportionment factors. There is no maximum term for the TRA; however, the TRA may be terminated by us pursuant to an early termination procedure that requires us to pay the TRA Members an agreed-upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated with certain assumptions).
The payment obligations under the TRA are obligations of Pluralsight, Inc. and not of Pluralsight Holdings. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the payments that we may be required to make to the TRA Members will be substantial. For example, assuming (i) that the TRA Members redeemed or exchanged all of their LLC Units immediately after the completion of this offering at the assumed initial public offering price of $ per share of our Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, (ii) no material changes in relevant tax law, (iii) a constant corporate tax rate of %, and (iv) that we earn sufficient taxable income in each year to realize on a current basis all tax benefits that are subject to the TRA, we expect that the tax savings we would be deemed to realize would be approximately $ million in the aggregate over the term of the TRA, and over such period we would be required to pay the TRA Members % of such amount, or approximately $ million. The actual amounts we may be required to pay under the TRA may materially differ from these hypothetical amounts, as potential future tax savings we will be deemed to realize, and TRA payments by us, will be calculated based in part on the market value of our Class A common stock at the time of redemption or exchange and the prevailing federal tax rates applicable to us over the life of the TRA, and will generally be dependent on us generating sufficient future taxable income to realize all of these tax savings. Any payments made by us to the TRA Members under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Pluralsight Holdings and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore may accelerate payments due under the TRA. Decisions made by us in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations, or other changes in control, may influence the timing and amount of payments that are payable to or received by a TRA Member.
The TRA provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur, if we materially breach any of our material obligations under the TRA or if, at any time, we elect an early termination of the TRA, then the TRA will terminate and our obligations, or our successors obligations, under the TRA would accelerate and become due and payable, based on certain assumptions, including an assumption that we would have sufficient taxable income in each relevant taxable year to fully utilize all potential future tax benefits that are subject to the TRA. In those circumstances, any remaining outstanding LLC Units of Pluralsight Holdings would be treated as exchanged for Class A common stock and the applicable TRA Members would generally be entitled to payments under the TRA resulting from such deemed exchanges.
We may elect to completely terminate the TRA early only with the written approval of each of a majority of Pluralsight Inc.s independent directors (within the meaning of Rule 10A-3 promulgated under the Exchange Act and Nasdaq rules).
As a result of the foregoing, we could be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the TRA, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. We also could be required to make cash payments to the TRA Members that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the TRA. Our obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring, deterring, or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the TRA.
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Payments under the TRA will generally be based on the tax reporting positions that we determine. We will not be reimbursed for any cash payments previously made to the TRA Members pursuant to the TRA if any tax benefits initially claimed by us are subsequently challenged by a taxing authority and ultimately disallowed. Instead, any excess cash payments made by us to a TRA Member will be netted against any future cash payments that we might otherwise be required to make under the terms of the TRA. However, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the TRA and, as a result, there might not be future cash payments from which to net against. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, it is possible that we could make cash payments under the TRA that are substantially greater than our actual ultimate cash tax savings. If we determine that a tax reserve or contingent liability must be established by us for generally accepted accounting principles in respect of an issue that would affect payments under the TRA, we may withhold payments to the TRA Members under the TRA and place them in an interest-bearing escrow account until the reserve or contingent liability is resolved.
If we receive a formal notice or assessment from a taxing authority with respect to any cash savings covered by the TRA, we will place certain subsequent tax benefit payments that would otherwise be made to the TRA Members into an interest-bearing escrow account until there is a final determination. We will have full responsibility for, and sole discretion over, all Pluralsight Inc. tax matters, including the filing and amendment of all tax returns and claims for refund and defense of all tax contests.
Under the TRA, we are required to provide the TRA Members with a schedule showing the calculation of payments that are due under the TRA with respect to each taxable year with respect to which a payment obligation arises within after filing our U.S. federal income tax return for such taxable year. Payments under the TRA will generally be made to the TRA Members within after this schedule becomes final pursuant to the procedures set forth in the TRA, although interest on such payments will begin to accrue at a rate of from the due date (without extensions) of such tax return. Any late payments that may be made under the TRA, including payments that were late due to our having insufficient cash or due to obligations or restrictions imposed by our and our subsidiaries debt obligations or by applicable law, will continue to accrue interest until such payments are made, generally at a rate equal to .
Equity Investments in Pluralsight Holdings
The following table sets forth the number of units and purchase price paid for all purchases of equity interests in Pluralsight Holdings by our directors, executive officers, and beneficial owners of more than 5% of any class of our capital stock, or their respective affiliates.
Name |
Date Acquired |
Number of Units Purchased |
Aggregate
Purchase Price |
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Affiliates of Insight Venture Partners (1) |
March 14,
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2,653,927 Series C Redeemable Convertible Preferred Units |
$24,999,992 |
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Affiliates of ICONIQ Strategic Partners, LP (2) |
March 14,
|
530,784 Series C Redeemable Convertible Preferred Units |
$5,000,000 |
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Arne Duncan |
September 28,
2016 |
70,671 Class A Common Units | $399,998 | |||
Janice K. Maudlin Revocable Trust Agreement dated April 3, 2013 (3) |
September 30,
|
35,335 Class A Common Units |
$199,996 |
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Name |
Date Acquired |
Number of Units Purchased |
Aggregate
Purchase Price |
|||
Timothy I. Maudlin Revocable Trust Agreement dated April 3, 2013 (3) |
November 22,
|
35,335 Class A Common Units |
$199,996 |
|||
Bear Mountain Ranch Asset Management, LLC (4) |
November 28,
|
35,335 Class A Common Units |
$199,996 |
|||
Frederick Onion |
November 30,
2016 |
41,224 Class A Common Units | $233,328 | |||
Aaron and Monica Skonnard Revocable Trust (5) |
November 28,
|
41,224 Class B Common Units |
$233,328 |
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Sparkjoy 2014 Revocable Trust (6) |
November 30,
2016 |
41,224 Class A Common Units | $233,328 | |||
Centerpine LLC (7) |
November 30,
2016 |
53,003 Class A Common Units | $299,997 | |||
Arne Duncan |
August 30,
2017 |
36,873 Class A Common Units | $249,999 | |||
Budge Family Trust (8) |
August 31,
2017 |
83,091 Class A Common Units | $563,357 | |||
Janice K. Maudlin Revocable Trust Agreement dated April 3, 2013 (3) |
August 31,
|
44,248 Class A Common Units |
$300,001 |
|||
Timothy I. Maudlin Revocable Trust Agreement dated April 3, 2013 (3) |
August 31,
|
44,247 Class A Common Units |
$299,995 |
|||
AREO Ventures, LLC (9) |
August 31,
2017 |
147,492 Class A Common Units | $999,996 | |||
Centerpine LLC (7) |
September 14,
2017 |
103,244 Class A Common Units | $699,994 | |||
Affiliates of ICONIQ Strategic Partners, LP (2) |
October 24,
2017 |
31,626 Class A Common Units | $214,424 | |||
Karen A. Terrell Living Trust (10) |
November 21,
2017 |
123,609 Class A Common Units | $999,997 |
(1) |
Entities affiliated with Insight Venture Partners: Insight Venture Partners VII, L.P., Insight PS Cay Blocker, Inc., Insight Venture Partners VII (Co-Investors), L.P., Insight PS Del Blocker, Inc., Insight Venture Partners CIF (AIP A) II, L.P., and IVP CIF II (PS Splitter), L.P. (collectively, the Insight Shareholders). Ryan Hinkle, a member of our board of directors, is a Managing Director of Insight Venture Management, LLC, an affiliate of the Insight Shareholders. |
(2) |
Entities affiliated with Iconiq Strategic Partners, LP: Iconiq-PS B Fund Blocker, Inc. and Iconiq Strategic Partners, L.P. |
(3) |
The Timothy Maudlin Revocable Trust Agreement dated April 3, 2013 and the Janice K. Maudlin Revocable Trust Agreement dated April 3, 2013 are affiliates of Timothy Maudlin, a member of our board of directors. |
(4) |
Bear Mountain Ranch Asset Management, LLC is an affiliate of Gary Crittenden, a member of our board of directors. |
(5) |
The Aaron and Monica Skonnard Revocable Trust is an affiliate of Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman. |
(6) |
The Sparkjoy 2014 Revocable Trust is an affiliate of Keith Sparkjoy, our co-founder and a beneficial owner of greater than 5% of our Class B common stock. |
(7) |
Centerpine LLC is an affiliate of Brad Rencher, a member of our board of directors. |
(8) |
Budge Family Trust is an affiliate of James Budge, our Chief Financial Officer. |
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(9) |
AREO Ventures, LLC is an affiliate of Scott Dorsey, a member of our board of directors. |
(10) |
Karen A. Terrell Living Trust is an affiliate of Karenann Terrell, a member of our board of directors. |
Redemption of Incentive Units
In August 2017, we redeemed 147,000 incentive units held by Nate Walkingshaw, our Chief Experience Officer, at a per unit purchase price of $6.78, for an aggregate purchase price of $996,660.
In November 2017, we redeemed an additional 49,500 incentive units held by Mr. Walkingshaw at a per unit purchase price of $8.09, for an aggregate purchase price of $400,455.
Executive and Director Compensation
We have granted certain equity awards to our executive officers and certain of our directors. See the sections titled Executive CompensationOutstanding Equity Awards at Fiscal Year-End and ManagementNon-Employee Director Compensation for a description of these equity awards.
In December 2016, we entered into an incentive unit offer letter with Arne Duncan, one of our directors, under which Mr. Duncan agreed to provide certain services to us, including making appearances on our behalf at four to six marketing events each year. In exchange for these services, we granted Mr. Duncan 169,007 incentive units, which are subject to both time- and performance-based vesting conditions.
Other than as described above under this section titled Certain Relationships and Related Party Transactions, since January 1, 2015, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed, $120,000, and in which any related person had or will have a direct or indirect material interest. We believe the terms of the transactions described above were comparable to terms we could have obtained in arms-length dealings with unrelated third parties.
From time to time, we do business with other companies affiliated with certain holders of our capital stock. We believe that all such arrangements have been entered into in the ordinary course of business and have been conducted on an arms-length basis.
Limitation of Liability and Indemnification of Officers and Directors
We expect to adopt an amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
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any breach of their duty of loyalty to our company or our stockholders; |
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any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
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unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or |
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any transaction from which they derived an improper personal benefit. |
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.
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In addition, we expect to adopt amended and restated bylaws, which will become effective immediately prior to the completion of this offering, and which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions.
Further, we have entered into or will enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are expected to be included in our amended and restated certificate of incorporation, amended and restated bylaws and in indemnification agreements that we have entered into or will enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a 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, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees, or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
The underwriting agreement will provide for indemnification by the underwriters of us and our officers and directors for certain liabilities arising under the Securities Act or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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Policies and Procedures for Related Party Transactions
Following the completion of this offering, our Audit Committee will have the primary responsibility for reviewing and approving or disapproving related party transactions, which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. Upon completion of this offering, our policy regarding transactions between us and related persons will provide that a related person is defined as a director, executive officer, nominee for director, or beneficial owner of greater than 5% of any class of our capital stock, or their respective affiliates. Our Audit Committee charter that will be in effect upon completion of this offering will provide that our Audit Committee shall review and approve or disapprove any related party transactions.
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The following table sets forth certain information with respect to the beneficial ownership of our capital stock, after the completion of the Reorganization Transactions, for:
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each of our named executive officers; |
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each of our directors; |
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all of our current directors and executive officers as a group; and |
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each person known by us to be the beneficial owner of more than 5% of the outstanding shares of each of our Class A common stock, Class B common stock, and Class C common stock. |
The numbers of shares of Class A common stock, Class B common stock, and Class C common stock (and for the Class B common stock and Class C common stock, together with the same amount of LLC Units) beneficially owned and percentages of beneficial ownership before this offering that are set forth below are based on the number of shares and LLC Units to be issued and outstanding after giving effect to the Reorganization Transactions. See the section titled Organizational Structure. The numbers of shares of Class A common stock, Class B common stock, and Class C common stock (and for the Class B common stock and Class C common stock, together with the same amount of LLC Units) beneficially owned and percentages of beneficial ownership after this offering that are set forth below are based on (i) the number of shares to be issued and outstanding after this offering and (ii) an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.
The amounts and percentages of Class A common stock, Class B common stock, and Class C common stock (and for the Class B common stock and Class C common stock, together with the same amount of LLC Units) beneficially owned are reported on the basis of the regulations of the Securities and Exchange Commission governing the determination of beneficial ownership of securities. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares of common stock subject to outstanding equity awards held by the person that are currently exercisable or exercisable within 60 days of March 31, 2018, or the Beneficial Ownership Date, including those shares of our Class A common stock issuable upon exchange of LLC Units (together with corresponding shares of our Class B common stock or Class C common stock, as applicable) on a one-for-one basis, subject to the terms of the Fourth LLC Agreement. We did not deem such shares outstanding, however, for the purpose of computing the percentage ownership of any other person. See the section titled Certain Relationships and Related Party TransactionsFourth Amended and Restated LLC Agreement. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities.
Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and 13(g) of the Securities Act.
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Unless otherwise indicated below, the address of each beneficial owner listed in the table below is c/o Pluralsight, Inc., 182 N. Union Ave., Farmington, Utah 84025.
Name of Beneficial
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Named Executive Officers and Directors: |
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Aaron Skonnard (2) |
| | | 12,961,071 | 100.0 | 13.4 | 60.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James Budge (3) |
| 496,283 | * | | | * | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nate Walkingshaw (4) |
| 341,464 | * | | | * | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gary Crittenden (5) |
| 174,668 | * | | | * | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Scott Dorsey (6) |
| 199,742 | * | | | * | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Arne Duncan (7) |
| 299,691 | * | | | * | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ryan Hinkle (8) |
| | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Timothy Maudlin (9) |
| 315,915 | * | | | * | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Frederick Onion (10) |
| 12,961,071 | 15.4 | | | 13.4 | 6.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bradley Rencher (11) |
| 295,580 | * | | | * | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Karenann Terrell (12) |
| 158,442 | * | | | * | * | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
All executive officers and directors as a group (12 persons) (13) |
| 15,584,981 | 18.1 | 12,961,071 | 100.0 | 28.9 | 67.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Greater than 5% Stockholders: |
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Entities affiliated with Insight Venture Partners (14) |
| 44,646,462 | 53.0 | | | 46.1 | 20.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entities affiliated with ICONIQ Strategic Partners (15) |
| 7,877,932 | 9.3 | | | 8.1 | 3.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entities affiliated with Keith Sparkjoy (16) |
| 6,229,280 | 7.4 | | | 6.4 | 2.9 |
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The Class B common stock and Class C common stock are convertible at any time by the holder into shares of Class A common stock on a share-for-share basis, such that each holder of Class B common stock or Class C common stock, as applicable, beneficially owns an equivalent number of shares of Class A common stock. |
# |
Percentage total voting power represents voting power with respect to all shares of our Class A common stock, Class B common stock, and Class C common stock, as a single class. Each holder of Class C common stock shall be entitled to 10 votes per share of Class C common stock and each holder of Class A common stock and Class B common stock shall be entitled to one vote per share of Class A common stock or Class B common stock, as applicable, on all matters submitted to our stockholders for a vote. The Class A common stock, Class B common stock, and Class C common stock vote together as a single class on all matters submitted to a vote of our stockholders, except as may otherwise be required by law. |
* |
Represents beneficial ownership or voting power of less than one percent (1%) of the outstanding shares of our common stock. |
(1) |
There are currently no RSUs that will become vested within 60 days of the Beneficial Ownership Date that are beneficially owned by the individuals and entities listed in the table above. |
(2) |
Consists of (i) 10,981,869 shares of Class C common stock held by Skonnard Consulting, Inc., of which Mr. Skonnard is an owner; (ii) 803,757 shares of Class C common stock held by Skonnard Family GRAT 2017, of which Mr. Skonnard is a trustee; (iii) 478,287 shares of Class C common stock held by Skonnard Family GRAT 2018, of which Mr. Skonnard is a trustee; and (iv) 697,158 shares held by Aaron & Monica Skonnard Revocable Trust, of which Mr. Skonnard is a co-trustee. |
(3) |
Consists of (i) 83,091 shares held by Budge Family Trust, of which Mr. Budge is a trustee, and (ii) 413,192 shares of Class B common stock that are subject to equity awards held by Mr. Budge that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date. |
(4) |
Consists of 341,464 shares of Class B common stock that are subject to equity awards held by Mr. Walkingshaw that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date. |
(5) |
Consists of (i) 35,335 shares of Class B common stock held by Bear Mountain Ranch Asset Management, LLC, of which Mr. Crittenden is a managing member; and (ii) 139,333 shares of Class B common stock that are subject to equity awards held by Mr. Crittenden that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date. |
(6) |
Consists of (i) 147,492 shares held by AREO Ventures, LLC, of which Mr. Dorsey is a manager; and (ii) 52,250 shares of Class B common stock that are subject to equity awards held by Mr. Dorsey that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date. |
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(7) |
Consists of (i) 107,544 shares of Class B common stock held by Mr. Duncan; and (ii) 192,147 shares of Class B common stock that are subject to equity awards held by Mr. Duncan that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date. |
(8) |
Mr. Hinkle is a Managing Director of Insight Venture Management, LLC, an entity affiliated with the Insight Shareholders described in footnote 14 below, but he does not hold voting or dispositive power over the shares held of record by the Insight Shareholders. See footnote 14 for more information regarding the Insight Shareholders. |
(9) |
Consists of (i) 79,583 shares held by Janice K. Maudlin Revocable Trust, of which Mr. Maudlins wife is a trustee; (ii) 79,582 shares held by Timothy I. Maudlin Revocable Trust, of which Mr. Maudlin is a trustee; and (iii) 156,750 shares of Class B common stock that are subject to equity awards held by Mr. Maudlin that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date. |
(10) |
Consists of (i) 12,919,847 shares held by Onion Consulting, Inc., of which Mr. Onion is an owner; and (ii) 41,224 shares held by Frederick A. Onion Revocable Trust, of which Mr. Onion is a co-trustee. |
(11) |
Consists of (i) 156,247 shares held by Centerpine LLC, of which Mr. Rencher is a manager; and (ii) 139,333 shares of Class B common stock that are subject to equity awards held by Mr. Rencher that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date. |
(12) |
Consists of (i) 123,609 shares held by Karen A. Terrell Living Trust, of which Ms. Terrell is a trustee; and (ii) 34,833 shares of Class B common stock that are subject to equity awards held by Ms. Terrell that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date. |
(13) |
Consists of (i) 13,773,554 shares of Class B common stock; (ii) 12,961,071 shares of Class C common stock; and (iii) 1,811,427 shares of Class B common stock that are subject to equity awards that are exercisable or will vest and settle, as applicable, within 60 days of the Beneficial Ownership Date held by all our executive officers and directors, as a group. |
(14) |
Consists of (i) 19,939,922 shares held by Insight Venture Partners VII, L.P.; (ii) 8,778,306 shares held by Insight PS Cay Blocker, Inc.; (iii) 461,076 shares held by Insight Venture Partners VII (Co-Investors), L.P.; (iv) 1,261,465 shares held by Insight PS Del Blocker, Inc.; (v) 11,526,905 shares held by IVP CIF II (AIP A), L.P.; and (vi) 2,678,788 shares held by IVP CIF II (PS Splitter), L.P. (collectively, the Insight Shareholders). Insight Venture Partners (Cayman) VII, L.P. is the sole shareholder of Insight PS Cay Blocker, Inc. Insight Venture Partners (Delaware) VII, L.P. is the sole shareholder of Insight PS Del Blocker, Inc. The general partner of Insight Venture Partners VII, L.P., Insight Venture Partners (Cayman) VII, L.P., Insight Venture Partners (Delaware) VII, L.P., and Insight Venture Partners VII (Co-Investors), L.P. is Insight Venture Associates VII, L.P. The general partner of Insight Venture Associates VII, L.P. is Insight Venture Associates VII, Ltd., the sole shareholder of which is Insight Holdings Group, LLC (Insight Holdings). The general partner of Insight Venture Partners CIF (AIP A) II, L.P. and IVP CIF II (PS Splitter), L.P. is Insight Venture Associates Coinvestment II, L.P. Insight Holdings is the general partner of Insight Venture Associates Coinvestment II, L.P. Each of Jeffrey L. Horing, Deven Parekh, Peter Sobiloff, Jeffrey Lieberman and Michael Triplett is a member of the board of managers of Insight Holdings and may be deemed to hold voting and dispositive power over the shares held of record by the Insight Shareholders. The foregoing is not an admission by Insight Venture Partners (Cayman) VII, L.P., Insight Venture Partners (Delaware) VII, L.P., Insight Venture Associates VII, L.P., Insight Venture Associates VII, Ltd., Insight Venture Associates Coinvestment II, L.P., or Insight Holdings that it is the beneficial owner of the shares held by the Insight Shareholders. The address for the foregoing entities is 1114 Avenue of the Americas, 36th Floor, New York, NY 10036. |
(15) |
Consists of (i) 3,754,873 shares held by Iconiq Strategic Partners, L.P.; (ii) 3,180,662 shares held by Iconiq Strategic Partners Co-Invest, L.P.; and (iii) 942,397 shares held by Iconiq-PS B Fund Blocker, Inc. The beneficial owner of Iconiq Strategic Partners Co-Invest, L.P., Iconiq-PS B Fund Blocker, Inc., Series PS, Iconiq Strategic Partners Co-Invest, L.P., Series PS, Iconiq Strategic Partners, L.P., Iconiq-PS B Fund Blocker, Inc., and Iconiq Strategic Partners, L.P. is ICONIQ Strategic Partners GP, L.P. The general partner of ICONIQ Strategic Partners GP, L.P., is Divesh Makan, control person, and William Griffith, control person. |
(16) |
Consists of (i) 6,188,056 shares held by Wyecliff Associates, Inc., of which Mr. Sparkjoy is an owner; and (ii) 41,224 shares held by Sparkjoy 2014 Revocable Trust, of which Mr. Sparkjoy is a trustee. |
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General
The following description summarizes certain important terms of our capital stock, as they are expected to be in effect immediately prior to the completion of this offering. We expect to adopt an amended and restated certificate of incorporation and amended and restated bylaws that will become effective immediately prior to the completion of this offering, and this description summarizes the provisions that are expected to be included in such documents. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this section Description of Capital Stock, you should refer to our amended and restated certificate of incorporation and amended and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.
Immediately following the completion of this offering, our authorized capital stock will consist of shares of capital stock, $0.001 par value per share, of which:
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shares are designated as Class A common stock; |
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share are designated as Class B common stock; |
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shares are designated as Class C common stock; and |
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shares are designated as preferred stock. |
As of December 31, 2017, there were 1,000 shares of our Class A common stock outstanding, held by one stockholder of record, and no shares of our Class B common stock, Class C common stock, or preferred stock outstanding. Pursuant to our amended and restated certificate of incorporation, our board of directors will have the authority, without stockholder approval except as required by the listing standards of Nasdaq, to issue additional shares of our capital stock.
Common Stock
We have three classes of authorized common stock, Class A common stock, Class B common stock, and Class C common stock. The Class A common stock, Class B common stock, and Class C common stock will generally vote together as a single class on all matters submitted to a vote of stockholders, except as otherwise required by applicable law.
Class A Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our Class A common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See the section titled Dividend Policy for more information.
Voting Rights
Holders of our Class A common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our amended and restated certificate of incorporation.
No Preemptive or Similar Rights
Our Class A common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
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Right to Receive Liquidation Distributions
If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Class A common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Class B Common Stock
Dividend Rights
Holders of our Class B common stock do not have any rights to receive dividends.
Voting Rights
Holders of our Class B common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. In connection with this offering, shares of Class B common stock will be issued to our Continuing Members, other than Aaron Skonnard and his affiliates, except to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions. Accordingly, such Continuing Members will, by virtue of their Class B common stock, collectively have a number of votes in Pluralsight, Inc. that is equal to the aggregate number of LLC Units that they hold. When an LLC Unit is exchanged by such holders, a corresponding share of Class B common stock held by the exchanging owner is also exchanged and will be cancelled.
No Preemptive or Similar Rights
Our Class B common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Holders of our Class B common stock do not have any rights to receive a distribution upon a liquidation, dissolution or winding-up.
Transferability
Shares of Class B common stock are not transferable except together with an equal number of LLC Units.
Class C Common Stock
Dividend Rights
Holders of our Class C common stock do not have any rights to receive dividends.
Voting Rights
Holders of our Class C common stock are entitled to 10 votes for each share held on all matters submitted to a vote of stockholders. In connection with this offering, all shares of Class C common stock will be issued to Aaron Skonnard and his affiliates who held LLC Units before the Reorganization Transactions and who will be Continuing Members upon completion of the Reorganization Transactions, except to the extent Mr. Skonnard or his affiliates contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock
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in connection with the Reorganization Transactions. Accordingly, Aaron Skonnard and his affiliates, by virtue of their Class C common stock, collectively have 10 times the number of votes in Pluralsight, Inc. as compared to the aggregate number of LLC Units that they hold. When a LLC Unit is exchanged by such holders, a corresponding share of Class C common stock held by the exchanging owner is also exchanged and will be cancelled.
No Preemptive or Similar Rights
Our Class C common stock is not entitled to preemptive rights, and is not subject to conversion, redemption, or sinking fund provisions.
Right to Receive Liquidation Distributions
Holders of our Class C common stock do not have any rights to receive a distribution upon a liquidation, dissolution or winding-up.
Transferability
Shares of Class C common stock are not transferable except together with an equal number of LLC Units.
Preferred Stock
Our board of directors is authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our Class A, Class B, or Class C common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in our control of our company and might adversely affect the market price of our Class A common stock and the voting and other rights of the holders of our Class A, Class B, and Class C common stock. We have no current plan to issue any shares of preferred stock.
Equity Awards
As of December 31, 2017, we had 15,791,871 incentive units outstanding, with a weighted-average threshold price of $6.50 per unit and a weighted-average catch-up price of $2.97 per unit, that will convert into in connection with this offering, 3,000,000 Class B incentive units outstanding, with a threshold price of $9.42 per unit and a catch-up price of $2.64 per unit, that will convert into in connection with this offering, 2,178,450 RSUs of Pluralsight Holdings outstanding, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering, and 3,000,000 Class B RSUs of Pluralsight Holdings outstanding, that will remain outstanding at Pluralsight Holdings after this offering.
Anti-Takeover Provisions
Delaware Law
We will be governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a business combination with an
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interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
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the transaction was approved by the board of directors prior to the time that the stockholder became an interested stockholder; |
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upon consummation of the transaction which 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 commenced, excluding shares owned by directors who are also officers of the corporation and shares owned by 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 |
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at or subsequent to the time the stockholder became an interested stockholder, the business combination was 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 two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
In general, Section 203 defines a business combination to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder and an interested stockholder as a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporations outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing changes in control of our company.
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaw Provisions
Our amended and restated certificate of incorporation and our amended and restated bylaws will include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our board of directors or management team, and may include the following:
Multiple Class Stock . As described above, our amended and restated certificate of incorporation provides for a multiple class common stock structure, which will provide our Aaron Skonnard and his affiliates with significant influence over matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.
Issuance of Undesignated Preferred Stock. As discussed above, our board of directors will have the ability to designate and issue preferred stock with voting or other rights or preferences that could deter hostile takeovers or delay changes in our control or management.
Board of Directors Vacancies. Our amended and restated certificate of incorporation and amended and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This will make it more difficult to change the composition of our board of directors and will promote continuity of management.
Classified Board. Our amended and restated certificate of incorporation and amended and restated bylaws will provide that our board of directors is classified into three classes of directors. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See the section titled ManagementBoard of Directors.
Stockholder Action; Special Meeting of Stockholders. Our amended and restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or
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special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws. Our amended and restated bylaws will further provide that special meetings of our stockholders may be called only by a majority of our board of directors, the Chairperson of our board of directors or our Chief Executive Officer, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations . Our amended and restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our amended and restated bylaws will also specify certain requirements regarding the form and content of a stockholders notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company.
No Cumulative Voting. The Delaware General Corporation Law provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporations certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation does not provide for cumulative voting.
Directors Removed Only for Cause. Our amended and restated certificate of incorporation will provide that stockholders may remove directors only for cause.
Amendment of Charter and Bylaws Provisions. Any amendment of the above provisions in our amended and restated certificate of incorporation and amended and restated Bylaws would require approval by holders of at least of the voting power of our then outstanding capital stock.
Issuance of Undesignated Preferred Stock. Our board of directors will have the authority, without further action by our stockholders, to issue up to shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or other means.
Exclusive Forum
Our amended and restated bylaws will provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against the company or any director or officer of the company arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be a state or federal court located within the State of Delaware, in all cases subject to the courts having jurisdiction over indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to this provision. Although we believe these provisions benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against us or our directors and officers.
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Transfer Agent and Registrar
Upon the completion of this offering, the transfer agent and registrar for our Class A common stock will be American Stock Transfer & Trust Company, LLC. The transfer agent and registrars address is 6201 15th Avenue, Brooklyn, New York 11219, and its telephone number is (718) 921-8300.
Limitations of Liability and Indemnification
See the section titled Certain Relationships and Related Party TransactionsLimitation of Liability and Indemnification of Officers and Directors.
Listing
We intend to apply to list our Class A common stock on Nasdaq under the symbol PS.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our Class A common stock, and we cannot predict the effect, if any, that market sales of shares of our Class A common stock or the availability of shares of our Class A common stock for sale will have on the market price of our Class A common stock prevailing from time to time. Future sales of our Class A common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares of our Class A common stock will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our Class A common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.
Currently, no shares of our Class A common stock are outstanding. Following the completion of this offering, we will have a total of shares of our Class A common stock outstanding, shares of our Class B common stock outstanding, and shares of our Class C common stock outstanding. Of these outstanding shares, all shares of our Class A common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.
The remaining outstanding shares of our Class A common stock will be deemed restricted securities as defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. As a result of the lock-up agreements described below, and subject to the provisions of Rule 144 or Rule 701, shares of our Class A common stock will be available for sale in the public market as follows:
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beginning on the date of this prospectus, all shares of our Class A common stock sold in this offering will be immediately available for sale in the public market; and |
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beginning days after the date of this prospectus additional shares (excluding shares of our Class A common stock assuming that all outstanding LLC Units that are exchangeable for shares of Class A common stock are so exchanged) will become eligible for sale in the public market, of which shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below. |
In addition, subject to certain limitations and exceptions, pursuant to the terms of the Fourth LLC Agreement, Continuing Members of Pluralsight Holdings may (subject to the terms of the Fourth LLC Agreement) exchange LLC Units and shares of Class B common stock or Class C common stock, as applicable, for, at our option, cash or shares of our Class A common stock, on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. At our option, in lieu of exchanging any LLC Units, we may cause such LLC Units to be redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us. Upon the completion of this offering, our Continuing Members, other than Aaron Skonnard and his affiliates, will hold LLC Units, all of which will be exchangeable (together with a corresponding number of shares of our Class B common stock) for shares of our Class A common stock, and Aaron Skonnard and his affiliates will hold LLC Units, all of which will be exchangeable (together with a corresponding number of shares of our Class C common stock) for shares of our Class A common stock (which shares of Class C common stock shall be convertible into shares of our Class A common stock on a one-for-one basis). The shares of Class A common stock we issue upon such exchanges would be restricted securities as defined in Rule 144 unless we register such issuances.
Lock-Up Agreements
We, our executive officers, directors, and certain other holders of our capital stock and securities convertible into or exchangeable for our capital stock (including shares of Class A common stock issuable upon exchange of
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LLC Units) have agreed or will agree that, subject to certain exceptions, for a period of 180 days after the date of this prospectus, we and they will not, without the prior written consent of Morgan Stanley & Co. LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our capital stock. Morgan Stanley & Co. LLC may, in its discretion, release any of the securities subject to these lock-up agreements at any time. See the section titled Underwriters for additional information.
Rule 144
In general, Rule 144 provides that once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares of our Class A common stock proposed to be sold for at least six months is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, Rule 144 provides that our affiliates or persons selling shares of our Class A common stock on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period, a number of shares of our Class A common stock that does not exceed the greater of:
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1% of the number of shares of our Class A common stock then outstanding, which will equal shares immediately after the completion of this offering; or |
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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 that sale. |
Sales of Class A common stock made in reliance upon Rule 144 by our affiliates or persons selling shares of our Class A common stock on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.
Registration Statement on Form S-8
We intend to file a registration statement on Form S-8 under the Securities Act promptly after the effectiveness of the registration statement of which this prospectus forms a part to register shares of our Class A common stock subject to RSUs and options outstanding, as well as reserved for future issuance, under our equity compensation plans. The registration statement on Form S-8 is expected to become effective immediately upon filing, and shares of our common stock covered by the registration statement will then become eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates, vesting restrictions and any applicable market standoff agreements and lock-up agreements. See the section titled Executive CompensationEquity Plans for a description of our equity compensation plans.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK
The following is a summary of the material U.S. federal income tax consequences to certain non-U.S. holders (as defined below) of the ownership and disposition of our Class A common stock but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Code, Treasury Regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. No ruling from the IRS, has been, or will be, sought with respect to the tax consequences discussed herein, and there can be no assurance that the IRS will not take a position contrary to the tax consequences discussed below or that any position taken by the IRS would not be sustained.
This summary applies only to Class A common stock acquired in this offering. It does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws. In addition, this discussion does not address the application of the Medicare contribution tax on net investment income or any tax considerations applicable to a non-U.S. holders particular circumstances or to non-U.S. holders that may be subject to special tax rules, including, without limitation:
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banks, insurance companies or other financial institutions (except to the extent specifically set forth below), regulated investment companies or real estate investment trusts; |
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persons subject to the alternative minimum tax; |
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tax-exempt organizations or governmental organizations; |
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controlled foreign corporations, passive foreign investment companies, or corporations that accumulate earnings to avoid U.S. federal income tax; |
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brokers or dealers in securities or currencies; |
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traders in securities or other persons that elect to use a mark-to-market method of accounting for their holdings in our stock; |
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U.S. expatriates or certain former citizens or long-term residents of the United States; |
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partnerships or entities classified as partnerships for U.S. federal income tax purposes or other pass-through entities (and investors therein); |
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persons who hold our Class A common stock as a position in a hedging transaction, straddle, conversion transaction, or other risk reduction transaction or integrated investment; |
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persons who hold or receive our Class A common stock pursuant to the exercise of any employee stock option or otherwise as compensation; |
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persons who do not hold our Class A common stock as a capital asset within the meaning of Section 1221 of the Code; |
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persons deemed to sell our Class A common stock under the constructive sale provisions of the Code; or |
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persons that own, or are deemed to own, our Class B common stock, or Class C common stock. |
In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes holds our Class A common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our Class A common stock, and partners in such partnerships, should consult their tax advisors.
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You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the acquisition, ownership and disposition of our stock arising under the U.S. federal estate or gift tax rules or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.
Non-U.S. Holder Defined
For purposes of this discussion, you are a non-U.S. holder if you are a holder of our stock that is not a partnership (or entity or arrangement treated as a partnership for U.S. federal income tax purposes) and is not any of the following:
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an individual who is a citizen or resident of the United States (for U.S. federal income tax purposes); |
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a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or any political subdivision thereof or other entity treated as such for U.S. federal income tax purposes; |
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an estate whose income is subject to U.S. federal income tax regardless of its source; or |
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a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons (within the meaning of Section 7701(a)(3) of the Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a U.S. person. |
Distributions
As described in the section titled Dividend Policy, we have never declared or paid cash dividends on our capital stock and do not anticipate paying any dividends on our capital stock in the foreseeable future, except possibly in connection with maintaining certain aspects of our UP-C structure. See the section titled Risk FactorsRisks Relating to Our Organizational StructureThe disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention. However, if we do make distributions on our Class A common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our Class A common stock, but not below zero, and then will be treated as gain from the sale of stock as described below under Gain on Disposition of Our Class A Common Stock.
Except as otherwise described below in the discussions of effectively connected income (in the next paragraph), backup withholding and FATCA, any dividend paid to you generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E or other appropriate version of IRS Form W-8, including any required attachments and your taxpayer identification number, certifying qualification for the reduced rate; additionally you will be required to update such forms and certifications from time to time as required by law. A non-U.S. holder of shares of our Class A common stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holders behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under an applicable income tax treaty.
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Dividends received by you that are effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by you in the United States) are generally exempt from such withholding tax. In order to obtain this exemption, you must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8, including any required attachments and your taxpayer identification number; additionally you will be required to update such forms and certifications from time to time as required by law. Such effectively connected dividends, although not subject to withholding tax, are includable on your U.S. income tax return and generally taxed to you at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. You should consult your tax advisor regarding any applicable tax treaties that may provide for different rules.
Gain on Disposition of Our Class A Common Stock
Except as otherwise described below in the discussions of backup withholding and FATCA, you generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our Class A common stock unless:
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the gain is effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment maintained by you in the United States); |
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you are a non-resident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs, and other conditions are met; or |
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our Class A common stock constitutes a United States real property interest by reason of our status as a United States real property holding corporation, or USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding your disposition of, or your holding period for, our Class A common stock, and, in the case where shares of our Class A common stock are regularly traded on an established securities market, you own, or are treated as owning, more than 5% of our Class A common stock at any time during the foregoing period. |
Generally, a corporation is a United States real property holding corporation if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for United States federal income tax purposes). We believe that we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion assumes this is the case. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our Class A common stock is regularly traded on an established securities market, such Class A common stock will be treated as U.S. real property interests only if you actually or constructively hold more than 5% of such regularly traded Class A common stock at any time during the shorter of the five-year period preceding your disposition of, or your holding period for, our Class A common stock. No assurance can be provided that our Class A common stock will be regularly traded on an established securities market at all times for purposes of the rules described above.
If you are a non-U.S. holder described in the first bullet above, you will generally be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates (and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a 30% rate), unless otherwise provided by an applicable income tax treaty. If you are a non-U.S. holder described in the second bullet above, you will generally be required to pay a flat 30% tax (or such lower rate specified by an
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applicable income tax treaty) on the gain derived from the sale, which gain may be offset by U.S. source capital losses for the year (provided you have timely filed U.S. federal income tax returns with respect to such losses). You should consult your tax advisor with respect to whether any applicable income tax or other treaties may provide for different rules.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.
Payments of dividends or of proceeds on the disposition of stock made to you may be subject to information reporting and backup withholding at a current rate of 24% unless you establish an exemption, for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E, or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a United States person as defined under the Code.
Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
FATCA
The Foreign Account Tax Compliance Act and the rules and regulations promulgated thereunder, collectively, FATCA, generally imposes withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other disposition of our Class A common stock paid to foreign financial institutions (as specially defined under these rules), 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 the U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on and gross proceeds from the sale or other disposition of our Class A common stock paid to a non-financial foreign entities (as specially defined under these rules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S. owners of the entity and provides certain information with respect to such U.S. owners, certifies that there are none or otherwise establishes and certifies to an exemption. The withholding provisions under FATCA generally apply to dividends on our Class A common stock, and under current transition rules, are expected to apply with respect to the gross proceeds from the sale or other disposition of our Class A common stock on or after January 1, 2019. An intergovernmental agreement between the United States and your country of tax residence may modify the requirements described in this paragraph. If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under Distributions, the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. Non-U.S. holders should consult their own tax advisors regarding the possible implications of FATCA on their investment in our Class A common stock.
Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding, and disposing of our stock, including the consequences of any proposed change in applicable 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 J.P. Morgan Securities LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, the number of shares indicated below:
Name |
Number of
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Morgan Stanley & Co. LLC |
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J.P. Morgan Securities LLC |
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Barclays Capital Inc. |
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Merrill Lynch, Pierce, Fenner & Smith Incorporated |
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First Analysis Securities Corporation |
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SunTrust Robinson Humphrey, Inc. |
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Raymond James & Associates, Inc. |
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Needham & Company, LLC |
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Total |
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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 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 over-allotment option to purchase additional shares to cover over-allotments, if any, 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 $ a 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 have granted to the underwriters an over-allotment option, exercisable for 30 days from the date of this prospectus, to purchase up to 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. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Class A common stock offered by this prospectus. 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. These amounts are shown assuming both no exercise and the exercise of the underwriters option in full to purchase up to an additional shares of our Class A common stock.
Per
Share |
Total | |||||||||||
No Exercise | Full Exercise | |||||||||||
Public offering price |
$ | $ | $ | |||||||||
Underwriting discounts and commissions to be paid by us |
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Proceeds, before expenses, to us |
$ | $ | $ | |||||||||
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The estimated offering expenses payable by Pluralsight Holdings, exclusive of underwriting discounts and commissions, are approximately $ . We have agreed to reimburse the underwriters for up to $ of expenses relating to clearance of this offering with the Financial Industry Regulatory Authority and up to $ of expenses incurred in connection with the directed share program. The underwriters have agreed to reimburse Pluralsight Holdings for certain expenses incurred by us in connection with this offering.
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 intend to apply to list our Class A common stock on Nasdaq under the trading symbol PS.
We, Pluralsight Holdings, and all directors and officers and the holders of substantially all of our capital stock and securities convertible into our capital stock have agreed that, without the prior written consent of Morgan Stanley & Co. LLC on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus, the restricted period:
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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 units of Pluralsight Holdings beneficially owned by the locked-up party or any other securities so owned convertible into or exercisable or exchangeable for shares of our common stock or units of Pluralsight Holdings; |
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enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock or units of Pluralsight Holdings; or |
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file any registration statement with the Securities and Exchange Commission relating to the offering of any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for Class A common stock; |
whether any such transaction described above is to be settled by delivery of our common stock, units of Pluralsight Holdings, or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of Morgan Stanley & Co. LLC 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 Class A common stock, if such demand would require us during the restricted period to file, or make a public announcement of our intention to file, a registration statement.
The restrictions described in the immediately preceding paragraph do not apply to:
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the sale of shares to the underwriters; |
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in the case of our directors, officers, and equity holders, transactions relating to shares of our Class A common stock acquired from the underwriters 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 shall be required or shall be voluntarily made during the restricted period; |
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in the case of our directors, officers, and equity holders, the transfer of the locked-up partys securities (i) to the spouse, domestic partner, parent, child, or grandchild of the locked-up party or any other person with whom the locked-up party has a relationship by blood, marriage, or adoption not more remote than first cousin, or to a trust or other entity formed for estate planning purposes for the direct or indirect benefit of the locked-up party or any other person with whom the locked-up party has a relationship by blood, marriage, or adoption not more remote than first cousin, (ii) by bona fide gift, will or intestacy, or (iii) if the locked-up party is a trust, to a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust; provided that no filing under Section 16(a) of the Exchange Act or other public filing, report, or announcement reporting a reduction in beneficial ownership of shares of common stock or other securities shall be required or shall be voluntarily made during the restricted period, other than any required Form 5 filing; |
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in the case of our equity holders, if the locked-up party is a corporation, partnership, limited liability company, trust, or other business entity, the transfer of the locked-up partys securities (A) to another corporation, partnership, limited liability company, trust, or other business entity that controls, is controlled by, manages, or is managed by or is under common control with the locked-up party or affiliates of the locked-up party (including, for the avoidance of doubt, where the locked-up party is a partnership, to its general partner or a successor partnership or fund, or any other funds managed by such partnership), or (B) as part of a disposition, transfer, or distribution by the locked-up party to its stockholders, partners, members, or other equity holders; |
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the establishment or amendment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of our common stock, provided that (i) such plan does not provide for the transfer of shares of our 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 locked-up party or us regarding the establishment or amendment of such plan, such announcement or filing shall include a statement to the effect that no transfer of shares of our common stock may be made under such plan during the restricted period; |
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in the case of our directors, officers, and equity holders, the transfer of the locked-up partys securities to us in connection with the vesting or settlement of RSUs or incentive units or the exercise of options or other rights to purchase shares of common stock, in each case on a net or cashless basis, including any transfer to us for the payment of tax withholdings or remittance payments due as a result of the vesting, settlement or exercise of such RSUs, incentive units, options or rights, provided that if the locked-up party is required to file a report under Section 16(a) of the Exchange Act during the restricted period, the locked-up party shall include a statement in any such report to the effect that such transfer is in connection with the vesting or settlement of RSUs or incentive units, or the net or cashless exercise of options or other rights to purchase shares of common stock, as applicable; |
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in the case of our directors, officers, and equity holders, the transfer of the locked-up partys securities to us pursuant to agreements under which we or any of our equity holders has the option to repurchase such securities upon termination of service of the locked-up party; |
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in the case of our directors, officers, and equity holders, the transfer of securities pursuant to the consummation of a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of our securities after the consummation of this offering, that has been approved by our board of directors, the result of which is that any person, as defined in Section 13(d)(3) of the Exchange Act, or group of persons, other than us, becomes the beneficial owner, as defined in Rules 13d-3 and 13d-5 of the Exchange Act, of 50% of the total voting power of our voting stock, provided that in the event that the tender offer, merger, consolidation or other such transaction is not completed, the securities of the locked-up party shall remain subject to the restrictions above; |
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in the case of our directors, officers, and equity holders, the exchange, redemption, or repurchase of any units of Pluralsight Holdings (or securities convertible into or exercisable or exchangeable for units of Pluralsight Holdings) and a corresponding number of shares of Class B common stock or Class C |
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common stock, as applicable, into or for shares of Class A common stock (or securities convertible into or exercisable or exchangeable for Class A common stock), or, at our option, for cash or Class A common stock, pursuant to the Fourth LLC Agreement, provided that (i) such shares of Class A common stock and other securities remain subject to the restrictions above 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 locked-up party or us regarding the exchange, redemption, or repurchase, as applicable, such announcement or filing shall include a statement to the effect that such exchange, redemption, or repurchase, as applicable, occurred pursuant to the Fourth LLC Agreement and no transfer of the shares of Class A common stock or other securities received upon exchange may be made during the restricted period; |
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in the case of our directors, officers, and equity holders, transfers, conversions, reclassifications, redemptions, or exchanges of any securities pursuant to the Reorganization Transactions, provided that any shares of our common stock or securities convertible into or exercisable or exchangeable for our common stock received in the Reorganization Transactions remain subject to the restrictions above; and |
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in the case of our directors, officers, and equity holders, transfers of securities that occur pursuant to a domestic order or in connection with a divorce settlement; |
provided that in the case of any transfer or distribution pursuant to the third, fourth, or eleventh bullet points above, it shall be a condition to the transfer or distribution that the donee, transferee or distributee, as the case may be, agrees in writing to be bound by the restrictions above;
provided further that in the case of any transfer or distribution pursuant to the fourth, seventh or eleventh bullet points above, no filing under Section 16(a) of the Exchange Act or other public filing, report, or announcement reporting a reduction in beneficial ownership of shares of our common stock or other securities shall be voluntarily made during the restricted period; and
provided further that in the case of any transfer or distribution pursuant to the seventh or eleventh bullet points above, if the locked-up party is required to file a report under Section 16(a) of the Exchange Act during the restricted period, the locked-up party shall include a statement in such report to the effect that such transfer is to us in connection with the repurchase of the locked-up partys securities or pursuant to a domestic order or in connection with a divorce settlement, as the case may be.
The lock-up agreements with Aaron Skonnard and Frederick Onion provide that beginning 30 days after the date of this prospectus, Messrs. Skonnard and Onion may donate equity to the Pluralsight One Fund, so long as the aggregate amount of all such donations from Messrs. Skonnard and Onion and their respective affiliates do not exceed one percent of our total fully diluted capitalization at the time of such gift, provided that any donated shares in excess of an aggregate value of $5 million as determined by the closing price of the Class A common stock on the respective date of each such gift, shall remain subject to the restrictions set forth in the lock-up agreement.
Morgan Stanley & Co. LLC, in its 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.
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 over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment 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 the over-allotment option. The underwriters may also sell shares
180
in excess of the over-allotment 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 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.
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 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 considered in determining the initial public offering price will be 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.
Directed Share Program
At our request, the underwriters have reserved up to shares of Class A common stock, or % of the shares offered by this prospectus, for sale at the initial public offering price to certain authors who provide or have provided services to us. None of our executive officers or members of our board of directors will participate in this directed share program. Any reserved shares of our Class A common stock that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of our Class A common stock offered by this prospectus. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with sales of the reserved shares.
181
Selling Restrictions
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) an offer to the public of any shares of our Class A common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our Class A common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) |
to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
(b) |
to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under 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 result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an offer to the public in relation to any shares of our Class A common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our Class A common stock to be offered so as to enable an investor to decide to purchase any 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 (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
United Kingdom
Each underwriter has represented and agreed that:
(a) |
it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, as amended (the FSMA) received by it in connection with the issue or sale of the shares of our Class A common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and |
(b) |
it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our Class A common stock in, from or otherwise involving the United Kingdom. |
Hong Kong
Each underwriter has represented and agreed that:
(a) |
it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any of our Class A common stock 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 Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and |
182
(b) |
it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to our Class A common stock, 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 our 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. |
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (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, in each case subject to compliance with conditions set forth in the SFA.
Where the shares 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 |
|
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor; |
|
shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except: |
|
to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; |
|
where no consideration is or will be given for the transfer; or |
|
where the transfer is by operation of law. |
183
The validity of the shares of our Class A common stock being offered by this prospectus will be passed upon for us by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California, which has acted as our counsel in connection with this offering. Goodwin Procter LLP, Menlo Park, California, is counsel for the underwriters in connection with this offering.
The financial statement of Pluralsight, Inc. as of December 31, 2017 included in this prospectus has been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The financial statements of Pluralsight Holdings, LLC as of December 31, 2016 and 2017 and for the years then ended included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have submitted with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our Class A common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our Class A common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document is not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. You may obtain copies of this information by mail from the Public Reference Section of the SEC at 100 F Street, NE Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SECs public reference facilities and the website the SEC referred to above. We also maintain a website at www.pluralsight.com. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
184
PLURALSIGHT
Pluralsight, Inc. |
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F-2 | ||||
F-3 | ||||
F-4 | ||||
Pluralsight Holdings, LLC |
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F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
Consolidated Statements of Redeemable Convertible Preferred Units and Members Deficit |
F-9 | |||
F-10 | ||||
F-11 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Pluralsight, Inc.
Opinion on the Financial Statement Balance Sheet
We have audited the accompanying balance sheet of Pluralsight, Inc. as of December 31, 2017, including the related notes (collectively referred to as the financial statement). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The financial statement is the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of this financial statement in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 9, 2018
We have served as the Companys auditor since 2017.
F-2
PLURALSIGHT, INC.
Balance Sheet as of December 31, 2017
(in thousands, except share and per share amounts)
Assets |
||||
Cash and cash equivalents |
$ | | ||
|
|
|||
Total assets |
$ | | ||
|
|
|||
Stockholders equity |
||||
Common stock, $0.001 par value per share, 1,000 shares authorized, issued, and outstanding |
$ | | ||
|
|
|||
Total stockholders equity |
$ | | ||
|
|
The accompanying notes are an integral part of this balance sheet.
F-3
PLURALSIGHT, INC.
1. Description of Business and Summary of Significant Accounting Policies
Pluralsight, Inc. (the Company) was formed as a Delaware corporation on December 4, 2017. The Company was formed for the purposes of completing a public offering and related transactions and carrying on the business of Pluralsight Holdings, LLC and its subsidiaries. The Company will be the sole managing member of Pluralsight Holdings, LLC and is expected to operate and control all of the business and affairs of Pluralsight Holdings, LLC, and through Pluralsight Holdings, LLC and its subsidiaries, continue to conduct the business now conducted by these subsidiaries.
Basis of Presentation and Accounting
The balance sheet is presented in accordance with accounting principles generally accepted in the United States of America. Separate statements of operations, comprehensive income, changes in stockholders equity, and cash flows have not been presented because there have been no activities in this entity.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
2. Stockholders Equity
The Company is authorized to issue 1,000 shares of Class A common stock, par value $0.001 per share. As of December 31, 2017, the Company had issued, for $1.00, and had outstanding, 1,000 shares of Class A common stock, all of which were owned by Pluralsight Holdings, LLC.
3. Subsequent Events
The Company has evaluated subsequent events through March 9, 2018, the date on which the balance sheet was available for issuance.
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Managers and Members of Pluralsight Holdings, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pluralsight Holdings, LLC and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred units and members deficit, and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 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.
Basis for Opinion
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 9, 2018
We have served as the Companys auditor since 2014.
F-5
PLURALSIGHT HOLDINGS, LLC
(in thousands, except unit amounts)
December 31,
2016 |
December 31,
2017 |
Pro forma
Members Deficit December 31, 2017 |
||||||||||
(unaudited) | ||||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 19,397 | $ | 28,267 | ||||||||
Accounts receivablenet of allowances of $708 and $1,552 at December 31, 2016 and 2017, respectively |
22,950 | 38,229 | ||||||||||
Prepaid expenses and other current assets |
2,558 | 5,125 | ||||||||||
|
|
|
|
|||||||||
Total current assets |
44,905 | 71,621 | ||||||||||
Property and equipment, net |
22,645 | 22,457 | ||||||||||
Content library, net |
19,593 | 13,441 | ||||||||||
Intangible assets, net |
4,372 | 2,854 | ||||||||||
Goodwill |
123,119 | 123,119 | ||||||||||
Other assets |
338 | 2,928 | ||||||||||
|
|
|
|
|||||||||
Total assets |
$ | 214,972 | $ | 236,420 | ||||||||
|
|
|
|
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Liabilities, redeemable convertible preferred units, and members deficit |
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Current liabilities: |
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Accounts payable |
$ | 2,936 | $ | 6,029 | ||||||||
Accrued expenses |
7,009 | 26,514 | ||||||||||
Accrued author fees |
5,748 | 7,879 | ||||||||||
Deferred revenue |
71,966 | 103,107 | ||||||||||
Current portion of long-term debt |
10,000 | | ||||||||||
|
|
|
|
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Total current liabilities |
97,659 | 143,529 | ||||||||||
Deferred revenue, net of current portion |
717 | 8,194 | ||||||||||
Long-term debt, less current portion, net |
74,069 | 116,037 | ||||||||||
Facility financing obligation |
7,529 | 7,513 | ||||||||||
Other liabilities |
262 | 458 | ||||||||||
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|
|
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Total liabilities |
180,236 | 275,731 | ||||||||||
Commitments and contingencies (Note 9) |
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Redeemable convertible preferred units: |
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Redeemable convertible preferred units, no par value; 53,178,067 and 48,447,880 units authorized as of December 31, 2016 and 2017, respectively; 48,447,880 units issued and outstanding as of December 31, 2016 and 2017, respectively; aggregate liquidation preference of $197,192 as of December 31, 2016 and 2017; no units issued and outstanding pro forma as of December 31, 2017 (unaudited) |
341,966 | 405,766 | $ | | ||||||||
Members deficit: |
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Members capital: Class A and Class B common units, no par value; 100,606,988 and 112,556,982 Class A common units authorized and 47,782,272 and 35,446,574 Class A common units issued and outstanding as of December 31, 2016 and 2017, respectively; 83,894,454 Class A common units issued and outstanding, pro forma as of December 31, 2017 (unaudited); 15,961,071 Class B common units authorized and 12,961,071 Class B common units issued and outstanding as of December 31, 2017; 12,961,071 Class B common units issued and outstanding, pro forma as of December 31, 2017 (unaudited) |
| | 405,766 | |||||||||
Accumulated other comprehensive (loss) income |
(8 | ) | 25 | 25 | ||||||||
Accumulated deficit |
(307,222 | ) | (445,102 | ) | (445,102 | ) | ||||||
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|
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Total members deficit |
(307,230 | ) | (445,077 | ) | $ | (39,311 | ) | |||||
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Total liabilities, redeemable convertible preferred units, and members deficit |
$ | 214,972 | $ | 236,420 | ||||||||
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The accompanying notes are an integral part of these consolidated financial statements .
F-6
PLURALSIGHT HOLDINGS, LLC
Consolidated Statements of Operations
(in thousands, except per unit amounts)
Year Ended
December 31, |
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2016 | 2017 | |||||||
Revenue |
$ | 131,841 | 166,824 | |||||
Cost of revenue |
40,161 | 49,828 | ||||||
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|
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Gross profit |
91,680 | 116,996 | ||||||
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Operating expenses: |
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Sales and marketing |
51,234 | 103,478 | ||||||
Technology and content |
36,159 | 49,293 | ||||||
General and administrative |
18,130 | 46,971 | ||||||
|
|
|
|
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Total operating expenses |
105,523 | 199,742 | ||||||
|
|
|
|
|||||
Loss from operations |
(13,843 | ) | (82,746 | ) | ||||
Other (expense) income: |
||||||||
Interest expense |
(6,320 | ) | (11,665 | ) | ||||
Loss on debt extinguishment |
| (1,882 | ) | |||||
Other income, net |
45 | 81 | ||||||
|
|
|
|
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Loss before income taxes |
(20,118 | ) | (96,212 | ) | ||||
Provision for income taxes |
(494 | ) | (324 | ) | ||||
|
|
|
|
|||||
Net loss |
$ | (20,612 | ) | $ | (96,536 | ) | ||
|
|
|
|
|||||
Less: accretion of Series A redeemable convertible preferred units |
(6,325 | ) | (63,800 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common units |
$ | (26,937 | ) | $ | (160,336 | ) | ||
|
|
|
|
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Net loss per unit, basic and diluted |
$ | (0.57 | ) | $ | (3.34 | ) | ||
|
|
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|
|||||
Weighted average common units used in computing basic and diluted net loss per unit |
47,480 | 47,957 | ||||||
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|
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Pro forma net loss per unit, basic and diluted (unaudited) |
$ | (1.00 | ) | |||||
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|
|||||||
Pro forma weighted average common units used in computing basic and diluted net loss per unit (unaudited) |
96,405 | |||||||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7
PLURALSIGHT HOLDINGS, LLC
Consolidated Statements of Comprehensive Loss
(in thousands)
Year Ended
December 31, |
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2016 | 2017 | |||||||
Net loss |
$ | (20,612 | ) | $ | (96,536 | ) | ||
Other comprehensive (loss) income: |
||||||||
Foreign currency translation (losses) gains, net of tax |
(7 | ) | 33 | |||||
|
|
|
|
|||||
Comprehensive loss |
$ | (20,619 | ) | $ | (96,503 | ) | ||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Consolidated Statements of Redeemable Convertible Preferred Units and Members Deficit
(in thousands, except unit amounts)
Redeemable
Convertible Preferred Units |
Members Capital |
Accumulated
Other Comprehensive (Loss) Income |
Accumulated
Deficit |
Total
Members Deficit |
||||||||||||||||||||||||||||
Units | Amount | Units | Amount | |||||||||||||||||||||||||||||
Balances at January 1, 2016 |
45,216,286 | $ | 305,294 | 47,428,921 | $ | | $ | (1 | ) | $ | (286,133 | ) | $ | (286,134 | ) | |||||||||||||||||
Issuance of Series C redeemable convertible preferred units, net of issuance costs of $94 |
3,231,594 | 30,347 | | | | | | |||||||||||||||||||||||||
Issuance of Class A common units, net of issuance costs of $14 |
| | 353,351 | 2,082 | | | 2,082 | |||||||||||||||||||||||||
Redemption of incentive units |
| | | (1,972 | ) | | | (1,972 | ) | |||||||||||||||||||||||
Equity-based compensation |
| | | 5,738 | | | 5,738 | |||||||||||||||||||||||||
Accretion of Series A redeemable convertible preferred units |
| 6,325 | | (5,848 | ) | | (477 | ) | (6,325 | ) | ||||||||||||||||||||||
Foreign currency translation losses, net of tax |
| | | | (7 | ) | | (7 | ) | |||||||||||||||||||||||
Net loss |
| | | | | (20,612 | ) | (20,612 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balances at December 31, 2016 |
48,447,880 | 341,966 | 47,782,272 | | (8 | ) | (307,222 | ) | (307,230 | ) | ||||||||||||||||||||||
Exchange of Class A common units for Class B common units |
| | | 2,074 | | | 2,074 | |||||||||||||||||||||||||
Issuance of Class A common units |
| | 625,373 | 4,399 | | | 4,399 | |||||||||||||||||||||||||
Redemption of incentive units |
| | | (3,724 | ) | | | (3,724 | ) | |||||||||||||||||||||||
Equity-based compensation |
| | | 19,707 | | | 19,707 | |||||||||||||||||||||||||
Accretion of Series A redeemable convertible preferred units |
| 63,800 | | (22,456 | ) | | (41,344 | ) | (63,800 | ) | ||||||||||||||||||||||
Foreign currency translation gains, net of tax |
| | | | 33 | | 33 | |||||||||||||||||||||||||
Net loss |
| | | | | (96,536 | ) | (96,536 | ) | |||||||||||||||||||||||
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Balance at December 31, 2017 |
48,447,880 | $ | 405,766 | 48,407,645 | $ | | $ | 25 | $ | (445,102 | ) | $ | (445,077 | ) | ||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-9
Consolidated Statements of Cash Flows
(in thousands)
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Operating activities | ||||||||
Net loss |
$ | (20,612 | ) | $ | (96,536 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Depreciation of property and equipment |
4,274 | 6,675 | ||||||
Amortization of acquired intangible assets |
8,034 | 8,526 | ||||||
Amortization of course creation costs |
1,337 | 1,462 | ||||||
Equity-based compensation |
5,738 | 21,781 | ||||||
Provision for doubtful accounts |
89 | 479 | ||||||
Amortization of debt discount and debt issuance costs |
469 | 1,847 | ||||||
Write off of debt issuance costs |
6 | 931 | ||||||
Deferred tax benefit |
| (83 | ) | |||||
Other |
| 63 | ||||||
Changes in assets and liabilities, net of effects of acquisition: |
||||||||
Accounts receivable |
(12,862 | ) | (16,123 | ) | ||||
Prepaid expenses and other assets |
(701 | ) | (2,796 | ) | ||||
Accounts payable |
677 | 2,561 | ||||||
Accrued expenses and other liabilities |
1,290 | 17,960 | ||||||
Accrued author fees |
894 | 2,131 | ||||||
Deferred revenue |
17,390 | 38,983 | ||||||
Related party note payable |
(1,555 | ) | | |||||
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Net cash provided by (used in) operating activities |
4,468 | (12,139 | ) | |||||
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Investing activities |
||||||||
Purchases of property and equipment |
(10,142 | ) | (5,951 | ) | ||||
Purchases of content library |
(2,253 | ) | (2,382 | ) | ||||
Purchases of business, net of cash acquired |
(649 | ) | | |||||
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Net cash used in investing activities |
(13,044 | ) | (8,333 | ) | ||||
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|
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Financing activities |
||||||||
Borrowings of long-term debt |
| 115,000 | ||||||
Repayments of long-term debt |
(8,125 | ) | (85,000 | ) | ||||
Repayments of related-party note payable |
(4,782 | ) | | |||||
Payments of debt issuance costs |
(136 | ) | (854 | ) | ||||
Deemed landlord financing proceeds |
2,213 | | ||||||
Payments of facility financing obligation |
(6 | ) | (16 | ) | ||||
Proceeds from the issuance of Series C redeemable convertible preferred units, net of issuance costs |
30,347 | | ||||||
Proceeds from the issuance of common units, net of issuance costs |
1,986 | 4,399 | ||||||
Redemption of incentive units |
(1,876 | ) | (3,724 | ) | ||||
Payments of deferred offering costs |
| (307 | ) | |||||
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Net cash provided by financing activities |
19,621 | 29,498 | ||||||
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Effect of exchange rate change on cash, cash equivalents, and restricted cash |
(37 | ) | 54 | |||||
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|
|||||
Net increase in cash, cash equivalents, and restricted cash |
11,008 | 9,080 | ||||||
Cash, cash equivalents, and restricted cash, beginning of period |
8,389 | 19,397 | ||||||
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Cash, cash equivalents, and restricted cash, end of period |
$ | 19,397 | $ | 28,477 | ||||
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Supplemental cash flow disclosure: |
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Cash paid for interest |
$ | 5,506 | $ | 6,858 | ||||
Cash paid for income taxes, net |
$ | 462 | $ | 425 | ||||
Supplemental disclosure of non-cash investing and financing activities: |
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Redeemable convertible preferred unit accretion |
$ | 6,325 | $ | 63,800 | ||||
Unpaid capital expenditures |
$ | 20 | $ | 555 | ||||
Deferred offering costs, accrued but not yet paid |
$ | | $ | 1,699 | ||||
Reconciliation of cash, cash equivalents and restricted cash as shown in the statement of cash flows: |
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Cash and cash equivalents |
$ | 19,397 | $ | 28,267 | ||||
Restricted cash included in other assets |
| 210 | ||||||
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Total cash, cash equivalents and restricted cash |
$ | 19,397 | $ | 28,477 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-10
PLURALSIGHT HOLDINGS, LLC
Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies
Organization and Description of Business
Pluralsight Holdings, LLC (the Company) is the parent company of Pluralsight, LLC, and its directly and indirectly wholly-owned subsidiaries, which operates a cloud-based technology learning platform that provides a broad range of tools for businesses and individuals, including skill assessments, a curated library of courses, learning paths, and business analytics. The Company is a limited liability company (LLC) and was organized on August 29, 2014 in the state of Delaware. Pluralsight, LLC was organized on June 17, 2004 in the state of Nevada. Pluralsight Holdings, LLC does not have any business operations.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The consolidated financial statements include the accounts of the Company and its directly and indirectly wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Pro Forma Balance Sheet Information
Upon the closing of the Companys initial public offering, or IPO, all outstanding redeemable convertible preferred units will automatically convert into common units. The unaudited pro forma members deficit information gives effect to the conversion of the redeemable convertible preferred units as of December 31, 2017. The effect of this conversion on the pro forma consolidated balance sheet will reduce members deficit by $405.8 million.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to the determination of fair value of equity awards, the accretion of Series A redeemable convertible preferred units, useful lives of property and equipment, content library and intangible assets, provisions for doubtful accounts receivable and deferred revenue, accounting for business combinations, and impairment of long-lived and intangible assets, including goodwill. These estimates and assumptions are based on the Companys historical results and managements future expectations. Actual results could differ from those estimates.
Operating Segments
The Company operates in a single operating segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision makers, who in the Companys case are the Chief Executive Officer and Chief Financial Officer, in deciding how to allocate resources and assess performance. The chief operating decision makers evaluate the Companys financial information and resources and assess the performance of these resources on a consolidated basis. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements.
F-11
Revenue by geographic region, based on the physical location of the customer, is (in thousands):
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
United States |
$ | 85,159 | $ | 108,257 | ||||
United Kingdom |
13,508 | 18,047 | ||||||
Other foreign locations |
33,174 | 40,520 | ||||||
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Total revenue |
$ | 131,841 | $ | 166,824 | ||||
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Percentage of revenue generated outside of the United States |
35 | % | 35 | % | ||||
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With the exception of the United Kingdom, no other foreign country accounted for 10% or more of revenue during the years ended December 31, 2016 and 2017.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company deposits cash with high-credit-quality financial institutions, which, at times, may exceed federally insured amounts. The Company invests its cash equivalents in highly-rated money market funds. The Company has not experienced any losses on its deposits. The Company performs ongoing credit evaluations of its customers financial condition and will limit the amount of credit as deemed necessary, but currently does not require collateral from customers. One customer accounted for 29% of the Companys net accounts receivable balance as of December 31, 2016, and no customer accounted for 10% or more of the net accounts receivable balance as of December 31, 2017. For the years ended December 31, 2016, and 2017, no customer accounted for 10% or more of total revenue.
Cash and Cash Equivalents
Cash consists of deposits with financial institutions, and cash equivalents consist of money market funds. The Company considers all highly-liquid investments with a maturity at the time of purchase of 90 days or less to be cash equivalents.
Accounts Receivable
Accounts receivable represent amounts owed to the Company for subscriptions to the Companys platform. Accounts receivable balances are recorded at the invoiced amount and are non-interest-bearing. The Company maintains an allowance for doubtful accounts to reserve for potential uncollectible receivables. Allowances are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reserved, allowances may be provided based upon a percentage of aged outstanding invoices. In determining these percentages, the Company analyzes its historical collection experience and current economic trends. For invoice amounts that are determined to be uncollectible that have been recognized as revenue, the Company records bad debt expense, which is included in general and administrative expenses, and an allowance for doubtful accounts. For invoice amounts that are determined to be uncollectible that have not been recognized as revenue and are still included in accounts receivable and deferred revenue, the Company records an allowance for doubtful accounts and an allowance for deferred revenue. Included in this allowance for doubtful accounts was $0.5 million and $0.9 million as of December 31, 2016 and 2017, respectively, that was also recorded in the allowance for deferred revenue. The Company writes off accounts receivable balances to the allowance for doubtful accounts when the Company has exhausted collection efforts without success. Accounts receivable balances are considered past due when not paid in accordance with the contractual terms of the related arrangement. The Company does not have any off-balance sheet credit exposure relating to its customers.
F-12
The following is a roll-forward of the Companys allowance for doubtful accounts (in thousands):
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Balance, beginning of period |
$ | 167 | $ | 708 | ||||
Provision for doubtful accounts |
89 | 479 | ||||||
Provision for accounts in deferred revenue |
842 | 767 | ||||||
Accounts written-off, net of recoveries |
(390 | ) | (402 | ) | ||||
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|
|
|
|||||
Balance, end of period |
$ | 708 | 1,552 | |||||
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|
|
Property and Equipment
Property and equipment is stated at historical cost less accumulated depreciation. Repairs and maintenance costs are expensed as incurred as repairs and maintenance do not extend the useful life or improve the related assets. Depreciation and amortization, including amortization of leasehold improvements, is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life of each asset category is as follows:
Estimated Useful Life |
||
Computer equipment |
3-5 years | |
Purchased software |
1-5 years | |
Internal-use software |
1-3 years | |
Furniture and fixtures |
5-7 years | |
Leasehold improvements |
Shorter of remaining lease term or estimated useful life | |
Buildings |
27-30 years |
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable. An impairment loss is recognized when the total of estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value. There was no impairment of property and equipment during the years ended December 31, 2016 and 2017.
Capitalized Software Development Costs
The Company capitalizes certain development costs incurred in connection with the development of its platform and software used in operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once software has reached the development stage, internal and external costs of application development are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. The Company capitalized costs of $3.2 million and $3.4 million for the years ended December 31, 2016 and 2017, respectively, which were included in property and equipment. Maintenance and training costs are expensed as incurred.
Leases
The Company categorizes leases at their inception as either operating or capital leases. On certain of the Companys lease agreements, the Company may receive tenant improvement allowances, rent holidays, and other incentives. Rent expense is recorded on a straight-line basis over the term of the lease and is included in operating expenses. The difference between rent expense recognized and amounts paid under the lease agreement is recorded as deferred rent and is included in other liabilities on the consolidated balance sheets.
F-13
For build-to-suit lease arrangements, the Company evaluates the extent of its financial and operational involvement in the tenant improvements to determine whether it is considered the owner of the construction project for accounting purposes. When the Company is considered the owner of a project under lease accounting guidance, the Company records the shell of the facility at its fair value at the date construction commences with a corresponding facility financing obligation. Improvements to the facility during the construction project are capitalized. Lessor-afforded incentives are classified as deemed landlord financing proceeds and are included in the facility financing obligation. Payments the Company makes under leases in which it is considered the owner of the facility are allocated to ground rent expense, based on the relative values of the land and building at the commencement of construction, reductions of the facility financing obligation, and interest expense recognized on the outstanding obligation. To the extent gross future payments do not equal the recorded liability, the liability is settled upon return of the facility to the lessor.
Content Library, Intangible Assets, and Goodwill
The content library assets have been acquired from the Companys network of independent authors (course creation costs) and through various business combinations. The Company amortizes the content library and other intangible assets acquired in business combinations on a straight-line basis over their estimated useful lives, which is generally five years.
Periodically the Company assesses potential impairment of its long-lived assets, which include the content library and intangible assets. The Company performs an impairment review whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include, but are not limited to, significant under-performance relative to historical or projected future results of operations, significant changes in the manner of its use of acquired assets or its overall business strategy, and significant industry or economic trends. When the Company determines that the carrying value of a long-lived asset (or asset group) may not be recoverable based upon the existence of one or more of the above indicators, the Company determines the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate and recognizes an impairment charge equal to the amount by which the carrying amount exceeds the fair value of the asset.
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The Company tests goodwill for impairment annually as of October 1, or whenever events or changes in circumstances indicate that goodwill may be impaired. The Company initially assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of its sole reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, then the Company performs the first step of a two-step analysis by comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value, the second step analysis is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. In assessing the qualitative factors, the Company considers the impact of certain key factors including macroeconomic conditions, industry and market considerations, management turnover, changes in regulation, litigation matters, changes in enterprise value and overall financial performance.
There were no impairments of goodwill or intangible assets, including the content library, during the years ended December 31, 2016 and 2017.
Deferred Offering Costs
Deferred offering costs, which consist of legal, consulting, banking, and accounting fees directly attributable to the IPO, are capitalized and will be offset against proceeds upon the consummation of the IPO. In the event the IPO is terminated, deferred offering costs will be expensed in the period terminated. As of December 31, 2017,
F-14
the Company capitalized $2.0 million in deferred offering costs included in other assets within the consolidated balance sheet. No amounts were capitalized as of December 31, 2016.
Business Combinations
The Company includes the results of operations of the businesses that it acquires as of the respective dates of acquisition. The Company allocates the fair value of the purchase price of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. The determination of the value and useful lives of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.
Revenue Recognition
The Company derives substantially all of its revenue from subscription services (which include support services) from providing customers access to its platform. A small portion of the Companys revenue is derived from providing professional services, which generally consist of content creation or other consulting services.
The Company commences revenue recognition when all of the following conditions are met: (i) persuasive evidence of an arrangement exists; (ii) services are provided to the customer; (iii) the amount of fees to be paid by the customer are fixed or determinable; and (iv) collection is reasonably assured.
The Companys subscription arrangements do not provide customers with the right to take possession of the software supporting the platform and, as a result, are accounted for as service arrangements. Revenue for subscription fees are recognized ratably over the subscription term, which typically varies from one month to three years, and begins on the date access to the platform is made available to the customer. Professional services are generally billed on a fixed-fee basis and are recognized as services are completed, provided the other revenue recognition criteria are met. The Companys arrangements are generally noncancellable and nonrefundable.
For arrangements with multiple deliverables, the Company evaluates whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple-element arrangement as separate units of accounting, the deliverables must have standalone value upon delivery and, in situations in which a general right of return exists for the delivered item, delivery or performance of the undelivered item is considered probable and substantially within the control of the Company. The Companys professional services have standalone value because the Company has routinely sold these services separately. The Companys subscription services have standalone value as the Company routinely sells subscriptions separately. Customers have no general rights of return for delivered items.
If the deliverables have stand-alone value upon delivery, the Company accounts for each deliverable separately, and revenue is recognized for the respective deliverables as they are delivered based on the relative selling price, which the Company determines by using the best estimate of selling price, as neither vendor-specific objective evidence nor third-party evidence is available. The Company has determined its best estimate of selling price for its deliverables based on customer size, the size and volume of its transactions, overarching pricing objectives and strategies, market and industry conditions, product-specific factors, historical sales of the deliverables, and discounting practices.
For sales in jurisdictions that assess value-added taxes, the Company records taxes in revenue and cost of revenue. Taxes collected from customers in all other jurisdictions are excluded from revenue.
Deferred Revenue
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services described above, including amounts billed to customers in accordance with the terms
F-15
of the underlying contracts where the service period has not yet commenced but will commence in the near future. Deferred revenue is recognized as revenue as the revenue recognition criteria are met. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as non-current deferred revenue.
Cost of Revenue
Cost of revenue includes certain direct costs associated with delivering the Companys platform and includes costs for author fees, amortization of the Companys content library, hosting and delivery fees, merchant processing fees, depreciation of capitalized software development costs for internal-use software, employee-related costs, including equity-based compensation expense associated with the Companys customer support organization, and third-party transcription costs.
Technology and Content
Technology costs consist principally of research and development activities including personnel costs, consulting services, and other costs associated with product development efforts. Content costs consist principally of personnel costs and other activities directly related to content acquisition, course production, and curriculum direction.
Technology and content costs are expensed as incurred, except for certain costs relating to the development of internal-use software, including software used to upgrade and enhance the Companys platform and applications supporting its business, which are capitalized and amortized over the estimated useful lives of one to three years.
Advertising Costs
Advertising costs are expensed as incurred. The Company recorded advertising costs of $12.0 million and $14.5 million for the year ended December 31, 2016 and 2017, respectively.
Equity-Based Compensation
Equity awards to employees are measured and recognized in the consolidated financial statements based on the fair value of the award on the grant date. For time-based awards, the fair value of the award on the grant date is expensed on a straight-line basis over the requisite service period of the award. For awards subject to performance conditions, the Company will record expense when the performance condition becomes probable. The Company records forfeitures related to equity-based compensation for its awards based on actual forfeitures as they occur.
Incentive units vest upon the occurrence of a service condition. The grant date fair value of incentive units is determined using a hybrid method consisting of both an option-pricing method (OPM) and probability-weighted expected return method (PWERM). Under the PWERM methodology, the fair value of the Companys securities are estimated based upon an analysis of future values for the Company, assuming various outcomes. The security values are based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of security. The future value of the securities under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the securities. The outcomes evaluated under the PWERM methodology are an IPO in the near term, and a liquidity event in the longer term with less visibility into the timing and type of exit event using the OPM methodology. For the IPO scenario, the value of the share classes is assumed based on the expected pricing and timing of a potential IPO using revenue multiples of peer companies. The OPM valuation involves a two-step process. First, the equity value of the Company is established by calculating the enterprise value and adding cash and deducting debt. The
F-16
enterprise value is established using generally accepted valuation methodologies including discounted cash flow analysis and comparable market analysis. Second, an allocation of the equity value among the securities that comprise the capital structure of the Company using the OPM is performed. The aggregate value of the preferred units, common units, and incentive units derived from the OPM are then divided by the number of respective units outstanding to arrive at the per unit value.
The grant date fair value of restricted share units (RSUs) is determined using the fair value of the Companys common units. The fair value of common units is calculated using the same hybrid method used to value incentive units. RSUs vest upon the satisfaction of both a service condition and a liquidity condition. The liquidity condition is satisfied upon the occurrence of a qualifying liquidity event, defined as a change of control transaction (including (i) an acquisition of securities which represent a majority of the voting power of all securities entitled to vote for the Companys board of managers, (ii) the consummation of a merger, consolidation, or similar transaction, (iii) a sale of all or substantially all of the assets of the Company, or (iv) the approval by the members of the Company of the Companys liquidation or dissolution, in each case subject to customary exceptions as set forth in the Companys third amended and restated limited liability company agreement), or an IPO, after the expiration of the lock-up period. The liquidity condition is viewed as a performance-based criterion for which equity-based compensation expense has not been recognized as of December 31, 2017, as the event is not yet probable of occurring. For accounting purposes, the satisfaction of the liquidity condition becomes probable upon completion of the Companys IPO, at which point the Company will record a cumulative adjustment to equity-based compensation expense using the straight-line attribution method. The remaining unrecognized equity-based compensation expense related to RSUs will be recognized over the remaining requisite service period.
The Company also records equity-based compensation expense when the Company or a holder of an economic interest in the Company purchases shares from an employee for an amount in excess of the fair value of the common units at the time of purchase. The Company recognizes any excess value transferred in these transactions as equity-based compensation expense in the consolidated statement of operations.
Foreign Currency
The functional currency of the Companys international subsidiaries is the local currency. For those subsidiaries, expenses denominated in the functional currency are translated into U.S. dollars using average exchange rates in effect during the period, and assets and liabilities are translated using period-end exchange rates. The foreign currency translation adjustments are included in accumulated other comprehensive (loss) income as a component of members deficit. Foreign currency transaction gains or losses are recorded in other income, net.
Income Taxes
The Company is a Delaware LLC and treated as a partnership for U.S. federal and state income tax purposes. As a result, the Company is generally not subject to U.S. federal or state income taxes as partnership income and losses and the related tax consequences are passed through and reported by the members of the LLC. The exception is any jurisdiction that does not respect the pass-through treatment of partnerships and applies an entity-level income tax. Additionally, the Companys structure includes subsidiaries that are taxed as either domestic corporations or controlled foreign corporations, all of which are subject to income tax in their various jurisdictions. The Company may also be subject to capital or gross receipts taxes in certain states.
The Company records a provision for income taxes for the anticipated tax of its reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying the enacted tax rates expected to be in effect in future years to the differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating losses and tax credit carryforwards. The measurement of deferred tax assets is reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized.
F-17
The Company does not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. A tax benefit is recognized only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. For such positions, the largest benefit that has a greater than 50% likelihood of being realized upon settlement is recognized in the financial statements.
On December 22, 2017, tax reform legislation referred to as the Tax Cuts and Jobs Act (the Tax Act) was enacted in the United States. The Tax Act significantly revises U.S. federal income tax law, including by lowering the corporate income tax rate to 21%, limiting the deductibility of interest expense, implementing a modified territorial tax system and imposing a one-time repatriation tax on deemed repatriated untaxed earnings and profits of U.S.-owned foreign subsidiaries (the Toll Charge).
The Securities and Exchange Commission staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for entities to complete the accounting under ASC 740. In accordance with SAB 118, an entity must reflect the income tax effects of those aspects of the Tax Act for which the accounting under Accounting Standards Codification (ASC) 740 is complete. To the extent that an entitys accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.
The Company has included a provisional estimate of the impact of the Tax Act in its year-end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the date of this filing.
Net Loss Per Unit
The Company computes basic and diluted net loss per unit in conformity with the two-class method required for participating securities. Redeemable convertible preferred units, common units, and vested incentive units are considered participating securities for purposes of this calculation. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to holders of common units. However, the two-class method does not impact the net loss per unit, as the Company is in a loss position for each of the periods presented and both vested incentive units and redeemable convertible preferred units do not participate in losses.
Basic net loss per unit is computed by dividing net loss attributable to common units by the weighted average number of common units outstanding. Net loss attributable to common units is computed as net loss less accretion of redeemable preferred units. Diluted net loss per unit is computed by giving effect to all potential dilutive common unit equivalents outstanding for the period. For purposes of this calculation, incentive units, RSUs, and redeemable convertible preferred units are considered to be common unit equivalents but have been excluded from the calculation of diluted net loss per common unit as the effect is antidilutive. The dilutive effect of potentially dilutive incentive units and RSUs is reflected in diluted net loss per share by application of the treasury stock method.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), the Company meets the definition of an emerging growth company. 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. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the Company is no longer an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period. As a result, the Companys financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
F-18
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which simplifies several aspects of the accounting for share-based payment transactions. The new guidance requires companies to record excess tax benefits and tax deficiencies as income tax benefit or expense in the statement of operations when the awards vest or are settled, and eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the statement of cash flows. The ASU also allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. For public business entities, the ASU is effective for annual and interim reporting periods beginning after December 15, 2016. For all other entities, this standard is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for all entities in any interim or annual period for which financial statements have not been issued or made available for issuance.
In the first quarter of 2016, the Company early adopted this standard and elected to account for forfeitures as they occur. The Company also recognized $0.5 million of previously unrecognized excess tax benefits through an increase to its net deferred tax asset for net operating loss carryforwards (NOLs), with an offsetting cumulative-effect adjustment to accumulated deficit, in the same amount. A corresponding adjustment was recorded to increase the valuation allowance by $0.5 million with an offsetting adjustment to accumulated deficit, resulting in no net impact to the consolidated financial statements. Adoption of the standard resulted in the recognition of excess tax benefits in the Companys provision for income taxes rather than additional paid-in-capital. Such excess tax benefits since the date of adoption have been offset by a full valuation allowance and consequently have had no net impact on the Companys consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . This update clarifies that transfers between cash and restricted cash are not part of the entitys operating, investing, and financing activities, and details of those transfers are not reported as cash flow activities in the statements of cash flows. For public business entities, this update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, this update is effective for annual periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption for all entities is permitted. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company early adopted this standard during the year ended December 31, 2017, and retroactively adjusted the consolidated statements of cash flows for all periods presented.
Accounting Pronouncements Not Yet Adopted
In May 2017, the FASB issued ASU 2017-09, CompensationStock Compensation (Topic 718): Scope of Modification Accounting , which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in the ASU. The ASU is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. For public business entities that are SEC filers, the ASU is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. For public business entities that are not SEC filers, the ASU is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. For all other entities, the ASU is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15,
F-19
2021. The guidance will apply to the Companys reporting requirements in performing goodwill impairment testing; however, the Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The impact to the Companys consolidated financial statements will depend on the facts and circumstances of any specific future transactions.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. For public business entities, the ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. As the Company has elected to use the extended transition period available to emerging growth companies, the Company does not anticipate adopting the standard until the fiscal year ended December 31, 2020. The Company is currently evaluating the potential changes from this ASU to its future financial reporting and disclosures. As part of its preliminary assessment, the Company expects to record right-of-use assets and lease liabilities for its operating leases as a result of adopting the standard. While the Company continues to assess all potential impacts under the new standard, including the areas described above, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the adoption of the new standard on its consolidated financial statements at this time.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred CostsContracts with Customers (Subtopic 340-40) , which will supersede nearly all existing revenue recognition guidance. The core principle behind ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. To achieve this core principle, the ASU provides a model, which involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction prices to the performance obligations in the contract, and recognizing revenue when (or as) the entity satisfies the performance obligations. The standard also provides guidance on the recognition of costs related to obtaining customer contracts.
The ASU permits adoption either by using a full retrospective approach, in which all comparative periods are presented in accordance with the new standard, or a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. For public business entities, the standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, the standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early application is permitted for annual periods beginning after December 15, 2016. As the Company has elected to use the extend transition period available to emerging growth companies, the Company anticipates adopting the standard for the fiscal year ending December 31, 2019. The Company is currently evaluating adoption methods.
The Company is in the initial stages of evaluating the impact of the adoption of the new standard on its accounting policies, processes, and system requirements. The Company has assigned internal resources to assist in the evaluation. Furthermore, the Company has made and will continue to make investments in systems to
F-20
enable timely and accurate reporting under the new standard. While the Company continues to assess all potential impacts under the new standard, there is potential the standard could have an impact on the timing of recognition of revenue and contract acquisition costs. Under the current revenue recognition guidance, the Company limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the delivery of future services. Under the new standard, the concept of contingent revenue no longer exists. Depending on the outcome of the Companys evaluation, the timing of when revenue is recognized could change for multi-year subscription agreements.
As part of its preliminary evaluation, the Company has also considered the impact of the standards requirements with respect to the capitalization and amortization of incremental costs of obtaining a contract. Under the Companys current accounting policy, incremental costs of obtaining a contract are expensed as incurred. The new standard requires the capitalization of all incremental costs that are incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained, provided the Company expects to recover those costs. As a result of this standard, the Company expects to capitalize incremental contract costs. The period over which these costs are expected to be recognized is still being evaluated by the Company.
While the Company continues to assess all potential impacts under the new standard, including the areas described above, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the adoption of the new standard on its consolidated financial statements at this time.
2. Fair Value Measurements
The Company measures and records certain financial assets at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Companys financial instruments that are measured at fair value on a recurring basis consist of money market funds. The following three levels of inputs are used to measure the fair value of financial instruments:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The fair value of the Companys financial instruments as of December 31, 2016, were as follows (in thousands):
December 31, 2016 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Money market funds |
$ | 16,149 | $ | | $ | | $ | 16,149 |
The fair value of the Companys financial instruments as of December 31, 2017, were as follows (in thousands):
December 31, 2017 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Money market funds |
$ | 25,146 | $ | | $ | | $ | 25,146 |
F-21
Fair Value of Other Financial Instruments
The carrying amounts of the Companys accounts receivable, accounts payable, accrued expenses, and other liabilities approximate their fair values due to the short maturities of these assets and liabilities. The carrying value of the Companys long-term debt approximates its fair value based upon Level 2 inputs and borrowing rates available to the Company for loans with similar terms and consideration of the Companys credit risk.
3. Balance Sheet Components
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
|||||||
Prepaid expenses |
$ | 2,424 | $ | 4,586 | ||||
Other current assets |
134 | 539 | ||||||
|
|
|
|
|||||
Prepaid expenses and other current assets |
$ | 2,558 | $ | 5,125 | ||||
|
|
|
|
Property and equipment
Property and equipment, net consisted of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
|||||||
Computer equipment |
$ | 5,075 | $ | 7,482 | ||||
Software |
1,788 | 1,982 | ||||||
Capitalized internal-use software costs |
5,074 | 8,631 | ||||||
Furniture and fixtures |
4,784 | 5,234 | ||||||
Buildings |
11,251 | 11,251 | ||||||
Leasehold improvements |
1,283 | 1,324 | ||||||
Construction in progress |
749 | 587 | ||||||
|
|
|
|
|||||
Total cost |
30,004 | 36,491 | ||||||
Less accumulated depreciation |
(7,359 | ) | (14,034 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 22,645 | $ | 22,457 | ||||
|
|
|
|
Depreciation expense for property and equipment totaled $4.3 million and $6.7 million for the years ended December 31, 2016 and 2017, respectively.
In September 2013 and October 2015, the Company entered into lease agreements for its corporate headquarters in Farmington, Utah. Upon executing the lease agreements, the Company commenced the build out of the shell of its corporate headquarters. These construction activities involved modifications to certain structural elements of the buildings and other elements specific to its needs and operating requirements. This direct involvement rendered the Company the owner of the facilities for accounting purposes. Accordingly, upon commencement of construction activities, the Company recorded the fair value of the facility within property and equipment, net with a corresponding liability recorded to facility financing obligation. During the year ended December 31, 2016, the Company incurred building improvements of $2.2 million and increased the facility financing obligation by $2.2 million for lessor-afforded incentives and interest. Upon completion of the construction activities, the Company determined that it did not meet the criteria for sale-leaseback accounting due to collateral required by the lessor that constitutes a prohibited form of continuing involvement by the Company and accordingly, the building and improvement assets will be depreciated on a straight-line basis over their useful lives.
F-22
In September 2017, the Company committed to a plan to expand operations in Utah and, as a result, consolidate certain offices of subsidiaries of the Company. In connection with the plan, the Company expects to dispose of certain furniture, leasehold improvements, and computer equipment at the respective office cease-use dates, which started to occur in November 2017 and are expected through July 2018. Accordingly, the useful lives of assets with a net book value of $1.8 million were shortened. The revised useful lives resulted in an increase of $0.9 million in depreciation expense during the year ended December 31, 2017. The change in useful lives is expected to increase depreciation by $0.4 million during the year ended December 31, 2018.
Accrued expenses
Accrued expenses consisted of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
|||||||
Accrued compensation |
$ | 755 | $ | 18,568 | ||||
Accrued income and other taxes payable |
2,220 | 3,492 | ||||||
Accrued other current liabilities |
4,034 | 4,454 | ||||||
|
|
|
|
|||||
Accrued expenses |
$ | 7,009 | $ | 26,514 | ||||
|
|
|
|
4. Acquisition
A Train Simple Company
On July 19, 2016, the Company completed its purchase of substantially all assets of A Train Simple Company (Train Simple) for total cash consideration of $0.7 million, which was accounted for as a business combination. Train Simple was a provider of video tutorials for professional developers and designers related to Adobe software and products and had a library of over 170 courses. These courses were merged into the Companys existing course library on its platform. Of the consideration transferred, $0.2 million was recorded as the acquired content library. The excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill is attributable to Train Simples assembled workforce and synergies acquired, and is deductible for income tax purposes.
5. Intangible Assets
Intangible assets as of December 31, 2016, are summarized as follows (dollars in thousands):
Weighted Average
Remaining Useful Life (in years) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net Book
Value |
|||||||||||||
Content library: |
||||||||||||||||
Acquired content library |
2.4 | $ | 32,835 | $ | 17,636 | $ | 15,199 | |||||||||
Course creation costs |
3.8 | 8,399 | 4,005 | 4,394 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 41,234 | $ | 21,641 | $ | 19,593 | ||||||||||
|
|
|
|
|
|
|||||||||||
Intangible assets: |
||||||||||||||||
Technology |
4.5 | $ | 4,500 | $ | 1,374 | $ | 3,126 | |||||||||
Trademarks |
4.8 | 1,162 | 471 | 691 | ||||||||||||
Noncompetition agreements |
0.8 | 390 | 299 | 91 | ||||||||||||
Customer relationships |
0.8 | 2,750 | 2,331 | 419 | ||||||||||||
Database |
| 40 | 40 | | ||||||||||||
Domain names |
Indefinite | 45 | | 45 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 8,887 | $ | 4,515 | $ | 4,372 | ||||||||||
|
|
|
|
|
|
F-23
Intangible assets as of December 31, 2017, are summarized as follows (dollars in thousands):
Weighted Average
Remaining Useful Life (in years) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net Book
Value |
|||||||||||||
Content library: |
||||||||||||||||
Content library |
0.8 | $ | 32,835 | $ | 24,643 | $ | 8,192 | |||||||||
Course creation costs |
3.5 | 10,640 | 5,391 | 5,249 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 43,475 | $ | 30,034 | $ | 13,441 | ||||||||||
|
|
|
|
|
|
|||||||||||
Intangible assets: |
||||||||||||||||
Technology |
3.6 | $ | 4,500 | $ | 2,080 | $ | 2,420 | |||||||||
Trademarks |
0.5 | 1,162 | 773 | 389 | ||||||||||||
Noncompetition agreements |
| 390 | 390 | | ||||||||||||
Customer relationships |
| 2,750 | 2,750 | | ||||||||||||
Database |
| 40 | 40 | | ||||||||||||
Domain names |
Indefinite | 45 | | 45 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 8,887 | $ | 6,033 | $ | 2,854 | ||||||||||
|
|
|
|
|
|
Intangible assets are amortized using the straight-line method over the estimated useful lives. Amortization expense was $9.4 million and $10.0 million for the years ended December 31, 2016 and 2017, respectively.
In December 2017, the Company committed to a plan to retire the website of an acquired subsidiary in order to provide a more unified user experience on the Pluralsight platform. As a result, the Company expects to cease use of certain content library and trademark assets on the retirement date, which is expected to occur in June 2018. Accordingly, the estimated useful lives of intangible assets with a net book value of $4.2 million as of December 31, 2017 were adjusted. The revised useful lives resulted in an increase of $0.6 million in amortization expense during the year ended December 31, 2017. The change in useful lives is expected to increase amortization by $1.7 million during the year ended December 31, 2018.
Based on the recorded intangible assets at December 31, 2017, estimated amortization expense is expected to be as follows (in thousands):
Years Ending December 31: |
Amortization
Expense |
|||
2018 |
$ | 10,366 | ||
2019 |
2,770 | |||
2020 |
1,740 | |||
2021 |
1,140 | |||
2022 |
234 | |||
|
|
|||
Total |
$ | 16,250 | ||
|
|
6. Credit Facilities
Silicon Valley Bank Credit Agreement
On November 17, 2014, Pluralsight, LLC and PL Studios, LLC entered into the amended and restated credit agreement (the Second Amended and Restated Credit Agreement) with a lending syndicate, which was led by Silicon Valley Bank. The agreement provided for a total term loan of $100.0 million and a revolving line of credit of up to $10.0 million, which was used to finance the acquisitions of Code School LLC and Smarterer, Inc. (Smarterer).
F-24
Under the terms of the Second Amended and Restated Credit Agreement, Pluralsight, LLC and PL Studios, LLC were required to maintain compliance with certain negative and affirmative covenants, including financial covenants and covenants relating to the incurrence of other indebtedness, the occurrence of a material adverse change, the maintenance of depository accounts, the disposition of assets, mergers, acquisitions, investments, the granting of liens, and the payment of dividends. On March 1, 2017, the Company entered into a waiver and amendment to the Second Amended and Restated Credit Agreement with its lenders, which provided a waiver on certain events of default that occurred in fiscal quarter ended September 30, 2016, for failure to comply with the consolidated total leverage ratio covenant. The Second Amended and Restated Credit Agreement was secured with a lien against substantially all of the assets of the Company.
The outstanding borrowings under the Second Amended and Restated Credit Agreement of $82.5 million were repaid in full in June 2017. The repayment of the borrowings was deemed an extinguishment of the debt. The difference between the amounts paid to extinguish the debt and the net carrying amount on the date of extinguishment was recorded as a loss on extinguishment of $1.9 million in the consolidated statement of operations for the year ended December 31, 2017.
Guggenheim Credit Agreement
In June 2017, the Company entered into a new long-term debt facility with Guggenheim Corporate Funding, LLC pursuant to a credit agreement (the Guggenheim Credit Agreement), consisting of a term loan facility of $115.0 million and a revolving credit facility of $5.0 million from Guggenheim Corporate Funding, LLC. Upon signing the Guggenheim Credit Agreement, the Company borrowed the $115.0 million term loan capacity available and used the majority of the proceeds to repay the full outstanding borrowings of $82.5 million under the Second Amended and Restated Credit Agreement with Silicon Valley Bank.
Under the terms of the Guggenheim Credit Agreement, the Company must maintain compliance with certain negative and affirmative covenants, including financial covenants and covenants relating to the incurrence of other indebtedness, the occurrence of a material adverse change, the disposition of assets, mergers, acquisitions and investments, the granting of liens, and the payment of dividends. In addition, on a quarterly basis prior to September 30, 2019, the Company must maintain a maximum ratio of indebtedness to total recurring revenue for the most recent trailing twelve-month period ranging from 0.55 to 1 to 0.65 to 1. From September 30, 2019, to the maturity date of the Guggenheim Credit Agreement on June 12, 2023, the Company is required to maintain a maximum ratio of indebtedness to consolidated adjusted EBITDA for the most recent trailing twelve-month period ranging from 6.00 to 1 to 3.75 to 1. The Company is also required to maintain $10.0 million in liquidity, including amounts available under revolving loan commitments as of the last day of any calendar month. In addition, the Guggenheim Credit Agreement is secured with a lien against substantially all of the assets of the Company.
The Company has elected to incur borrowings under the credit agreement at an adjusted LIBOR rate plus 8.50%. Adjusted LIBOR is defined as greater LIBOR rate in effect for each interest period divided by 1 minus the Statutory Reserves (if any) for such Eurodollar Borrowing for such Interest Period, and with respect to the Term Loan only, a minimum LIBOR floor of 1.00%. Under these borrowings, the Company can elect to pay 2.50% of the interest due on each interest payment date in-kind rather than in cash. The paid-in-kind interest will be added to the unpaid principal amount of the borrowings and continue to accrue interest. The borrowings are subject to certain prepayment premiums wherein if the principal borrowings are repaid at any date prior to the third anniversary of the effective date of the credit agreement a prepayment premium is owed to the lender. The prepayment premium is 3.00%, 2.00%, or 1.00% if repaid within the first year, second year, or third year of the credit agreement, respectively, provided that the prepayment premium will be reduced by 50% if repayment occurs in connection with an IPO or upon a change of control on or after the first anniversary of the Guggenheim Credit Agreement.
The interest rate on the term loan at December 31, 2017 was 10.20%. The Company is required to pay an unused revolving loan fee of 0.50% per annum. As of December 31, 2017, the Company had no outstanding revolving loans. The principal borrowings under the term loan facility are due in full on the maturity date of June 12, 2023. The maturity date of the revolving loan is June 12, 2022.
F-25
The Companys debt consisted of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
|||||||
Principal borrowings outstanding |
$ | 85,000 | $ | 116,620 | ||||
Less: debt issuance costs, net of amortization |
(931 | ) | (583 | ) | ||||
|
|
|
|
|||||
Net carrying amount |
$ | 84,069 | $ | 116,037 | ||||
|
|
|
|
Related Party Notes Payable
In connection with the acquisition of Smarterer on November 17, 2014, Pluralsight, LLC issued notes payable of $25.0 million to Smarterer equity holders, who as a result of the acquisition became employees of the Company. The notes accrued interest at 5.00% per annum computed on the basis of a 365-day year for actual days elapsed. During the year ended December 31, 2016, the Company incurred interest of $0.1 million in connection with the notes.
Of the total notes payable of $25.0 million, $5.6 million was contingent upon the continued service of certain of the Companys employees. This contingent consideration in which payments are automatically forfeited if employment terminates were for post-combination services. As a result, the amount contingent upon continued service was recorded as compensation over the service period, which was $0.4 million during the year ended December 31, 2016. These notes were repaid in full during 2016. The portion of the related party notes payable that relates to post-combination services is reflected within operating activities within the consolidated statements of cash flows.
7. Membership Units
The Company has authorized multiple series of redeemable convertible preferred units (collectively, the Preferred Units), in addition to common units.
Preferred Units
The number of authorized and outstanding Preferred Units was as follows:
December 31,
2016 |
December 31,
2017 |
|||||||||||||||
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
|||||||||||||
Series A |
27,500,000 | 27,500,000 | 27,500,000 | 27,500,000 | ||||||||||||
Series B |
17,716,286 | 17,716,286 | 17,716,286 | 17,716,286 | ||||||||||||
Series C |
7,961,781 | 3,231,594 | 3,231,594 | 3,231,594 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
53,178,067 | 48,447,880 | 48,447,880 | 48,447,880 | ||||||||||||
|
|
|
|
|
|
|
|
The net carrying value of Preferred Units consisted of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
|||||||
Series A |
$ | 172,425 | $ | 236,225 | ||||
Series B |
139,194 | 139,194 | ||||||
Series C |
30,347 | 30,347 | ||||||
|
|
|
|
|||||
Total |
$ | 341,966 | $ | 405,766 | ||||
|
|
|
|
F-26
During the year ended December 31, 2016, the Company entered into unit purchase agreements to issue in aggregate 3,231,594 Series C redeemable convertible preferred units in exchange for $30.4 million in cash. In conjunction with the issuance of the Series C redeemable convertible preferred units, the Company recorded $0.1 million of offering costs, which has been recorded as a reduction to proceeds from the Preferred Units.
The liquidation preference (in thousands), original issue price per unit, and conversion rates of the Preferred Units, in order of liquidation preference, as of December 31, 2016 and 2017, was:
Liquidation
Preference |
Original
Issue Price |
Conversion
Ratio |
||||||||||
Series A |
$ | 27,500 | $ | 1.00 | 1:1 | |||||||
Series B |
139,250 | 7.86 | 1:1 | |||||||||
Series C |
30,442 | 9.42 | 1:1 | |||||||||
|
|
|||||||||||
Total liquidation preference |
$ | 197,192 | ||||||||||
|
|
The significant rights, privileges, and preferences of the Preferred Units are as follows:
Liquidation
In the event of a voluntary or involuntary liquidation, proceeds or any other assets of the Company will be distributed as follows:
(a) |
First, to preferred unitholders, until the aggregate distributions equals the aggregate amount contributed with respect to the Preferred Units. |
(b) |
Next, to Series A redeemable convertible preferred unitholders, common unitholders, and the holders of vested incentive units, pro rata in accordance with the number of units held assuming all Preferred Units are converted to common units until aggregate distributions to the Series A redeemable convertible preferred unit holders equals 2.5 times the aggregate amount contributed with respect to the Series A redeemable convertible preferred units. |
(c) |
Finally, to holders of common units and holders of vested incentive units, pro rata in accordance with the number of units held. |
All distributions for vested incentive units with an associated catch-up amount are made solely to the holders of such vested incentive units (in proportion to the respective unpaid catch-up amounts associated with the vested incentive units) until an amount equal to the total unpaid catch-up amounts on all vested incentive units has been distributed, and thereafter, all distributions shall be made according to the distribution schedule above.
Both preferred unitholders and common unitholders are entitled to ordinary and tax distributions on a pro rata basis determined as if the unitholders all hold the same class of units.
Conversion
Under the provisions of the Companys operating agreement (as amended from time to time, the Operating Agreement), each Preferred Unit is convertible, at the option of the holder at any time and without any additional consideration, into common units as determined by dividing the preferred unit original issuance price by the preferred unit conversion price. The Series A, Series B, and Series C redeemable convertible preferred unit conversion price is initially equal to $1.00, $7.86, and $9.42 per preferred unit, respectively.
All Preferred Units will automatically be converted, on a one-for-one basis, into common units of the Company if the Company consummates an IPO with net proceeds of at least $50.0 million and a per share price not less than five times the Series A redeemable convertible preferred unit purchase price.
F-27
Redemption
Any time after the five-year anniversary of the date of issuance of the Series A redeemable convertible preferred units, which were issued on December 20, 2012, the Series A redeemable convertible preferred unit holders may request that the Company redeem their preferred units at a price equal to the greater of: (a) the original issuance price of the preferred units; or (b) the aggregate fair value of the Series A redeemable convertible preferred units. Accordingly, the Series A redeemable convertible preferred units have been accreted to the estimated fair value of $172.4 million and $236.2 million as of December 31, 2016 and 2017, respectively. In the event that the Series A redeemable convertible unit holders should choose to exercise their right of redemption, they are required to provide notice to the Company. The Company would then be required to redeem the Series A redeemable convertible preferred units no later than 180 days following the date of delivery of the redemption notice. As redemption of Preferred Units is outside the control of the Company, all Series A redeemable convertible preferred units have been presented outside of members deficit in the Companys consolidated balance sheets. In November 2017, the holders of Series A redeemable convertible preferred units executed a waiver, pursuant to which the holders have waived the ability to exercise their redemption rights prior to June 30, 2019.
The holders of Series B and Series C redeemable convertible preferred units have no voluntary rights to redeem units. A liquidation or winding up of the Company, a greater than 50% change in control, or a sale of substantially all of the Companys assets would constitute a redemption event. Although the redeemable convertible preferred units are not mandatorily or currently redeemable, these events would constitute a redemption event outside of the Companys control. Accordingly, these units are considered contingently redeemable and have been presented outside of members deficit in the Companys consolidated balance sheets.
Voting
The holders of the Preferred Units are entitled to the number of votes equal to the number of shares of Class A common units into which the Preferred Units could be converted.
Protective Provisions
The holders of Preferred Units have protective provisions that require written approval in order for the Company to take certain actions including the following: (i) issuing equity securities with rights or preferences senior to the rights or preferences of the Preferred Units; (ii) issue or authorize any incentive units other than issuance pursuant to a board-approved plan; (iii) redeem or repurchase units; (iv) incur indebtedness greater than $0.5 million; (v) effect a sale or liquidation of the Company; (vi) sell, lease, license, or otherwise dispose of any assets involving aggregate payments greater than $0.5 million; (vii) take any action that would alter or amend the preferences or rights of the Preferred Units; (viii) amend the Operating Agreement; (ix) alter the size of the board of managers; (x) any agreement by the Company regarding an acquisition or asset transfer in excess of $0.5 million; (xi) declare or pay any distributions; or (xii) take any action that would cause the Company to no longer be taxed as a partnership for federal income tax purposes.
Common Units
The number of authorized and outstanding common units as of December 31, 2016 and 2017 was:
December 31, 2016 | December 31, 2017 | |||||||||||||||
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
|||||||||||||
Class A common units |
100,606,988 | 47,782,272 | 112,556,982 | 35,446,574 | ||||||||||||
Class B common units |
| | 15,961,071 | 12,961,071 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
100,606,988 | 47,782,272 | 128,518,053 | 48,407,645 | ||||||||||||
|
|
|
|
|
|
|
|
F-28
During the year ended December 31, 2016, the Company entered into unit purchase agreements to issue an aggregate of 353,351 Class A common units in exchange for $2.0 million. In conjunction with the issuance of the Class A common units, the Company recorded $14,000 of offering costs, which has been recorded as a reduction to proceeds from the sale of common units.
During the year ended December 31, 2017, the Company entered into unit purchase agreements to issue an aggregate of 625,373 Class A common units for an aggregate purchase price of $4.4 million.
During the year ended December 31, 2017, an investor of the Company purchased 6,731,791 Class A common units from a co-founder and former employee of the Company at a price of $8.25 per unit for an aggregate purchase price of $55.5 million. At the close of the transaction, the Company recorded $9.9 million in equity-based compensation expense, included in general and administrative expenses, related to the excess of the selling price per unit paid to the former employee over the then fair value of the purchased units.
Class B Common Units Conversion
On June 9, 2017, the Company amended the Operating Agreement to create two separate classes of common units, Class A and Class B common units. Upon creation of Class B common units, 12,961,071 common units beneficially owned by the Companys co-founder and Chief Executive Officer were converted into Class B common units. The difference in fair value between the Class A common units and Class B common units of $2.1 million on the date of the conversion was recorded as compensation expense, included in general and administrative expenses, during the year ended December 31, 2017. The difference in fair value was calculated by applying an incremental discount in the OPM scenario to reflect the differences in rights and restrictions between Class A and Class B common units.
The rights and privileges of Class A and Class B common units are identical with the exception of voting rights and conversion. Class B common units are entitled to 10 votes per unit, whereas Class A common units are entitled to one vote per unit. In addition, Class B common units have certain protective provisions that prevent the Company from issuing or authorizing additional Class B common units or other equity securities having voting rights in excess of one vote per unit. Class B common units may be converted into Class A common units at any time at the option of the holder on a one-for-one basis, and are automatically converted into Class A common units upon sale or transfer, subject to certain limited exceptions. Shares of Class A common units are not convertible.
8. Equity-Based Compensation
Incentive Units
Certain employees and directors were granted incentive units in the Company. The number of authorized and outstanding incentive units as of December 31, 2016 and 2017 was:
December 31, 2016 | December 31, 2017 | |||||||||||||||
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
|||||||||||||
Incentive units |
16,688,640 | 13,999,684 | 16,229,445 | 15,791,871 | ||||||||||||
Class A incentive units |
| | 3,000,000 | | ||||||||||||
Class B incentive units |
| | 3,000,000 | 3,000,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
16,688,640 | 13,999,684 | 22,229,445 | 18,791,871 | ||||||||||||
|
|
|
|
|
|
|
|
The board of managers determines the terms of each grant. Incentive units granted to employees are generally subject to a four-year vesting period, whereby incentive units become 25% vested on the first anniversary from the beginning of the requisite service period and then ratably vest on a quarterly basis thereafter through the end of the vesting period.
F-29
Incentive units and Class A incentive units are non-voting membership units in the LLC. Class B incentive units are voting membership units in the LLC entitled to 10 votes per unit regardless of vesting. Incentive units are intended to be treated as profits interests in the LLC and provide holders with the right to participate in the future profits and appreciation of the assets of the LLC provided the Companys value exceeds a certain threshold price per unit. Certain incentive units also contain certain catch-up provisions whereby the holder of the incentive units is entitled to a preferential distribution of the catch-up amount if the Company has a liquidation event, defined as a sale or liquidation of the Company above a specified threshold. Distributions allocated to unvested incentive units will be held by the Company and distributed to the holders upon vesting. In the event the board of managers elects to convert the Company into a corporation, incentive units will convert into common units immediately prior to such conversion. In the event such conversion occurs, each incentive unit will convert into a number of common units calculated after taking into account the threshold price and catch-up price per unit of the respective incentive unit. In addition, Class B incentive units have the right, at the holders option, to convert into an equal number of Class A incentive units. Class A incentive units are authorized solely for the conversion of Class B incentive units if the conversion option is exercised.
The following table summarizes the incentive unit activity for the years ended December 31, 2016 and 2017:
Number of
Units |
Weighted-
Average Threshold Price |
Weighted
Average Catch-up Price |
Aggregate
Intrinsic Value (1) (in thousands) |
|||||||||||||
Incentive units: |
||||||||||||||||
Incentive units outstanding at January 1, 2016 |
10,557,437 | $ | 4.34 | $ | 2.43 | |||||||||||
Incentive units granted |
4,338,813 | 9.42 | 4.06 | |||||||||||||
Incentive units redeemed |
(353,357 | ) | 1.00 | | ||||||||||||
Incentive units forfeited or cancelled |
(543,209 | ) | 7.43 | 4.42 | ||||||||||||
|
|
|||||||||||||||
Incentive units outstanding at December 31, 2016 |
13,999,684 | 5.88 | 2.92 | $ | 41,978 | |||||||||||
|
|
|||||||||||||||
Incentive units granted |
2,462,220 | 9.42 | 3.03 | |||||||||||||
Incentive units redeemed |
(582,804 | ) | 3.54 | 1.78 | ||||||||||||
Incentive units forfeited or cancelled |
(87,229 | ) | 7.97 | 4.75 | ||||||||||||
|
|
|||||||||||||||
Incentive units outstanding at December 31, 2017 |
15,791,871 | $ | 6.50 | $ | 2.97 | $ | 77,014 | |||||||||
|
|
|||||||||||||||
Incentive units vestedDecember 31, 2016 |
8,322,892 | $ | 4.02 | $ | 2.39 | $ | 35,767 | |||||||||
|
|
|||||||||||||||
Incentive units vestedDecember 31, 2017 |
10,181,221 | $ | 4.98 | $ | 2.65 | $ | 61,868 | |||||||||
|
|
|||||||||||||||
Class B incentive units: |
||||||||||||||||
Class B incentive units outstanding at December 31, 2016 |
| $ | | $ | | |||||||||||
Class B incentive units granted |
3,000,000 | 9.42 | 2.64 | |||||||||||||
|
|
|||||||||||||||
Class B incentive units outstanding at December 31, 2017 |
3,000,000 | $ | 9.42 | $ | 2.64 | $ | 5,220 | |||||||||
|
|
|||||||||||||||
Class B incentive units vestedDecember 31, 2017 |
| $ | | $ | | $ | | |||||||||
|
|
(1) |
Aggregate intrinsic value is calculated as the difference between the fair value of the common unit on December 31, 2016 and 2017, respectively, and the threshold price less the catch-up price. |
During the year ended December 31, 2016, the Company paid $2.0 million to redeem 353,357 outstanding incentive units. All redeemed units were held by current and former employees. The purchase price was in excess of the fair value of the incentive units on the redemption date, which resulted in compensation expense equal to the premium of $0.1 million.
During the year ended December 31, 2017, the Company paid $4.1 million to redeem 582,804 outstanding incentive units. All redeemed units were held by current employees. The purchase price was in excess of the fair
F-30
value of the incentive units on the redemption date, which resulted in compensation expense equal to the premium of $0.4 million.
The number of incentive units outstanding and vested, including Class B incentive units, at the respective threshold price and catch-up price per unit is as follows:
As of December 31, 2016 | ||||||||||||||||||
Incentive Units Outstanding | Incentive Units Vested | |||||||||||||||||
Threshold Price |
Number of
Units |
Weighted
Average Catch-up Price |
Number of
Units |
Weighted
Average Catch-up Price |
||||||||||||||
$1.00 | 4,767,964 | $ | | 4,485,686 | $ | | ||||||||||||
1.20 | 270,593 | | 253,680 | | ||||||||||||||
7.86 | 4,651,441 | 5.03 | 3,259,758 | 5.67 | ||||||||||||||
9.42 | 4,309,686 | 4.06 | 323,768 | 4.47 | ||||||||||||||
|
|
|
|
|||||||||||||||
13,999,684 | $ | 2.92 | 8,322,892 | $ | 2.39 | |||||||||||||
|
|
|
|
As of December 31, 2017 | ||||||||||||||||||
Incentive Units Outstanding | Incentive Units Vested | |||||||||||||||||
Threshold Price |
Number of
Units |
Weighted
Average Catch-up Price |
Number of
Units |
Weighted
Average Catch-up Price |
||||||||||||||
$1.00 | 4,400,988 | $ | | 4,400,988 | $ | | ||||||||||||
1.20 | 270,593 | | 270,593 | | ||||||||||||||
7.86 | 4,354,669 | 5.04 | 3,796,845 | 5.29 | ||||||||||||||
9.42 | 9,765,621 | 3.36 | 1,712,795 | 4.06 | ||||||||||||||
|
|
|
|
|||||||||||||||
18,791,871 | $ | 2.92 | 10,181,221 | $ | 2.65 | |||||||||||||
|
|
|
|
The number and weighted-average grant date fair value for unvested incentive units granted and outstanding are as follows:
Incentive
Units |
Weighted-
Average Grant Date Fair Value |
|||||||
Incentive units: |
||||||||
Unvested units outstanding at January 1, 2016 |
4,649,737 | $ | 2.16 | |||||
Granted |
4,338,813 | 3.66 | ||||||
Vested |
(2,768,549 | ) | 1.93 | |||||
Forfeited or cancelled |
(543,209 | ) | 3.03 | |||||
|
|
|||||||
Unvested units outstanding at December 31, 2016 |
5,676,792 | 3.34 | ||||||
|
|
|||||||
Granted |
2,462,220 | 4.07 | ||||||
Vested |
(2,441,133 | ) | 3.11 | |||||
Forfeited or cancelled |
(87,229 | ) | 3.23 | |||||
|
|
|||||||
Unvested units outstanding at December 31 , 2017 |
5,610,650 | $ | 3.76 | |||||
|
|
|||||||
Class B incentive units: |
||||||||
Unvested units outstanding at December 31, 2016 |
| $ | | |||||
Granted |
3,000,000 | 6.05 | ||||||
|
|
|||||||
Unvested units outstanding at December 31, 2017 |
3,000,000 | $ | 6.05 | |||||
|
|
F-31
The range of assumptions used in estimating the grant date fair value of these units under the OPM method are as follows:
Year Ended December 31, |
||||
2016 |
2017 |
|||
Dividend yield |
None |
None |
||
Volatility |
55.00%60.00% |
55.00% |
||
Risk-free interest rate |
0.60%1.20% |
1.20%1.80% |
||
Expected term (years) |
1.82.0 | 1.31.8 |
The total fair value of incentive units vested during the years ended December 31, 2016 and 2017 was $13.1 million, and $14.0 million, respectively.
As of December 31, 2016 and 2017, unrecognized compensation cost related to the unvested incentive units, including Class B incentive units, was $17.0 million and $35.1 million, respectively. The unrecognized compensation cost will be recognized over a weighted-average period of 2.9 and 3.0 years, respectively.
2017 Equity Incentive Plan
On June 1, 2017, the Companys board of managers adopted the 2017 Equity Incentive Plan. The 2017 Equity Incentive Plan reserves 8,322,900 Class A common units for issuance under the plan in the form of options or RSUs. In addition, the Company authorized 3,000,000 Class A RSUs and 3,000,000 Class B RSUs.
RSUs and Class A RSUs represent the right to receive units of the Companys Class A common units at a specified future date. RSUs are non-voting units, while Class A RSUs are entitled to one vote per unit. All RSUs are generally subject to both a time-based vesting requirement and a liquidity condition. The service condition is generally satisfied over four years, whereby 25% of the share units vest on the first anniversary of the grant date and then ratably vest on a quarterly basis thereafter through the end of the vesting period. The liquidity condition is satisfied upon the occurrence of a qualifying event, which is defined as a change of control transaction or upon expiration of a lock-up period pursuant to a qualifying IPO. As the RSUs vest upon the occurrence of a qualifying liquidity event, the Company has not recorded equity-based compensation expense related to RSUs as of December 31, 2017. For accounting purposes, the satisfaction of the liquidity condition becomes probable upon completion of the Companys IPO, at which point the Company will record a cumulative adjustment to equity-based compensation expense using the straight-line attribution method. The remaining unrecognized equity-based compensation expense related to RSUs will be recognized over the remaining requisite service period. The equity-based compensation will be measured using the grant date fair value of the RSUs.
Class B RSUs represent the right to receive units of the Companys Class B common units at a specified future date. In addition, Class B RSUs are entitled to 10 votes per unit regardless of vesting, and can be converted into an equivalent number of Class A RSUs at the option of the holder. Class A RSUs were reserved solely for potential Class B RSU conversion. As such, no Class A RSUs have been granted. Class B RSUs are also subject to the same time and liquidity-based vesting conditions as RSUs. As the liquidity event has not yet occurred, the Company has not recorded equity-based compensation expense related to RSUs.
F-32
The activity for RSUs for the year ended December 31, 2017 is as follows:
Restricted Share Units Outstanding | ||||||||
Number of
Restricted Share Units |
Weighted-Average
Grant Date Fair Value Per Common Unit Underlying the RSUs |
|||||||
Restricted share units: |
||||||||
Balance at December 31, 2016 |
| $ | | |||||
Granted |
2,413,300 | 7.04 | ||||||
Forfeited or cancelled |
234,850 | 6.80 | ||||||
|
|
|||||||
Balance at December 31, 2017 |
2,178,450 | $ | 7.06 | |||||
|
|
|||||||
Class B restricted share units: |
||||||||
Balance at December 31, 2016 |
| $ | | |||||
Granted |
3,000,000 | 8.24 | ||||||
|
|
|||||||
Balance at December 31, 2017 |
3,000,000 | $ | 8.24 | |||||
|
|
As of December 31, 2017, unrecognized compensation cost related to the RSUs, including Class B RSUs, was $40.1 million. As the vesting of RSUs is contingent upon satisfying a liquidity condition, the timing of when this expense will be recognized is not known.
Equity Appreciation Rights
In April 2015, one of the Companys subsidiaries granted 42,735 non-transferable equity appreciation rights (EARs) at a weighted-average threshold amount of $4.68 per EAR. The EARs are subject to a four-year vesting period, whereby they become 25% vested on the first anniversary of the grant date and then ratably vest on a quarterly basis thereafter, provided that the employee remains in continuous service with the Company through each such vesting date. The EARs are also subject to a liquidity condition whereby the awards vest upon the earlier of a sale of the Company or an IPO. In the event that the employees continuous service terminates for any reason prior to the liquidity condition being met, all EARs shall be forfeited, without payment of consideration. In the event of a sale or IPO of the Company, vested EARs will be settled in cash provided that the employee is in continuous service with the Company through the settlement date of any such transaction. The EARs payment amount will be equal to the unit value of one share of common unit of the Company minus the base amount of the EAR. All unvested EARs as of the settlement date shall be forfeited. As of December 31, 2017, no equity-based compensation expense had been recognized on the EARs because a qualifying event as described above had not taken place and was not probable. The Company will record compensation expense for the portion of the awards that will vest, upon completion of its IPO.
Equity-based compensation expense
Equity-based compensation expense was classified as follows in the accompanying consolidated statements of operations (in thousands):
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Cost of revenue |
$ | 20 | $ | 20 | ||||
Sales and marketing |
1,462 | 2,624 | ||||||
Technology and content |
2,050 | 1,966 | ||||||
General and administrative |
2,206 | 17,171 | ||||||
|
|
|
|
|||||
Total equity-based compensation |
$ | 5,738 | $ | 21,781 | ||||
|
|
|
|
F-33
9. Commitments and Contingencies
Letters of Credit
As of December 31, 2016 and 2017, the Company had a total of $0.2 million in letters of credit outstanding with a financial institution. These outstanding letters of credit were issued for purposes of securing the Companys obligations under facility leases. As of December 31, 2016, the outstanding letters of credit were collateralized by the Companys line of credit. Upon termination of the then-existing line of credit in June 2017 (see Note 6Credit Facilities), the letters of credit were collateralized by $0.2 million of the Companys cash, which is reflected in restricted cash on the consolidated balance sheet as of December 31, 2017.
Lease Commitments
The Company is committed under certain operating leases with third parties for office space. These leases expire at various times through 2022. The Company recognizes rent expense on a straight-line basis over the lease period. Payments made under the Companys lease for its corporate headquarters in Farmington, Utah are not recorded as rent expense in the consolidated statements of operations and comprehensive loss. These payments are effectively recorded as repayments of the financing obligation and interest expense in the consolidated statements of operations and comprehensive loss as the Company did not qualify for sale-leaseback accounting upon completion of the facilities build out and is considered to be the owner of the buildings for accounting purposes.
At December 31, 2017, future minimum lease payments, including lease payments for the Companys facilities in Farmington, Utah, were as follows (in thousands):
Years Ending December 31: |
||||
2018 |
$ | 4,481 | ||
2019 |
3,411 | |||
2020 |
1,368 | |||
2021 |
389 | |||
2022 |
197 | |||
|
|
|||
Total future minimum lease payments |
$ | 9,846 | ||
|
|
Rent expense under operating leases for the years ended December 31, 2016 and 2017 was $1.5 million and $2.0 million, respectively.
Legal Proceedings
The Company is involved in legal proceedings, including challenges to trademarks, from time to time arising in the normal course of business. Management believes that the outcome of these proceedings will not have a material impact on the Companys financial position, results of operations, or liquidity.
Warranties and Indemnification
The performance of the Companys cloud-based technology learning platform is typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable. The Companys contractual arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-partys intellectual property rights. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any material liabilities related to such obligations in the accompanying consolidated financial statements.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or
F-34
proceeding to which any of those persons is, or is threatened to be, made a party by reason of the persons service as a director or officer, including any action by the Company, arising out of that persons services as the Companys director or officer or that persons services provided to any other company or enterprise at the Companys request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
10. Income Taxes
Tax Reform Legislation
On December 22, 2017, the Tax Act was enacted in the United States resulting in a reduction of the corporate income tax rate to 21%. In addition, the Tax Act limits the deductibility of interest expense, implements a modified territorial tax system and imposes a Toll Charge.
The Company has included the impact of the Tax Act in its year-end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the date of this filing. The recorded effects of the Tax Act, include the remeasurement of deferred tax assets and liabilities to reflect the lower corporate income tax rate and a provisional estimate of the Toll Charge. The Company expects to finalize the accounting for the Toll Charge within a period, not to exceed one year from the enactment date of the Tax Act once it has had sufficient time to analyze previously untaxed foreign profits. No additional tax expense or benefit related to the Tax Act was recorded since the effects were fully offset by changes to the Companys valuation allowance. Because the Company has recorded a full valuation allowance in the United States, changes to the reported impact of the Tax Act based on additional guidance or further analysis are not expected to materially affect the effective tax rate in future periods.
As a result of the Toll Charge, all previously unremitted earnings have now been subject to federal tax in the United States; however, the Company plans to, and has the ability to, indefinitely reinvest such earnings in their respective foreign jurisdictions; therefore, no additional tax liability such as state or withholding tax has been provided for on such earnings. Cumulative undistributed foreign earnings were $0.4 million and $1.3 million as of December 31, 2016 and 2017, respectively.
The Company continues to analyze the effects of new taxes due on certain foreign income, such as GILTI (global intangible low-taxed income), BEAT (base-erosion anti-abuse tax), FDII (foreign-derived intangible income) and limitations on interest expense deductions (if certain conditions apply) that are effective starting January 1, 2018, and other provisions of the Tax Act. The Company delays finalizing its GILTI policy election under SAB 118 until it has the necessary information available to analyze and make an informed policy decision.
Loss before income taxes was as follows (in thousands):
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Domestic |
$ | (20,466 | ) | $ | (96,814 | ) | ||
Foreign |
348 | 602 | ||||||
|
|
|
|
|||||
Total |
$ | (20,118 | ) | $ | (96,212 | ) | ||
|
|
|
|
F-35
Provision for income taxes consisted of the following components (in thousands):
Year Ended,
December 31, |
||||||||
2016 | 2017 | |||||||
Current: |
||||||||
State |
$ | 15 | $ | 10 | ||||
Foreign |
479 | 397 | ||||||
|
|
|
|
|||||
Total current tax expense |
$ | 494 | $ | 407 | ||||
|
|
|
|
|||||
Deferred: |
||||||||
State |
$ | | $ | | ||||
Foreign |
| (83 | ) | |||||
|
|
|
|
|||||
Total deferred tax benefit |
$ | | $ | (83 | ) | |||
|
|
|
|
|||||
Provision for income taxes |
$ | 494 | $ | 324 | ||||
|
|
|
|
The following reconciles the differences between the federal statutory income tax rate to the Companys effective tax rate:
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Statutory federal tax rate |
34.0 | % | 34.0 | % | ||||
Rate benefit from flow-through entity |
(33.6 | ) | (33.8 | ) | ||||
Effect of income tax rate change |
| (1.8 | ) | |||||
Change in valuation allowance |
(3.3 | ) | 1.4 | |||||
Foreign taxes |
(2.4 | ) | (0.3 | ) | ||||
Effect of excess tax benefits relating to equity-based compensation |
2.5 | | ||||||
Research and development credit |
0.4 | | ||||||
State tax, net of federal tax effect |
(0.1 | ) | | |||||
Other |
| 0.2 | ||||||
|
|
|
|
|||||
Effective tax rate |
(2.5 | )% | (0.3 | )% | ||||
|
|
|
|
F-36
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets and liabilities were as follows (in thousands):
December 31,
2016 |
December 31,
2017 |
|||||||
Deferred tax assets: |
||||||||
Net operating loss carryforwards |
$ | 5,026 | $ | 3,189 | ||||
Partnership outside basis difference |
191 | 164 | ||||||
Research and development credits |
148 | 151 | ||||||
Other |
11 | 84 | ||||||
Less valuation allowance |
(4,493 | ) | (3,044 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets |
883 | 544 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Content library and intangible assets |
(883 | ) | (461 | ) | ||||
|
|
|
|
|||||
Total deferred tax liabilities |
(883 | ) | (461 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | | $ | 83 | ||||
|
|
|
|
The Company evaluated its ability to realize its net deferred tax assets considering all available positive and negative evidence including past results of operation, forecasted earnings, tax planning strategies, and all sources of future taxable income. A full valuation allowance was maintained on its domestic deferred tax assets as of December 31, 2016 and 2017, primarily due to historical losses. The valuation allowance increased by $0.2 million for the year ended December 31, 2016, as a result of increased deferred tax assets primarily related to an increase in NOLs. The valuation allowance decreased by $1.3 million for the year ended December 31, 2017, primarily due to the remeasurement of deferred tax assets and liabilities at a lower enacted corporate tax rate.
U.S. income taxes on the undistributed earnings of foreign controlled corporations have not been provided for since the Company plans to, and has the ability to, indefinitely reinvest such earnings in its respective jurisdictions. Cumulative undistributed foreign earnings were $0.4 million and $1.3 million as of December 31, 2016 and 2017, respectively.
As of December 31, 2016 and 2017, for tax return purposes, the Company had federal NOLs of $14.2 million and $14.2 million, and state NOLs of $5.6 million and $5.5 million, respectively. The federal and state NOLs begin to expire in 2030 if not utilized.
The NOL balances include amounts related to excess stock compensation. During 2016, the Company adopted ASU 2016-09, which requires a cumulative-effect adjustment to beginning accumulated deficit to recognize the tax benefit of previously unrecognized excess stock compensation. A cumulative-effect adjustment of $0.5 million was recorded by increasing the NOL deferred tax asset, which was offset by a corresponding increase in the valuation allowance.
The Company also had federal research and development tax credit carryforwards for tax return purposes of $0.2 million, which begin to expire in 2034 if not utilized.
Federal and state tax laws may impose substantial restrictions on the utilization of the net operating loss and credit carryforward attributes in the event of an ownership change as defined in Section 382 of the Code. Accordingly, the Companys ability to utilize these carryforwards may be limited as a result of such ownership change. Such a limitation could result in the expiration of carryforwards before they are utilized.
F-37
Uncertain Tax Positions
The Company accounts for uncertainty in income taxes using a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
The following summarizes activity related to unrecognized tax benefits (in thousands):
Year Ended
December 31, |
||||||||
2016 | 2017 | |||||||
Unrecognized benefitbeginning of the year |
$ | 57 | $ | 568 | ||||
Gross increasesprior period positions |
186 | | ||||||
Gross increasescurrent period positions |
325 | 285 | ||||||
|
|
|
|
|||||
Unrecognized benefitend of period |
$ | 568 | $ | 853 | ||||
|
|
|
|
Included in the balance of unrecognized tax benefits are $0.9 million of tax benefits that, if recognized, would affect the effective tax rate.
The Companys policy is to record interest and penalties related to unrecognized tax benefits as a component of interest expense where applicable. As of December 31, 2016 and 2017, the Company had not accrued any interest related to unrecognized tax benefits. The reserves related to unrecognized tax benefits have been recorded as a reduction to the applicable deferred tax assets.
The Company believes it is reasonably possible that foreign tax positions related to $0.8 million in unrecognized tax benefits may be resolved within the coming year, which could result in a decrease of up to $0.8 million in unrecognized tax benefits in the coming year.
The Company files tax returns in the United States and in various foreign and state jurisdictions. Other than in one non-U.S. jurisdiction, the Company is not currently under audit by any taxing jurisdiction and with limited exception, the Company is no longer subject to income tax audits by federal, state, and foreign taxing authorities for years prior to 2011.
11. Employee Benefit Plan
The Company sponsors a qualified 401(k) defined contribution plan, available to all qualified employees. This plan allows employees to contribute a portion of their pretax salary up to the legally mandated limit based on their jurisdiction. The Company made matching contributions to the plan totaling $1.2 million and $2.3 million for the years ended December 31, 2016 and 2017, respectively.
F-38
12. Net Loss Per Unit
The following table presents the calculation of basic and diluted net loss per unit (in thousands, except per unit amounts):
Year Ended December 31, | ||||||||||||||||
2016 | 2017 | |||||||||||||||
Class A | Class B | Class A | Class B | |||||||||||||
Numerator: |
||||||||||||||||
Net loss attributable to common units |
$ | (26,937 | ) | $ | | $ | (135,997 | ) | $ | (24,339 | ) | |||||
Denominator: |
||||||||||||||||
Weighted-average common units outstandingbasic and diluted |
47,480 | | 40,677 | 7,280 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per unit, basic and diluted |
$ | (0.57 | ) | $ | | $ | (3.34 | ) | $ | (3.34 | ) | |||||
|
|
|
|
|
|
|
|
During the years ended December 31, 2016 and 2017, the Company incurred net losses and, therefore, the effect of the Companys incentive units, RSUs, and redeemable convertible preferred units (as converted) were not included in the calculation of diluted loss per unit as the effect would be anti-dilutive. The following table contains unit totals with a potentially dilutive impact (in thousands):
As of | ||||||||
December 31, | ||||||||
2016 | 2017 | |||||||
Conversion of redeemable convertible preferred units |
48,448 | 48,448 | ||||||
Incentive units outstanding |
14,000 | 15,792 | ||||||
Class B incentive units outstanding |
| 3,000 | ||||||
Unvested restricted share units |
| 2,178 | ||||||
Unvested Class B restricted share units |
| 3,000 | ||||||
Equity appreciation rights |
43 | 43 | ||||||
|
|
|
|
|||||
Total |
62,491 | 72,461 | ||||||
|
|
|
|
Unaudited Pro Forma Net Loss per Unit
Subject to the satisfaction of certain conditions, upon the closing of the proposed IPO, all shares of redeemable convertible preferred units will automatically convert into 48,447,880 Class A common units. The unaudited pro forma net loss per unit, basic and diluted, for the year ended December 31, 2017 have been computed to give effect to the conversion of redeemable convertible preferred units (using the if-converted method) into Class A common units as of the beginning of the period. In addition, the numerator has been adjusted to reverse the accretion adjustments related to the Series A redeemable convertible preferred units, as the common units will not be redeemable. The allocation of net loss attributable to Class A and Class B common units has been adjusted to reflect the additional Class A common units outstanding upon assumed conversion.
F-39
The following table presents the calculation of pro forma basic and diluted net loss per unit (in thousands, except per unit amounts):
Year Ended
December 31, 2017 |
||||||||
Class A | Class B | |||||||
Numerator: |
||||||||
Net loss attributable to common units |
$ | (135,997 | ) | $ | (24,339 | ) | ||
Pro forma adjustment related to accretion of Series A redeemable convertible preferred units |
54,115 | 9,685 | ||||||
Pro forma adjustment to allocation of net loss attributable to common units for assumed conversion of redeemable convertible preferred units to Class A common units |
(7,364 | ) | 7,364 | |||||
|
|
|
|
|||||
Pro forma net loss attributable to common units |
$ | (89,246 | ) | $ | (7,290 | ) | ||
Denominator: |
||||||||
Weighted-average common units outstandingbasic and diluted |
40,677 | 7,280 | ||||||
Pro forma adjustment for assumed conversion of redeemable convertible preferred units to Class A common units |
48,448 | | ||||||
|
|
|
|
|||||
Weighted-average common units used in computing basic and diluted pro forma net loss per unit |
89,125 | 7,280 | ||||||
|
|
|
|
|||||
Pro forma net loss per unit, basic and diluted |
$ | (1.00 | ) | $ | (1.00 | ) | ||
|
|
|
|
13. Subsequent Events
The Company has evaluated subsequent events through March 9, 2018, the date the consolidated financial statements were available for issuance.
In January 2018, the Company entered into a new non-cancellable operating lease agreement to rent office space in Boston, Massachusetts for a period of 78 months. Total minimum lease payments under the lease agreement are $9.1 million, with lease payments ranging from $0.7 million to $1.6 million per year from 2018 to 2024. In connection with the lease agreement, the Company entered into a letter of credit with a financial institution for $0.5 million, which is collateralized by the Companys cash and cash equivalents.
In February 2018, the Company entered into a first amendment to the Guggenheim Credit Agreement and increased its term loan facility and its borrowings thereunder by an additional $20.0 million. In connection with the amendment, the Company issued warrants to purchase 424,242 Class A common units at a per unit price exercise price of $8.25. The warrants are fully vested and exercisable, in whole or in part, prior to their expiration. The warrants will expire at the earlier of (i) February 5, 2023, (ii) the acquisition of the Company by another entity, or the sale, lease, or other disposition of all or substantially all of the assets of the Company and its subsidiaries, and (iii) six months after the effectiveness of a registration statement relating to the Companys IPO.
F-40
Pluralsight is the technology skills supply chain for digital transformation across all industries and companies.
AARON SKONNARD
SOFTWARE DEVELOPMENT
IT OPS
CLOUD
MOBILE DATA SECURITY
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by us, other than underwriting discounts and commissions, upon completion of this offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee, and the exchange listing fee.
Amount
to be Paid |
||||
SEC registration fee |
$ | 12,450 | ||
FINRA filing fee |
15,500 | |||
Exchange listing fee |
* | |||
Printing and engraving expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Transfer agent and registrar fees |
* | |||
Miscellaneous |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* |
To be filed by amendment. |
Item 14. |
Indemnification of Directors and Officers. |
Section 145 of the Delaware General Corporation Law authorizes a corporations board of directors to grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents.
We expect to adopt an amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
|
any breach of their duty of loyalty to our company or our stockholders; |
|
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
|
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or |
|
any transaction from which they derived an improper personal benefit. |
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.
In addition, we expect to adopt amended and restated bylaws, which will become effective immediately prior to the completion of this offering, and which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our
II-1
request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions.
Further, we have entered into or will enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are expected to be included in our amended and restated certificate of incorporation, amended and restated bylaws, and the indemnification agreements that we have entered into or will enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a 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, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees, or other agents or is or was serving at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
The underwriting agreement that will be filed as Exhibit 1.1 to this registration statement will provide for indemnification by the underwriters of us and our officers and directors for certain liabilities arising under the Securities Act of 1933 or otherwise.
Item 15. |
Recent Sales of Unregistered Securities. |
On December 15, 2017, Pluralsight, Inc. issued 1,000 shares of its Class A common stock to Pluralsight Holdings, LLC for $1.00. The issuance of such shares of Class A common stock was not registered under the Securities Act of 1933 because the shares were offered and sold in a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933.
Item 16. |
Exhibits and Financial Statement Schedules. |
(a) Exhibits.
See the Exhibit Index immediately following the signature page hereto for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
II-2
(b) Financial Statement Schedules.
All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial statements or in the notes thereto.
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 of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 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. |
II-3
EXHIBIT INDEX
* |
To be filed by amendment. |
+ |
Indicates management contract or compensatory plan. |
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Farmington, Utah, on the 16th day of April, 2018.
PLURALSIGHT , INC . | ||
By: |
/s/ Aaron Skonnard |
|
Aaron Skonnard Chief Executive Officer |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Aaron Skonnard and James Budge, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective on filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Aaron Skonnard Aaron Skonnard |
Chief Executive Officer and Director (Principal Executive Officer) |
April 16, 2018 | ||
/s/ James Budge James Budge |
Chief Financial Officer (Principal Financial and Accounting Officer) |
April 16, 2018 | ||
/s/ Gary Crittenden Gary Crittenden |
Director |
April 16, 2018 | ||
/s/ Scott Dorsey Scott Dorsey |
Director |
April 16, 2018 | ||
/s/ Arne Duncan Arne Duncan |
Director |
April 16, 2018 | ||
/s/ Ryan Hinkle Ryan Hinkle |
Director |
April 16, 2018 | ||
/s/ Timothy Maudlin Timothy Maudlin |
Director |
April 16, 2018 |
Signature |
Title |
Date |
||
/s/ Frederick Onion Frederick Onion |
Director |
April 16, 2018 | ||
/s/ Brad Rencher Brad Rencher |
Director |
April 16, 2018 | ||
/s/ Karenann Terrell Karenann Terrell |
Director |
April 16, 2018 |
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
PLURALSIGHT, INC.
ARTICLE I
The name of the corporation is Pluralsight, Inc. (the Company ).
ARTICLE II
The address of the Companys registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of the registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law, as the same exists or as may hereafter be amended from time to time.
ARTICLE IV
This Company is authorized to issue one class of shares to be designated Class A Common Stock. The total number of shares of Class A Common Stock the Company has authority to issue is 1,000 with par value of $0.001 per share.
ARTICLE V
The name and mailing address of the incorporator are as follows:
Matthew Tenney
182 North Union Avenue
Farmington, UT 84025
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute, the board of directors of the Company is expressly authorized to make, alter, amend or repeal the bylaws of the Company.
ARTICLE VII
Elections of directors need not be by written ballot unless otherwise provided in the bylaws of the Company.
ARTICLE VIII
The Company shall not be governed by Section 203 of the Delaware General Corporation Law.
ARTICLE IX
To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended from time to time, a director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim accruing or arising or that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
Subject to any provisions in the bylaws of the Company related to indemnification of directors or officers of the Company, the Company shall indemnify, to the fullest extent permitted by applicable law, any director or officer of the Company 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 (a Proceeding ) by reason of the fact that he or she is or was a director, officer, employee or agent 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, including service with respect to employee benefit plans, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding. The Company shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the board of directors.
The Company shall have the power to indemnify, to the extent permitted by the Delaware General Corporation Law, as it presently exists or may hereafter be amended from time to time, any employee or agent of the Company who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that he or she is or was a director, officer, employee or agent 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, including service with respect to employee benefit plans, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.
-2-
A right to indemnification or to advancement of expenses arising under a provision of this Certificate of Incorporation or a bylaw of the Company shall not be eliminated or impaired by an amendment to this Certificate of Incorporation or the bylaws of the Company after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
ARTICLE XI
Except as provided in ARTICLE IX and ARTICLE X above, the Company reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
I, the undersigned, as the sole incorporator of the Company, have signed this Certificate of Incorporation on December 2, 2017.
/s/ Matthew Tenney |
Matthew Tenney, Incorporator |
-3-
Exhibit 3.3
BYLAWS OF
PLURALSIGHT, INC.
Adopted December 4, 2017
TABLE OF CONTENTS
Page | ||||||
ARTICLE I MEETINGS OF STOCKHOLDERS |
1 | |||||
1.1 |
Place of Meetings |
1 | ||||
1.2 |
Annual Meeting |
1 | ||||
1.3 |
Special Meeting |
1 | ||||
1.4 |
Notice of Stockholders Meetings |
1 | ||||
1.5 |
Quorum |
2 | ||||
1.6 |
Adjourned Meeting; Notice |
2 | ||||
1.7 |
Conduct of Business |
2 | ||||
1.8 |
Voting |
2 | ||||
1.9 |
Stockholder Action by Written Consent Without a Meeting |
3 | ||||
1.10 |
Record Dates |
4 | ||||
1.11 |
Proxies |
5 | ||||
1.12 |
List of Stockholders Entitled to Vote |
5 | ||||
ARTICLE II DIRECTORS |
5 | |||||
2.1 |
Powers |
5 | ||||
2.2 |
Number of Directors |
5 | ||||
2.3 |
Election, Qualification and Term of Office of Directors |
6 | ||||
2.4 |
Resignation and Vacancies |
6 | ||||
2.5 |
Place of Meetings; Meetings by Telephone |
7 | ||||
2.6 |
Conduct of Business |
7 | ||||
2.7 |
Regular Meetings |
7 | ||||
2.8 |
Special Meetings; Notice |
7 | ||||
2.9 |
Quorum; Voting |
7 | ||||
2.10 |
Board Action by Written Consent Without a Meeting |
8 | ||||
2.11 |
Fees and Compensation of Directors |
8 | ||||
2.12 |
Removal of Directors |
8 | ||||
ARTICLE III COMMITTEES |
8 | |||||
3.1 |
Committees of Directors |
8 | ||||
3.2 |
Committee Minutes |
9 | ||||
3.3 |
Meetings and Actions of Committees |
9 | ||||
3.4 |
Subcommittees |
10 | ||||
ARTICLE IV OFFICERS |
10 | |||||
4.1 |
Officers |
10 | ||||
4.2 |
Appointment of Officers |
10 | ||||
4.3 |
Subordinate Officers |
10 | ||||
4.4 |
Removal and Resignation of Officers |
10 | ||||
4.5 |
Vacancies in Offices |
10 | ||||
4.6 |
Representation of Shares of Other Corporations |
10 | ||||
4.7 |
Authority and Duties of Officers |
10 | ||||
ARTICLE V INDEMNIFICATION |
11 | |||||
5.1 |
Indemnification of Directors and Officers in Third Party Proceedings |
11 |
TABLE OF CONTENTS
(Continued)
- ii -
BYLAWS
ARTICLE I MEETINGS OF STOCKHOLDERS
1.1 Place of Meetings . Meetings of stockholders of Pluralsight, Inc. (the Company ) shall be held at any place, within or outside the State of Delaware, determined by the Companys board of directors (the Board ). The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the DGCL ). In the absence of any such designation or determination, stockholders meetings shall be held at the Companys principal executive office.
1.2 Annual Meeting . Unless directors are elected by written consent in lieu of an annual meeting as permitted by Section 211(b) of the DGCL, an annual meeting of stockholders shall be held for the election of directors at such date and time as may be designated by resolution of the Board from time to time. Stockholders may, unless the certificate of incorporation otherwise provides, act by written consent to elect directors; provided, however, that, if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action. Any other proper business may be transacted at the annual meeting.
1.3 Special Meeting . A special meeting of the stockholders may be called at any time by the Board, Chairperson of the Board, Chief Executive Officer or President (in the absence of a Chief Executive Officer) or by one or more stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting.
If any person(s) other than the Board calls a special meeting, the request shall:
(i) be in writing;
(ii) specify the time of such meeting and the general nature of the business proposed to be transacted; and
(iii) be delivered personally or sent by registered mail or by facsimile transmission to the Chairperson of the Board, the Chief Executive Officer, the President (in the absence of a Chief Executive Officer) or the Secretary of the Company.
The officer(s) receiving the request shall cause notice to be promptly given to the stockholders entitled to vote at such meeting, in accordance with these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting. No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this Section 1.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.
1.4 Notice of Stockholders Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy
holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting.
1.5 Quorum . Except as otherwise provided by law, the certificate of incorporation or these bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. Where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws.
If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, in the manner provided in Section 1.6 , until a quorum is present or represented.
1.6 Adjourned Meeting; Notice . Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of the adjourned meeting if the time, place, if any, thereof, 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 such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 1.10 of these bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.
1.7 Conduct of Business . Meetings of stockholders shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by the Chief Executive Officer, or in the absence of the foregoing persons by the President, or in the absence of the foregoing persons by a Vice President, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business, and shall have the power to adjourn the meeting to another place, if any, date or time, whether or not a quorum is present.
1.8 Voting . The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 1.10 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.
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Except as may be otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock held by such stockholder which has voting power upon the matter in question. Voting at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. If authorized by the Board, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission (as defined in Section 7.2 of these bylaws), provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder.
Except as otherwise required by law, the certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation or these bylaws.
1.9 Stockholder Action by Written Consent Without a Meeting . Unless otherwise provided in the certificate of incorporation, any action required by the DGCL to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
No written consent shall be effective to take the corporate action referred to therein unless written consents signed by a sufficient number of holders to take action are delivered to the Company in the manner required by Section 228 of the DGCL within 60 days of the first date on which a written consent is so delivered to the Company. Any person executing a consent may provide, whether through instruction to an agent or otherwise, that such a consent will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made, if evidence of such instruction or provision is provided to the Company. Unless otherwise provided, any such consent shall be revocable prior to its becoming effective.
An electronic transmission (as defined in Section 7.2 ) consenting to an action to be taken and transmitted by a stockholder or proxy holder, or by a person or persons authorized to act for a stockholder or proxy holder, shall be deemed to be written and signed for purposes of this section, provided that any such electronic transmission sets forth or is delivered with information from which the Company can determine (i) that the electronic transmission was transmitted by the stockholder or proxy holder or by a person or persons authorized to act for the stockholder or proxy holder and (ii) the date on which such stockholder or proxy holder or authorized person or persons transmitted such electronic transmission.
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In the event that the Board shall have instructed the officers of the Company to solicit the vote or written consent of the stockholders of the Company, an electronic transmission of a stockholder written consent given pursuant to such solicitation may be delivered to the Secretary or the President of the Company or to a person designated by the Secretary or the President. The Secretary or the President of the Company or a designee of the Secretary or the President shall cause any such written consent by electronic transmission to be reproduced in paper form and inserted into the corporate records.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Company as provided in Section 228 of the DGCL. In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the DGCL, if such action had been voted on by stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.
1.10 Record Date s . In order that the Company may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board 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 and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.
If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of and 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 may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of Section 213 of the DGCL and this Section 1.10 at the adjourned meeting.
In order that the Company may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board 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, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company in accordance with applicable law. If no record date has been fixed by the Board and prior action by the Board is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.
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In order that the Company 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 may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
1.11 Proxies . Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.
1.12 List of Stockholders Entitled to Vote . The Company shall prepare, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Company shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the Companys principal place of business. In the event that the Company determines to make the list available on an electronic network, the Company may take reasonable steps to ensure that such information is available only to stockholders of the Company. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then such list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
ARTICLE II DIRECTORS
2.1 Powers . The business and affairs of the Company shall be managed by or under the direction of the Board, except as may be otherwise provided in the DGCL or the certificate of incorporation.
2.2 Number of Directors . The Board shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time by resolution of the Board. No reduction of the authorized number of directors shall have the effect of removing any director before that directors term of office expires.
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2.3 Election, Qualification and Term of Office of Directors . Except as provided in Section 2.4 of these bylaws, and subject to Sections 1.2 and 1.9 of these bylaws, directors shall be elected at each annual meeting of stockholders. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors. Each director shall hold office until such directors successor is elected and qualified or until such directors earlier death, resignation or removal.
2.4 Resignation and Vacancies . Any director may resign at any time upon notice given in writing or by electronic transmission to the Company. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the certificate of incorporation or these bylaws, when one or more directors resign from the Board, 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.
Unless otherwise provided in the certificate of incorporation or these bylaws:
(i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
(ii) 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 may 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.
If at any time, by reason of death or resignation or other cause, the Company should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office and until such directors successor is elected and qualified, or until such directors earlier death, resignation or removal.
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2.5 Place of Meetings; Meetings by Telephone . The Board may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board or any subcommittee, may participate in a meeting of the Board, or any such committee or subcommittee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
2.6 Conduct of Business . Meetings of the Board shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
2.7 Regular Meetings . Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.
2.8 Special Meetings; Notice . Special meetings of the Board for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President, the Secretary or any two directors.
Notice of the time and place of special meetings shall be:
(i) delivered personally by hand, by courier or by telephone;
(ii) sent by United States first-class mail, postage prepaid;
(iii) sent by facsimile;
(iv) sent by electronic mail; or
(v) otherwise given by electronic transmission (as defined in Section 7.2 ),
directed to each director at that directors address, telephone number, facsimile number, electronic mail address or other contact for notice by electronic transmission, as the case may be, as shown on the Companys records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile, (iii) sent by electronic mail or (iv) otherwise given by electronic transmission, it shall be delivered, sent or otherwise directed to each director, as applicable, at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the Companys principal executive office) nor the purpose of the meeting.
2.9 Qu orum; Voting . At all meetings of the Board, a majority of the total authorized number of directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
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The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.
If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.
2.10 Board Action by Written Consent Without a 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, or of any committee or subcommittee thereof, may be taken without a meeting if all members of the Board or committee or subcommittee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee or subcommittee. 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. Any person (whether or not then a director) may provide, whether through instruction to an agent or otherwise, that a consent to action will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made and such consent shall be deemed to have been given for purposes of this Section 2.10 at such effective time so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocable prior to its becoming effective.
2.11 Fees and Compensation of Directors . Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.
2.12 Removal of Director s . Unless otherwise restricted by statute, the certificate of incorporation or these bylaws, any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such directors term of office.
ARTICLE III COMMITTEES
3.1 Committees of Directors . The Board may designate one or more committees, each committee to consist of one or more of the directors of the Company. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval or (ii) adopt, amend or repeal any bylaw of the Company.
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3.2 Committee Minutes . Each committee and subcommittee shall keep regular minutes of its meetings and report the same to the Board, or the committee, when required.
3.3 Meetings and Actions of Committees . A majority of the directors then serving on a committee or subcommittee shall constitute a quorum for the transaction of business by the committee or subcommittee, unless the certificate of incorporation, these bylaws, a resolution of the Board or a resolution of a committee that created the subcommittee requires a greater or lesser number, provided that in no case shall a quorum be less than 1/3 of the directors then serving on the committee or subcommittee. The vote of the majority of the members of a committee or subcommittee present at a meeting at which a quorum is present shall be the act of the committee or subcommittee, unless the certificate of incorporation, these bylaws, a resolution of the Board or a resolution of a committee that created the subcommittee requires a greater number. Meetings and actions of committees and subcommittees shall otherwise be governed by, and held and taken in accordance with, the provisions of:
(i) Section 2.5 (Place of Meetings; Meetings by Telephone);
(ii) Section 2.7 (Regular Meetings);
(iii) Section 2.8 (Special Meetings; Notice);
(iv) Section 2.9 (Quorum; Voting);
(v) Section 2.10 (Board Action by Written Consent Without a Meeting); and
(vi) Section 7.5 (Waiver of Notice)
with such changes in the context of those bylaws as are necessary to substitute the committee or subcommittee and its members for the Board and its members. However :
(i) the time and place of regular meetings of committees and subcommittees may be determined either by resolution of the Board or by resolution of the committee or subcommittee;
(ii) special meetings of committees and subcommittees may also be called by resolution of the Board or the committee or subcommittee; and
(iii) notice of special meetings of committees and subcommittees shall also be given to all alternate members, as applicable, who shall have the right to attend all meetings of the committee or subcommittee. The Board, or, in the absence of any such action by the Board, the committee or subcommittee, may adopt rules for the government of any committee or subcommittee not inconsistent with the provisions of these bylaws.
Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.
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3.4 Subcommittees . Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the Board designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
ARTICLE IV OFFICERS
4.1 Officers . The officers of the Company shall be a President and a Secretary. The Company may also have, at the discretion of the Board, a Chairperson of the Board, a Vice Chairperson of the Board, a Chief Executive Officer, one or more Vice Presidents, a Chief Financial Officer, a Treasurer, one or more Assistant Treasurers, one or more Assistant Secretaries and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
4.2 Appointment of Officers . The Board shall appoint the officers of the Company, except such officers as may be appointed in accordance with the provisions of section 4.3 of these bylaws.
4.3 Subordinate Officers . The Board may appoint, or empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President, to appoint, such other officers and agents as the business of the Company may require. Each of such officers and agents shall hold office for such period, have such authority and perform such duties as are provided in these bylaws or as the Board may from time to time determine.
4.4 Removal and Resignation of Offi cers . Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.
4.5 Vacancies in Off ices . Any vacancy occurring in any office of the Company shall be filled by the Board or as provided in section 4.3 .
4.6 Representation of Shares of Other Corporation s . Unless otherwise directed by the Board, the President or any other person authorized by the Board or the President is authorized to vote, represent and exercise on behalf of the Company all rights incident to any and all shares of any other corporation or corporations standing in the name of the Company. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
4.7 Authority and Duties of Offic ers . Except as otherwise provided in these bylaws, the officers of the Company shall have such powers and duties in the management of the Company as may be designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.
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ARTICLE V INDEMNIFICATION
5.1 Indemnification of Directors and Officers in Third Party Proceedings . Subject to the other provisions of this Article V , the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, 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 (a Proceeding ) (other than an action by or in the right of the Company) by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such persons conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such persons conduct was unlawful.
5.2 Indemnification of Directors and Officers in Actions by or in the Right of the Company . Subject to the other provisions of this Article V , the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
5.3 Successful Defense . To the extent that a present or former director or officer of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 5.1 or Section 5.2 , or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith.
5.4 Indemnification of Others . Subject to the other provisions of this Article V , the Company shall have power to indemnify its employees and agents to the extent not prohibited by the DGCL or other applicable law. The Board shall have the power to delegate to such person or persons the determination of whether employees or agents shall be indemnified.
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5.5 Advanced Payment of Expenses . Expenses (including attorneys fees) actually and reasonably incurred by an officer or director of the Company in defending any Proceeding shall be paid by the Company in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article V or the DGCL. Such expenses (including attorneys fees) actually and reasonably incurred by former directors and officers or other employees and agents of the Company or by persons serving at the request of the Company as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the Company deems appropriate. The right to advancement of expenses shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding (or any part of any Proceeding) referenced in Section 5.6(ii) or 5.6(iii) prior to a determination that the person is not entitled to be indemnified by the Company.
Notwithstanding the foregoing, unless otherwise determined pursuant to Section 5.8 , no advance shall be made by the Company to an officer of the Company (except by reason of the fact that such officer is or was a director of the Company, in which event this paragraph shall not apply) in any Proceeding if a determination is reasonably and promptly made (i) by a majority vote of the directors who are not parties to such Proceeding, even though less than a quorum, or (ii) by a committee or subcommittee of such directors designated by majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, that 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 Company.
5.6 Limitation on Indemnification . Subject to the requirements in Section 5.3 and the DGCL, the Company shall not be obligated to indemnify any person pursuant to this Article V in connection with any Proceeding (or any part of any Proceeding):
(i) for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;
(ii) for an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);
(iii) for any reimbursement of the Company by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the Company, as required in each case under the Securities Exchange Act of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act ), or the payment to the Company of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);
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(iv) initiated by such person, including any Proceeding (or any part of any Proceeding) initiated by such person against the Company or its directors, officers, employees, agents or other indemnitees, unless (a) the Board authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, (c) otherwise required to be made under section 5.7 or (d) otherwise required by applicable law; or
(v) if prohibited by applicable law.
5.7 Determination; Claim . If a claim for indemnification or advancement of expenses under this Article V is not paid by the Company or on its behalf within 90 days after receipt by the Company of a written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. To the extent not prohibited by law, the Company shall indemnify such person against all expenses actually and reasonably incurred by such person in connection with any action for indemnification or advancement of expenses from the Company under this Article V , to the extent such person is successful in such action, and, if requested by such person, shall advance such expenses to such person, subject to the provisions of Section 5.5 . In any such suit, the Company shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.
5.8 Non-Exclusivity of Rights . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons official capacity and as to action in another capacity while holding such office. The Company is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.
5.9 Insurance . The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent 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 against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of the DGCL.
5.10 Survival . The rights to indemnification and advancement of expenses conferred by this Article V shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
5.11 Effect of Repeal or Modification . A right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to the certificate of incorporation or these bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
5.12 Certain Definitions . For purposes of this Article V , references to the Company 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
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had power and authority to indemnify its directors, officers, 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 Article V with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article V , 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; references to serving at the request of the Company shall include any service as a director, officer, employee or agent of the Company 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 such person 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 Company as referred to in this Article V .
ARTICLE VI STOCK
6.1 Stock Certificates; Partly Paid S hares . The shares of the Company shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Unless otherwise provided by resolution of the Board, every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of, the Company by any two officers of the Company representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Company shall not have power to issue a certificate in bearer form.
The Company may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Company in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Company shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
6.2 Special Designation on Certificates . If the Company is authorized to issue more than one class of stock or more than one series of any class, then the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock, a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
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Within a reasonable time after the issuance or transfer of uncertificated stock, the registered owner thereof shall be given a notice, in writing or by electronic transmission, containing the information required to be set forth or stated on certificates pursuant to this Section 6.2 or Sections 156, 202(a), 218(a) or 364 of the DGCL or with respect to this Section 6.2 a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
6.3 Lost Certificates . Except as provided in this Section 6.3 , no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The Company may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate, or such owners legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
6.4 Dividends . The Board, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the Companys capital stock. Dividends may be paid in cash, in property or in shares of the Companys capital stock, subject to the provisions of the certificate of incorporation.
The Board may set apart out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.
6.5 Stock Transfer Agreement s . The Company 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 Company to restrict the transfer of shares of stock of the Company of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
6.6 Registered Stockholders . The Company:
(i) shall be entitled to treat the person registered on its books as the owner of any share or shares as the person exclusively entitled to receive dividends, vote, receive notifications and otherwise exercise all the rights and powers of an owner of such share or shares; and
(ii) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
6.7 Transfers . Transfers of record of shares of stock of the Company shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer.
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ARTICLE VII MANNER OF GIVING NOTICE AND WAIVER
7.1 Notice of Stockholder Meetings . Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the Companys records. An affidavit of the Secretary or an Assistant Secretary of the Company or of the transfer agent or other agent of the Company that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
7.2 Notice by Electronic Transmission . Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the Company under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Company. Any such consent shall be deemed revoked if:
(i) the Company is unable to deliver by electronic transmission two consecutive notices given by the Company in accordance with such consent; and
(ii) such inability becomes known to the Secretary or an Assistant Secretary of the Company or to the transfer agent, or other person responsible for the giving of notice.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
(iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iv) if by any other form of electronic transmission, when directed to the stockholder.
An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Company that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
An electronic transmission means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
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Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.
7.3 Notice to Stockholders Sharing an Address . Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Company under the provisions of the DGCL, the certificate of incorporation or these 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. Any such consent shall be revocable by the stockholder by written notice to the Company. Any stockholder who fails to object in writing to the Company, within 60 days of having been given written notice by the Company of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.
7.4 Notice to Person with Whom Communication is Unlawful . Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, 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 Company is such as to require the filing of a certificate under 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.
7.5 Waiver of Notice . Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE VIII GENERAL MATTERS
8.1 Fiscal Year . The fiscal year of the Company shall be fixed by resolution of the Board and may be changed by the Board.
8.2 Seal . The Company may adopt a corporate seal, which shall be in such form as may be approved from time to time by the Board. The Company may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
8.3 Annual Report . The Company shall cause an annual report to be sent to the stockholders of the Company to the extent required by applicable law. If and so long as there are fewer than 100 holders of record of the Companys shares, the requirement of sending an annual report to the stockholders of the Company is expressly waived (to the extent permitted under applicable law).
8.4 Construction; Definition s . Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term person includes both a corporation and a natural person.
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ARTICLE IX AMENDMENTS
These bylaws may be adopted, amended or repealed by the stockholders entitled to vote. However, the Company may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.
A bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the Board.
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Exhibit 4.2
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.
WARRANT TO PURCHASE CLASS A COMMON UNITS
of
Pluralsight Holdings, LLC
Dated as of [ ], 2018
Void after the date specified in Section 8
No. [ ] |
Warrant to Purchase [ ] Class A Common Units |
THIS CERTIFIES THAT, for value received, [ ], or its registered assigns (the Holder ), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from Pluralsight Holdings, LLC, a Delaware limited liability company (the Company ), units of the Companys Class A Common Units (the Units ) in the amounts, at such times and at the price per unit set forth in Section 1. This Warrant is issued in connection with the transaction described in that certain First Amendment to Credit Agreement by and between the Company and Holder dated as of [ ], 2018. The term Warrant as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein.
The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which Holder, by acceptance of this Warrant, agrees:
1. Number and Price of Units; Exercise Period.
(a) Number of Units. Subject to any previous exercise of the Warrant, the Holder shall have the right to purchase up to [ ] Units, as may be adjusted pursuant hereto, prior to (or in connection with) the expiration of this Warrant.
(b) Exercise Price. The exercise price per Unit shall be equal to $8.25, subject to adjustment pursuant hereto (the Exercise Price ).
(c) Exercise Period. This Warrant shall be exercisable, in whole or in part, prior to (or in connection with) the expiration of this Warrant.
2. Exercise of the Warrant.
(a) Exercise. The purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part by:
(i) the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the Notice of Exercise ), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and
(ii) the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Units being purchased, by wire transfer or certified, cashiers or other check acceptable to the Company and payable to the order of the Company.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Unit is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Units (or other securities as set forth below) equal to the value of this Warrant (or of any portion of this Warrant being canceled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate) together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Units computed using the following formula:
X | = | Y (A B) | ||||||
A |
Where:
X | = | The number of Units to be issued to the Holder | ||||
Y | = | The number of Units purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) | ||||
A | = | The fair market value of one Unit (at the date of such calculation) | ||||
B | = | The Exercise Price (as adjusted to the date of such calculation) |
For purposes of the calculation above, the fair market value of one Unit shall be determined by the Board of Managers of the Company, acting in good faith; provided, however, that:
(i) upon and following a reorganization event pursuant to which Pluralsight, Inc., (an affiliate of the Company) ( Pubco ) shall operate and control the business affairs of the Company as its sole managing member and shall hold a controlling equity interest in the Company and where a public market exists for Pubcos Class A common stock (a Pubco IPO ) at the time of such exercise, the Warrant shall be exercisable for shares of Pubcos Class A common stock and the fair market value of one Unit shall equal the value per Unit (based upon the closing price per share of Pubcos Class A common stock into which one Unit may be exchangeable on the trading day of the election to exercise pursuant to the Notice of Exercise (subject to any adjustments pursuant to Section 6 below)); and
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(ii) if the Warrant is exercised in connection with a Pubco IPO, the fair market value per Unit shall be equal to the value per Unit, based upon the per share offering price to the public of Pubcos initial public offering of Class A common stock and the associated exchange ratio per Unit into shares of Pubcos Class A common stock.
(c) Unit Certificates. The rights under this Warrant shall be deemed to have been exercised and the Units (or other securities) issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Units issuable upon such exercise shall be treated for all purposes as the holder of record of such Units as of the close of business on such date. As promptly as reasonably practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates (or a notice of issuance of uncertificated units, if applicable) for that number of Units (or other securities) issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Units that remain subject to this Warrant.
(d) No Fractional Units or Scrip. No fractional Units or scrip representing fractional Units (or other securities) shall be issued upon the exercise of the rights under this Warrant. In lieu of such fractional unit to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.
(e) Conditional Exercise. The Holder may exercise this Warrant conditioned upon (and effective immediately prior to) consummation of any transaction that would cause the expiration of this Warrant pursuant to Section 8 by so indicating in the Notice of Exercise.
(f) Reservation of Units. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued Units for the purpose of effecting the exercise of this Warrant such number of units as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued Units shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use all reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued Units to a number of Units as shall be sufficient for such purposes. The Company represents and warrants that all Units that may be issued upon the exercise of this Warrant will, when issued in accordance with the terms hereof, be validly issued, fully paid and nonassessable.
(g) Issued Securities . The Company represents and warrants to the Holder as follows:
(i) this Warrant has been duly authorized, executed and delivered by the Company;
(ii) the initial Exercise Price referenced on the first page of this Warrant is not greater than the price per share at which the Units were issued or the exercise price per share of options to purchase Units that were granted, in each case immediately prior to the date of this Warrant; and
(iii) the Companys capitalization table attached hereto as Schedule 1 is true and complete as of December 31, 2017 and since December 31, 2017 the only units or other shares of capital stock of the Company issued by the Company were issued (i) pursuant to outstanding options and other rights to purchase such units or shares or (ii) issued to directors, officers and employees in the ordinary course of business consistent with past practice.
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(h) Exercise Prior to Expiration or Change of Control . To the extent this Warrant is not previously exercised as to all Units subject hereto, and if the fair market value of one Unit is greater than the Exercise Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 2(b) (even if not surrendered) immediately before its expiration or termination pursuant to Section 8 below. For purposes of such automatic exercise, the fair market value of one Unit upon such expiration shall be determined pursuant to Section 2(b). To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 2(h), the Company agrees to promptly notify the Holder of the number of Units, if any, the Holder is to receive by reason of such automatic exercise.
3. Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.
4. Transfer of the Warrant.
(a) Warrant Register. The Company shall maintain a register (the Warrant Register ) containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting a change.
(b) Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 4(a), issuing the Units or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.
(c) Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the Securities Act ) and limitations on assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 5, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit B (the Assignment Form )) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.
(d) Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of units issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.
(e) Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate, or a book entry, in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate, or make such book entry, unless and until the person or persons requesting the issue or entry thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.
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5. Restrictions on Transfer of the Warrant and Units; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:
(a) Restrictions on Transfers. Subject to Section 5(b), this Warrant may not be transferred or assigned in whole or in part without the Companys prior written consent (which shall not be unreasonably withheld), except pursuant to a Permitted Transfer (as defined below), and any attempt by Holder to transfer or assign any rights, duties or obligations that arise under this Warrant without such permission shall be void. Any transfer of this Warrant, the Units or Pubcos Class A common stock (the Securities ) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and
(i) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or
(ii) (A) such Holder shall have given prior written notice to the Company of such Holders intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1, that the Securities are being acquired (i) solely for the transferees own account and not as a nominee for any other party, (ii) for investment and (iii) not with a view toward distribution or resale, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) if requested by the Company, such Holder shall have furnished the Company, at the Holders expense, with (i) evidence reasonably satisfactory to the Company that such disposition will not require registration of such Securities under the Securities Act or (ii) an opinion of counsel, reasonably satisfactory to the Company, to the effect that such disposition will not require registration of such Securities under the Securities Act. Notwithstanding the foregoing, compliance with clauses (B) and (C) above shall not be required for any transfer in compliance with Rule 144 and compliance with clause (C) above shall not be required for any Permitted Transfer.
(b) Permitted Transfers. Permitted transfers with respect to Section 5(a) include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Securities by any Holder to (x) a parent, subsidiary or other affiliate of a Holder that is a corporation, (y) any of the Holders partners, members or other equity owners, or retired partners or members, or to the estate of any of its partners, members or other equity owners or retired partners or members, or (z) a fund or account that is managed or controlled by or under common control with one or more general partners or managing members of, the same management company with, or the investment advisor of, the Holder; provided , in each case, that the Holder shall give written notice to the Company of the Holders intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition (the Permitted Transfers ).
(c) Investment Representation Statement. Unless the rights under this Warrant are exercised pursuant to an effective registration statement under the Securities Act that includes the Securities with respect to which the Warrant was exercised, it shall be a condition to any exercise of the rights under this Warrant that the Holder shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1, that the Securities so purchased are being acquired solely for the Holders own account and not as a nominee for any other party, for investment and not with a view toward distribution or resale and that the Holder shall have confirmed such other matters related thereto as may be reasonably requested by the Company.
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(d) Securities Law Legend. Each certificate, instrument or book entry representing the Securities shall (unless otherwise permitted by the provisions of this Warrant) be notated with a legend substantially similar to the following (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.
(e) Market Stand-off Legend. Each certificate, instrument or book entry representing the Securities issued upon exercise hereof shall also be notated with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT OF A PUBLIC OFFERING, AS SET FORTH IN THE WARRANT PURSUANT TO WHICH THESE UNITS WERE ISSUED, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.
(f) Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in this Section 5.
(g) Removal of Legend. The legend referring to federal and state securities laws identified in Section 5(d) notated on any certificate evidencing the Securities and the applicable transfer instructions and record notations with respect to such Securities shall be removed promptly upon request by the Holder, and the Company shall issue a certificate without such legend to the holder of such Securities (to the extent the securities are certificated), if (i) such Securities are registered under the Securities Act, or (ii) such Securities are eligible for resale under Rule 144, or (iii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such Securities may be made without registration, qualification or legend.
(h) No Transfers to Bad Actors . The Holder agrees not to sell, assign, transfer, pledge or otherwise dispose of any Securities, or any beneficial interest therein, to any person (other than the Company and other than in connection with a Permitted Transfer) unless and until the proposed transferee confirms to the reasonable satisfaction of the Company (as evidenced by such transferee executing the assignment form attached hereto as Exhibit B) that neither the proposed transferee nor any of its directors, executive officers, other officers that may serve as a director or officer of any company in which it invests, general partners or managing members nor any person that would be deemed a beneficial owner of those Securities (in
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accordance with Rule 506(d) of the Securities Act) is subject to any of the bad actor disqualifications described in Rule 506(d)(1)(i) through (viii) under the Securities Act, except as set forth in Rule 506(d)(2)(ii) or (iii) or (d)(3) under the Securities Act and disclosed, reasonably in advance of the transfer, in writing in reasonable detail to the Company.
6. Adjustments. Subject to the expiration of this Warrant pursuant to Section 8, the number and kind of Units purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time, as follows:
(a) Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger, spin-off or consolidation, or transaction or exchange of Units or other corporate exchange, or any extraordinary distribution to members of the Company (which shall not, for the avoidance of doubt, include any tax distributions) (a Reorganization ), involving the Company, including a Pubco IPO (other than as otherwise provided for herein or as would cause the expiration of this Warrant under Section 8) in which Units are converted into or exchanged for or exchangeable for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Units deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Units hereunder had been exercised immediately prior to such Reorganization. For the avoidance of doubt, in the event of a Pubco IPO, the Warrant shall be exercisable for shares of Class A common stock of Pubco based upon the value per Unit as it may be exchangeable into Pubco Class A common stock (and subject to appropriate adjustments as set forth herein). In any such case, appropriate adjustment (as determined in good faith by the Board of Mangers or Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any Units or other securities deliverable after that event upon the exercise of this Warrant. Wherever the term Units is used herein in reference to a time after a Pubco IPO, it shall be deemed to refer instead to the Class A common stock Pubco, as applicable.
(b) Reclassification of Units. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization or otherwise (other than as otherwise provided for herein) (a Reclassification ), then, in any such event, in lieu of the number of units which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of units of such other class or classes of unit that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other units.
(c) Subdivisions and Combinations. In the event that the outstanding units of Class A Common Units are subdivided (by unit split, by payment of a unit dividend or otherwise, including upon a Pubco IPO) into a greater number of units of such securities, the number of units issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding units of Class A Common Units are combined (by reclassification, upon a Pubco IPO or otherwise) into a lesser number of units of such securities, the number of Units issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.
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(d) Notice of Adjustments. Upon any adjustment in accordance with this Section 5(d), the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant.
7. Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 8, in the event that the Company shall authorize:
(a) the issuance of any dividend or other distribution on the Units of the Company (other than (i) tax distributions or other dividends or distributions otherwise provided for in Section 6, (ii) repurchases of equity securities issued to or held by employees, officers, directors or consultants of the Company or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase; (iii) repurchases of equity securities issued to or held by employees, officers, directors or consultants of the Company or its subsidiaries pursuant to rights of first refusal or first offer contained in agreements providing for such rights; or (iv) repurchases of capital units of the Company in connection with the settlement of disputes with any member), whether in cash, property, unit or other securities;
(b) the voluntary liquidation, dissolution or winding up of the Company; or
(c) any transaction resulting in the expiration of this Warrant pursuant to Section 8(b) or 8(c);
the Company shall send to the Holder of this Warrant at least five (5) business days prior written notice of the date on which a record shall be taken for any such dividend or distribution specified in clause (a) or the expected effective date of any such other event specified in clause (b) or (c), as applicable. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the Holder of this Warrant.
8. Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of the earlier of:
(a) 5:00 p.m., Mountain time, on [ insert expiration date ], 2023;
(b) (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party (including, without limitation, any unit acquisition, reorganization, merger or consolidation, but excluding (i) any sale of units for capital raising purposes, (ii) any transaction effected primarily for purposes of changing the Companys jurisdiction of incorporation, or (iii) a Pubco IPO) other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of transactions, as a result of units in the Company held by such holders prior to such transaction or series of transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent), or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Company; or
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(c) Six months after the effectiveness of a registration statement for the Pubco IPO.
9. No Rights as a Member. Nothing contained herein shall entitle the Holder to any rights as a member of the Company, or a stockholder of Pubco, or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose (including for tax purposes) nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of managers or directors or upon any matter submitted to members or stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of units, reclassification of units, change of par value or change of units to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends, tax distributions, or subscription rights or any other rights of a member or stockholder of the Company or Pubco, respectively, until the rights under the Warrant shall have been exercised and the Units or Class A common stock purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.
10. Market Stand-off. The Holder of this Warrant hereby agrees that such Holder shall not sell or otherwise 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, of any common unit (or other securities) of the Company, or stock of Pubco, held by the Holder (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of the registration statement for Pubcos IPO filed under the Securities Act other than as permitted under the market stand-off agreement referenced in the last sentence of this section. The obligations described in this section shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. The Company, or Pubco, may impose stop-transfer instructions and may notate each such certificate, instrument or book entry with a legend as substantially set forth in Section 5(e) with respect to the units of Class A common units (or other securities) subject to the foregoing restriction until the end of such one hundred eighty (180) day period. The Holder agrees to execute a market stand-off agreement with the representatives of the underwriters in the offering in customary form as executed by other stockholders of the Company for such offering consistent with the provisions of this section which shall contain customary carve-outs and exceptions for similar transactions.
11. Representations and Warranties of the Holder. By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:
(a) No Registration. The Holder understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holders representations as expressed herein or otherwise made pursuant hereto.
(b) Investment Intent. The Holder is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.
(c) Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.
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(d) Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.
(e) Access to Data. The Holder has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Holder believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Companys business and prospects, but were not necessarily a thorough or exhaustive description. The Holder acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.
(f) Accredited Investor. The Holder is an accredited investor within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company. The Holder has furnished or made available any and all information requested by the Company or otherwise necessary to satisfy any applicable verification requirements as to accredited investor status. Any such information is true, correct, timely and complete.
(g) Residency . The residency of the Investor (or, in the case of a partnership or corporation, such entitys principal place of business) is correctly set forth on the signature page hereto.
(h) Restrictions on Resales. The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of units purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of units being sold during any three-month period not exceeding specified limitations; the sale being effected through a brokers transaction, a transaction directly with a market maker or a riskless principal transaction (as those terms are defined in the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Securities and that, in such event, the Holder may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Holder understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.
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(i) No Public Market. The Holder understands and acknowledges that no public market now exists for any of the Securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Companys Securities.
(j) Brokers and Finders. The Holder has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Holder, any liability for brokerage or finders fees or agents commissions or any similar charges in connection with the Securities.
(k) Legal Counsel. The Holder has had the opportunity to review this Warrant, the exhibits and schedules attached hereto and the transactions contemplated by this Warrant with its own legal counsel. The Holder is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Warrant.
(l) Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by this Warrant. With respect to such matters, the Holder relies solely on any such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment and the transactions contemplated by this Warrant.
12. Miscellaneous.
(a) Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company (or following a Pubco IPO, Pubco) and the Holder.
(b) Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.
(c) Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by electronic mail or otherwise delivered by hand, messenger or courier service addressed:
(i) if to the Holder, to the Holder at the Holders address, or electronic mail address as shown in the Companys records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, or electronic mail address to the Company, then to and at the address, or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or
(ii) if to the Company, to the attention of the President or Chief Financial Officer of the Company at the Companys address as shown on the signature page hereto, or at such other current address as the Company shall have furnished to the Holder, with a copy (which shall not constitute notice) to Rezwan Pavri, Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, CA 94304.
Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), or (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via electronic mail, upon confirmation of
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delivery when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipients next business day. In the event of any conflict between the Companys books and records and this Warrant or any notice delivered hereunder, the Companys books and records will control absent fraud or error.
(d) Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law provisions of the State of Delaware, or of any other state.
(e) Jurisdiction and Venue. Each of the Holder and the Company irrevocably consents to the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware, in connection with any matter based upon or arising out of this Warrant or the matters contemplated herein, and agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such persons.
(f) Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.
(g) Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.
(h) Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT.
(i) Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.
(j) Tax Withholding . Notwithstanding anything to the contrary in this Warrant, the Company shall be entitled to deduct and withhold from any amounts payable or otherwise deliverable pursuant to this Warrant such amounts as may be required to be deducted or withheld therefrom under any provision of applicable law, and shall be provided an IRS Form W-9 and any other necessary tax forms and information from each recipient of such amounts. To the extent such amounts are so deducted or withheld and paid over to the appropriate taxing authority, such amounts shall be treated for all purposes under this Warrant as having been paid to the person to whom such amounts otherwise would have been paid.
(k) Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) constitutes the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersede all prior agreements and understandings relating to the subject matter hereof.
( signature page follows )
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The Company and the Holder sign this Warrant as of the date stated on the first page.
Pluralsight Holdings, LLC | ||
By: |
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Name: |
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Title: |
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Address: | ||
182 North Union Avenue | ||
Farmington, Utah 84025 |
AGREED AND ACKNOWLEDGED, | ||
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By: |
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Name: |
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Title: |
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Address: | ||
[ insert address ] | ||
Email address: |
(Signature Page to Warrant to Purchase Shares Class A Common Units of Pluralsight Holdings, LLC)
SCHEDULE 1
(See Attached)
A-1
EXHIBIT A
NOTICE OF EXERCISE
TO: Pluralsight Holdings, LLC (the Company )
Attention: President
(1) | Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant: |
Number of units:
Type of security:
(2) | Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to: |
☐ | A cash payment, and tenders herewith payment of the purchase price for such units in full, together with all applicable transfer taxes, if any. |
☐ | The net issue exercise provisions of Section 2(b) of the attached warrant. |
(3) | Conditional Exercise. Is this a conditional exercise pursuant to Section 2(e): |
☐ | Yes ☐ No |
If Yes, indicate the applicable condition:
(4) | Unit. Please make a book entry and, if the units are certificated, issue a certificate or certificates representing the units in the name of: |
☐ | The undersigned |
☐ | OtherName: |
Address:
(5) | Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of: |
☐ | The undersigned |
☐ | OtherName: |
Address:
☐ | Not applicable |
( Signature page to the Notice of Exercise )
A-2
(6) | Investment Intent. The undersigned represents and warrants that the aforesaid units are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the units, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties of the undersigned set forth in Section 11 of the attached warrant are true and correct as of the date hereof. |
(7) | Investment Representation Statement and Market Stand-Off Agreement. The undersigned has executed, and delivers herewith, an Investment Representation Statement and Market Stand-Off Agreement in a form substantially similar to the form attached to the warrant as Exhibit A-1. |
(8) | Consent to Receipt of Electronic Notice. Subject to the limitations set forth in Delaware Limited Liability Company Act the undersigned consents to the delivery of any notice to members given by the Company under the Delaware Limited Liability Company Act or the Companys Third Amended and Restated LLC Agreement, dated as of September 12, 2017, as may be amended from time to time, or bylaws by (i) electronic mail to the electronic mail address provided below (or to any other electronic mail address for the undersigned in the Companys records), (ii) posting on an electronic network together with separate notice to the undersigned of such specific posting or (iii) any other form of electronic transmission (as defined in the Delaware Limited Liability Company Act) directed to the undersigned. This consent may be revoked by the undersigned by written notice to the Company. |
( Print name of the warrant holder ) |
( Signature ) |
( Name and title of signatory, if applicable ) |
( Date ) |
( Email address ) |
( Signature page to the Notice of Exercise )
A-3
EXHIBIT A-l
INVESTMENT REPRESENTATION STATEMENT
AND
MARKET STAND-OFF AGREEMENT
INVESTOR: |
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COMPANY: | Pluralsight Holdings, LLC | |
SECURITIES: | THE WARRANT ISSUED ON [ INSERT DATE ], 2018 (THE WARRANT ) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF | |
DATE: |
In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:
1. No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the Securities Act ), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investors representations as expressed herein or otherwise made pursuant hereto.
2. I nvestment Intent . The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.
3. Investment Experience . The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.
4. Speculative Nature of Investment . The Investor understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.
5. Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Companys business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.
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6. Accredited Investor . The Investor is an accredited investor within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company. The Investor has furnished or made available any and all information requested by the Company or otherwise necessary to satisfy any applicable verification requirements as to accredited investor status. Any such information is true, correct, timely and complete.
7. Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entitys principal place of business) is correctly set forth on the signature page hereto.
8. Restrictions on Resales . The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of Units purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of Units being sold during any three-month period not exceeding specified limitations; the sale being effected through a brokers transaction, a transaction directly with a market maker or a riskless principal transaction (as those terms are defined in the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.
9. No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Companys securities.
10. Bro kers and Finders . The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders fees or agents commissions or any similar charges in connection with the Securities.
11. Legal Counsel . The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.
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12. Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.
13. Market Stand-off. The Investor hereby agrees that such Investor shall not sell or otherwise 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, of any common unit (or other securities) of the Company, or stock of Pubco, held by the Investor (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of the registration statement for Pubcos IPO filed under the Securities Act other than as permitted under the market stand-off agreement referenced in the last sentence of this section. The obligations described in this section shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. The Company, or Pubco, may impose stop-transfer instructions and may notate each such certificate, instrument or book entry with a legend as substantially set forth in Section 5(e) with respect to the units of Class A common units (or other securities) subject to the foregoing restriction until the end of such one hundred eighty (180) day period. The Investor agrees to execute a market stand-off agreement with the representatives of the underwriters in the offering in customary form consistent with the provisions of this section which shall contain customary carve-outs and exceptions for similar transactions.
( signature page follows )
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The Investor is signing this Investment Representation Statement and Market Stand-Off Agreement on the date first written above.
INVESTOR
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(Print name of the investor) |
( Signature ) |
( Name and title of signatory, if applicable ) |
( Street address ) |
( City, state and ZIP ) |
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EXHIBIT B
ASSIGNMENT FORM
ASSIGNOR: |
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COMPANY: | Pluralsight Holdings, LLC | |
WARRANT: | THE WARRANT TO PURCHASE UNITS OF CLASS A COMMON UNITS ISSUED ON [ INSERT DATE ], 2018 (THE WARRANT ) | |
DATE: |
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(1) | Assignment. The undersigned registered holder of the Warrant ( Assignor ) assigns and transfers to the assignee named below ( Assignee ) all of the rights of Assignor under the Warrant, with respect to the number of units set forth below: |
Name of Assignee:
Address of Assignee:
Number of Units Assigned:
and does irrevocably constitute and appoint as attorney to make such transfer on the books of Pluralsight Holdings, LLC, maintained for the purpose, with full power of substitution in the premises.
(2) | Obligations of Assignee. Assignee agrees to take and hold the Warrant and any units of unit to be issued upon exercise of the rights thereunder (the Securities ) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof. |
(3) | Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the units, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties set forth in Section 11 of the Warrant are true and correct as to Assignee as of the date hereof. |
(4) | Investment Representation Statement and Market Stand-Off Agreement. Assignee has executed, and delivers herewith, an Investment Representation Statement and Market Stand-Off Agreement in a form substantially similar to the form attached to the Warrant as Exhibit A-1. |
(5) |
No Bad Actor Disqualification. Neither (i) Assignee, (ii) any of its directors, executive officers, other officers that may serve as a director or officer of any company in which it invests, general partners or managing members, nor (iii) any beneficial owner of any of the Companys securities held or to be held by Assignee is subject to any of the bad actor disqualifications described in |
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Rule 506(d)(1)(i) through (viii) under the Securities Act of 1933, as amended (the Securities Act ), except as set forth in Rule 506(d)(2)(ii) or (iii) or (d)(3) under the Securities Act and disclosed, reasonably in advance of the transfer of the Securities, in writing in reasonable detail to the Company. |
Assignor and Assignee are signing this Assignment Form on the date first set forth above.
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( Signature of Assignor ) | ( Signature of Assignee ) | |
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( Print name of signatory, if applicable ) | ( Print name of signatory, if applicable ) | |
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Exhibit 10.3
PLURALSIGHT, LLC
INCENTIVE UNIT PLAN
1. | G ENERAL . |
(a) Eligible Unit Award Recipients. The persons eligible to receive Unit Awards under this Plan are Employees and Consultants providing services to the Company.
(b) Available Unit Awards. The Plan provides for the grant of Incentive Units in the Company. All Incentive Units awarded under this Plan are intended to constitute profits interests within the meaning of IRS Revenue Procedures 1993-27 and 2001-43 and will constitute Incentive Units within the meaning of the LLC Agreement.
(c) Purpose. The Company, by means of the Plan, seeks to secure and retain the services of the group of persons eligible to receive Unit Awards as set forth in Section 1(a), to provide incentives for such persons to exert maximum efforts for the success of the Company, and to provide a means by which such eligible recipients may be given an opportunity to benefit from increases in value of the Company through the granting of Unit Awards.
(d) Rules of Construction. Any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms. Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the LLC Agreement.
2. | A DMINISTRATION . |
(a) Administration by Board. The Board shall administer the Plan.
(b) Powers of Board. Subject to the LLC Agreement, the Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time (A) which of the Persons eligible under the Plan shall be granted Unit Awards; (B) when and how each Unit Award shall be granted; (C) the provisions of each Unit Award granted (which need not be identical); (D) the number of Incentive Units with respect to which a Unit Award shall be granted to each such Person; (E) the Strike Price applicable to the Incentive Units granted under a Unit Award; (F) the fair market value of such Incentive Units for tax reporting and withholding purposes; and (G) the Redemption Price for Vested Redemption Units under Section 6(c) below.
(ii) To construe and interpret the Plan and the Offer Letters evidencing Unit Awards granted under the Plan, 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 or in any Offer Letter evidencing a Unit Award, in a manner and to the extent it shall deem necessary or expedient to make the Plan or Unit Award fully effective.
(iii) To settle all controversies regarding the Plan and Unit Awards and Incentive Units granted under it.
(iv) To accelerate in whole or in part the time at which a Unit Award vests in accordance with the Plan notwithstanding the provisions in the Unit Award stating the time at which it will vest, including in connection with a Sale of the Company.
(v) To suspend or terminate the Plan at any time. Suspension or termination of the Plan shall not impair rights and obligations under any Unit Award granted while the Plan is in effect except with the written consent of the affected Participant.
(vi) To amend the Plan in any respect the Board deems necessary or advisable. However, rights under any Unit Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing.
(vii) To approve forms of Offer Letters evidencing Unit Awards for use under the Plan and to amend the terms of any one or more Offer Letters, including, but not limited to, amendments to provide terms more favorable than previously provided in the Offer Letter, subject to any specified limits in the Plan that are not subject to Board discretion; provided however, that, the rights under any Offer Letter shall 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.
(viii) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient under the Plan to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Offer Letters evidencing Unit Awards.
(c) Effect of Boards Decision. All determinations, interpretations and constructions under or with respect to the Plan and Unit Awards made by the Board in good faith shall not be subject to review by any Person and shall be final, binding and conclusive on all persons.
3. | I NCENTIVE U NITS S UBJECT TO THE P LAN . |
(a) General. Subject to Section 8 relating to Capitalization Adjustments, the aggregate number of Incentive Units that may be issued pursuant to Unit Awards under this Plan shall not exceed 6,022,000 Incentive Units.
(b) Forfeitures. If any Incentive Units are forfeited back to the Company because of the failure to meet a contingency or condition required to vest such Incentive Units in the Participant, then the Incentive Units which are forfeited shall revert to and again become available for issuance under the Plan.
(c) Source of Incentive Units. The Incentive Units issuable under the Plan shall be authorized but unissued or reacquired Incentive Units.
4. | E LIGIBILITY . |
Unit Awards may be granted to Employees and Consultants of the Company. No Person shall have any right to receive a Unit Award unless the Unit Award is approved by the Board in its sole discretion and is evidenced by an executed Offer Letter in form acceptable to the Board. The Plan imposes no obligation on the Company or Board to treat Participants and/or potential Participants in an equivalent, consistent or comparable manner.
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5. | U NIT A WARD P ROVISIONS . |
(a) General. Each Unit Award shall be evidenced by an Offer Letter in such form and containing such terms and conditions as the Board shall deem appropriate. The provisions of separate Offer Letters and Unit Awards need not be identical.
(b) Transferability of Unit Awards. No Unit Award or underlying Incentive Units may be transferred prior to vesting under the applicable Offer Letter, or in violation of the other restrictions on Transfer contained in the LLC Agreement, which restrictions are incorporated by reference herein. Any attempted Transfer of a Unit Award or underlying Incentive Units prior to vesting or in violation of the LLC Agreement shall be null and void.
(c) Vesting of Incentive Units Generally. The Incentive Units subject to a Unit Award shall be subject to such service-based and performance-based vesting conditions as are determined by the Board and set forth in the applicable Offer Letter. The vesting provisions of individual Unit Awards may vary.
(d) Forfeiture on Termination of Continuous Service. Except as otherwise provided in the applicable Offer Letter evidencing a Unit Award or other written agreement between the Participant and the Company, in the event that a Participants Continuous Service terminates for any reason, whether voluntarily or involuntarily, with or without cause (including death), the Participant shall automatically forfeit all of the unvested Incentive Units underlying his or her Unit Award as of 12:01 am MST on the effective date of such termination of Continuous Service. Upon forfeiture, the Participant shall return to the Company any certificates representing his or her forfeited Incentive Units. A Participant shall not be entitled to any compensation, further distributions or other payment from the Company or any other Person for or with respect to his or her forfeited Incentive Units and shall automatically cease to be a member of the Company with respect to such forfeited Incentive Units.
(e) Escrow of Distributions on Unvested Incentive Units. Any distributions within the meaning of the LLC Agreement that the Company pays with respect to the Incentive Units underlying any Unit Award that have not yet vested (other than Tax Distributions as defined in Section 6.3 of the LLC Agreement) will be held in escrow by the Company or its designee in accordance with the LLC Agreement until: (i) vesting of the Incentive Units with respect to which such escrowed distributions were paid, in which case the escrowed distributions on the Incentive Units which have vested shall be promptly released from escrow and paid to the Participant; or (ii) forfeiture of the Incentive Units with respect to which such escrowed distributions were paid, in which case the escrowed distributions on the forfeited Incentive Units shall be distributed to the other members of the Company pursuant to the LLC Agreement.
(f) Relationship with LLC Agreement. All Incentive Units issued under the Plan shall be subject to the terms and conditions of the LLC Agreement, including without limitation all restrictions on Transfer of Units contained therein.
6. | C OMPANY R EDEMPTION R IGHT . |
(a) General. Upon the occurrence of a Trigger Event with respect to any Participant to whom Incentive Units have been issued under this Plan, the Company shall have the option (the Redemption Right ) at its election to redeem and repurchase from that Participant and, if applicable, from the Participants transferees (collectively the Sellers ) all or any portion of the Vested Incentive Units issued to such Participant (the Vested Redemption Units ) on the terms and conditions set forth in this Section 6.
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(b) Election to Redeem. To exercise its Redemption Right, the Company must give a written notice of its election to redeem the Vested Redemption Units (a Redemption Notice ) to the Seller (or if applicable Sellers) not later than 180 days after the Company receives written notice of the Trigger Event in question. The Redemption Notice shall specify (i) the number of Vested Redemption Units to be redeemed; (ii) the Redemption Price to be paid for those Vested Redemption Units, as determined under Section 6(c) below; and (iii) the closing date for the redemption, which shall be not less than 10 nor more than 30 days after the Redemption Notice is delivered to the Sellers. For purposes of this Section 6, if there is more than one Seller, delivery of the Redemption Notice to the affected Participant shall be deemed delivery of the Redemption Notice to all Sellers.
(c) Redemption Price. The price to be paid for each Vested Redemption Unit being redeemed under this Section 6 (the Redemption Price ) shall equal the hypothetical amount that would have been distributed with respect to the Vested Redemption Unit in question under Sections 6.2 and 6.4 of the LLC Agreement (taking into account the Incentive Units Strike Price) had the Company sold all of its business and assets for their fair market value (as determined by the Board in good faith) on the date of the Trigger Event, paid all of its liabilities on that date, and then distributed the remaining net proceeds from the deemed Sale of the Company to its Members in liquidation of the Company. For this purpose, the Boards determination of fair market value of the Companys business and assets shall conclusively be deemed to have been made in good faith if based upon an appraisal on the Company as an on-going concern obtained from a qualified independent appraiser selected by the Board.
(d) Closing of Redemption. At closing of the redemption of the Vested Redemption Units, each Seller shall sell, assign and transfer to the Company free and clear of all liens, pledges, encumbrances, options and other third-party interests, and the Company shall redeem and purchase from each Seller, all of the Sellers right, title and interest in and to the Vested Redemption Units that the Company has timely elected to redeem. At closing:
(i) The Company shall pay to each Seller the applicable Redemption Price for Sellers Vested Redemption Units being redeemed in the following manner. One third (1/3 rd ) of the Redemption Price shall be paid in cash-equivalent funds at closing. The balance of the Redemption Price shall be paid by delivery at closing of the Companys unsecured promissory note in the principal amount of such deferred balance, which promissory note shall bear interest from the closing date at an annually compounding rate per annum equal to the applicable federal rate for short-term debt instruments under Code Section 1274 in effect for the month in which closing occurs. The deferred portion of the Redemption Price evidenced by the Companys promissory note shall be paid in two equal annual installments of principal and accrued interest on each of the first and second anniversaries of the redemption closing date. The promissory note may be prepaid without penalty in whole or in part at any time.
(ii) The Sellers shall deliver to the Company such instruments of assignment, certificates representing Vested Redemption Units and other documents as the Company reasonably requests to affect the redemption. Those transfer documents shall contain such customary representations and warranties of authority, title and absence of liens and encumbrances, and otherwise be in such form, as the Company reasonably requests.
(e) Unvested Incentive Units. Nothing in this Section 6 shall be construed as affecting the forfeiture of Unvested Incentive Units or as entitling any Participant to any payment with respect to the forfeiture and cancellation of his or her Unvested Incentive Units.
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7. | S ALE OF THE C OMPANY . |
The Board shall have authority to provide in any applicable Award Agreement that the vesting of otherwise Unvested Incentive Units shall be accelerated in whole or in part upon a Sale of the Company (or at such earlier time as the Board shall determine).
8. | A DJUSTMENT OF U NITS . |
In the event of a Capitalization Adjustment, the Board shall proportionately and appropriately adjust the maximum number and classes of membership units subject to the Plan pursuant to Section 3(a). The Board shall make such adjustments, and its determination shall be final, binding and conclusive.
9. | T ERMINATION OR S USPENSION OF THE P LAN . |
(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated by the Board pursuant to Section 2 this Plan shall continue until January 1, 2023; provided that all Incentive Units shall automatically terminate immediately after a Sale of the Company. No Unit Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Unit Award granted while the Plan is in effect except with the written consent of the affected Participant.
10. | E FFECTIVE D ATE OF P LAN . |
This Plan shall become effective as of January 1, 2013.
11. | C HOICE OF L AW . |
The law of the State of Nevada shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that states conflict of laws rules.
12. | M ISCELLANEOUS . |
(a) Company Action Constituting Grant of Unit Awards. Unless otherwise expressly provided in the Offer Letter evidencing a Unit Award, the grant by the Company of a Unit Award to any Participant shall be deemed completed as of the date the Offer Letter evidencing the Unit Award is executed by the Participant and delivered to the chief executive officer or president of the Company.
(b) Member Rights. Subject to the terms and conditions of the LLC Agreement, each Participant shall be deemed to be a member of the Company with respect to the Incentive Units underlying the Participants Unit Award from the date of grant of such Unit Award.
(c) No Employment or Other Service Rights. Nothing in the Plan, any Offer Letter evidencing a Unit Award or any other instrument executed thereunder or in connection with any Unit Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company in any capacity or shall negate or otherwise affect the right of the Company at will to terminate (i) the employment of an Employee with or without notice and with or without cause, or (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with the Company, as the case may be. Without limiting the foregoing, no Participant shall have any right to remain an Employee or Consultant of the Company until his or her Incentive Units wholly or partially vest or until a Sale of the Company occurs, and no Participant shall have any cause of action, claim, or right to recover damages against the Company or its members, managers, officers, employees or agents as a result of any forfeiture of Incentive Units resulting from termination of his or her Continuous Service with the Company.
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(d) Investment Assurances. The Company may require a Participant, as a condition of acquiring any Unit 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 he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of the underlying Incentive Units; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring the Incentive Units for the Participants own account and not with any present intention of selling or otherwise distributing the Incentive Units. The Company may, upon advice of counsel to the Company, place legends on Incentive Unit certificates, if any, 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 Incentive Units.
(e) Withholding Obligations. To the extent provided by the terms of an Offer Letter evidencing a Unit Award, the Company may, in its sole discretion, satisfy any federal, state or local tax withholding obligation relating to a Unit Award by any of the following means, or by a combination of such means: (i) causing the Participant to tender a cash payment; or (ii) withholding from any compensation paid to the Participant by the Company.
(f) Exemption from Section 409A. The Unit Awards granted hereunder are intended to constitute restricted property exempt from the requirements of Section 409A of the Code. The Plan and Unit Awards shall be interpreted in accordance with that intent. Notwithstanding any provision of the Plan to the contrary, in the event that the Board determines that any Unit Award may be subject to Section 409A of the Code, the Board may adopt such amendments to the Plan and the applicable Unit Award or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (1) exempt the Unit Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Unit Award, or (2) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance.
(g) Section 83(b) Election. As a condition to receipt of a Unit Award, the Participant shall agree to timely file an election under Section 83(b) of the Code with respect to the Unit Award.
(h) Non-Contractual Duties. Neither the Company nor any of its members, managers, officers, employees or agents shall have any fiduciary or other non-contractual duties or obligations to Participants under or by virtue of this Plan, any Offer Letter or any Unit Awards made hereunder apart from or in excess of the limited fiduciary duties, if any, imposed on them as members, managers or officers of the Company by virtue of the LLC Agreement and the Act.
13. | D EFINITIONS . As used in the Plan, the following definitions shall apply to the capitalized terms indicated below: |
(a) Board means the Board of Managers of the Company.
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(b) Capitalization Adjustment means any change that is made in, or other events that occur with respect to, the Incentive Units subject to the Plan or subject to any Unit Award after January 1, 2013 without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, membership unit distribution or split, combination of membership units, exchange of membership units, change in Company structure or other transaction not involving the receipt of consideration by the Company).
(c) Code means the Internal Revenue Code of 1986, as amended.
(d) Company means Pluralsight, LLC, a Nevada limited liability company.
(e) Consultant means any person other than an Employee who (i) is engaged by the Company to render consulting or advisory services and is compensated for such services, or (ii) serves as a member of the Board, and is compensated for such services as a manager.
(f) Continuous Service means that the Participants service with the Company, whether as an Employee or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company as an Employee or Consultant, provided that there is no interruption or termination of the Participants service with the Company, shall not terminate a Participants Continuous Service. For example, a change in status from an employee of the Company to a Consultant of the Company shall 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 shall be considered interrupted in the case of any leave of absence approved by the Company, including sick leave, military leave or any other personal leave. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Unit 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.
(g) Employee means any person employed by the Company of the Company.
(h) Incentive Units means Incentive Units as defined in the LLC Agreement.
(i) LLC Agreement means the Amended and Restated Operating Agreement of Pluralsight, LLC dated as of December 20, 2012, as amended from time to time.
(j) Offer Letter means a written letter agreement, approved by the Board, between the Company and a Participant evidencing the terms and conditions of a Unit Award under the Plan.
(k) Participant means a Person to whom a Unit Award or Incentive Units are granted pursuant to the Plan or, if applicable, any other Person who holds as a transferee an outstanding Unit Award or Incentive Units issued under the Plan.
(l) Person has the meaning set forth in the LLC Agreement.
(m) Plan means this Pluralsight, LLC Incentive Unit Plan.
(n) Sale of the Company has the meaning set forth in the LLC Agreement.
(o) Securities Act means the Securities Act of 1933, as amended.
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(p) Strike Price has the meaning set forth in Section 18.2 of the LLC Agreement.
(q) Transfer has the meaning set forth in the LLC Agreement.
(r) Trigger Event means with respect to any Participant: (i) the death or permanent disability of a Participant; (ii) the termination for any reason of the Participants Continuous Service with the Company; (iii) any Transfer, whether voluntary or involuntary, of the Participants Incentive Units in violation of the applicable Offer Letter, this Plan or the LLC Agreement, including any impermissible Transfer resulting from or in connection with a domestic relations order or proceeding, or any bankruptcy-related proceeding, order or case; and (iv) any violation by a Participant of any confidentiality agreement, covenant not to compete, covenant not to solicit or other restrictive covenant in favor of the Company.
(s) Unit Award means a grant of Incentive Units to a Participant under the Plan.
(t) Unvested Incentive Units means Incentive Units that have not yet vested under the applicable Offer Letter and are not Vested Incentive Units.
(u) Vested Incentive Units has the meaning set forth in Section 18.1 of the LLC Agreement.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized Manager effective as of the 24 th day of May, 2013.
PLURALSIGHT, LLC | ||
By: |
/s/ Aaron Skonnard |
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Name: | Aaron Skonnard | |
Title: | Manager |
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AMENDMENT NO. 1 TO
PLURALSIGHT, LLC
INCENTIVE UNIT PLAN
THIS AMENDMENT NO. 1 TO PLURALSIGHT, LLC INCENTIVE UNIT PLAN (this Amendment ) is made and adopted effective as of the 28 th day of February, 2014, by Pluralsight, LLC, a Nevada limited liability company (the Company ).
WHEREAS, the Company maintains the Pluralsight, LLC Incentive Unit Plan (the Plan ) for the benefit of its employees, managers and consultants; and
WHEREAS, it is necessary and desirable to amend the Plan to clarify certain provisions of the Plan; and
WHEREAS, pursuant to Section 2(b)(vi) of the, the Board of Managers of the Company (the Board ) may amend the Plan in any respect the Board deems necessary or advisable; and
WHEREAS, the Board has approved and adopted this Amendment.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 3(a) of the Plan is hereby amended and restated in its entirety to read as follows:
(a) General. Subject to Section 8 relating to Capitalization Adjustments, the aggregate number of Incentive Units that may be issued pursuant to Unit Awards under this Plan shall not exceed 9,780,243 Incentive Units.
Except as provided above, the original terms of the Plan are hereby ratified and confirmed in all respects.
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IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer effective as of the date first above written.
PLURALSIGHT, LLC | ||
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: Manager |
AMENDMENT NO. 2 TO
PLURALSIGHT, LLC
INCENTIVE UNIT PLAN
THIS AMENDMENT NO. 2 TO PLURALSIGHT, LLC INCENTIVE UNIT PLAN (this Amendment ) is made and adopted effective as of the 14 th day of November, 2014, by Pluralsight, LLC, a Nevada limited liability company (the Company ).
WHEREAS, the Company maintains the Pluralsight, LLC Incentive Unit Plan (the Plan ) for the benefit of its employees, managers and consultants; and
WHEREAS, the Plan was previously amended on February 28, 2014; and
WHEREAS, on August 28, 2014, Pluralsight Holdings, LLC, a Delaware limited liability company ( Holdings ), was formed, and direct ownership of the Company by the various members thereto was consolidated at the Holdings level, with Holdings becoming the sole member and manager of the Company, and all membership units of the Company, including incentive units in the Company, becoming incentive units of Holdings; and
WHEREAS, it is necessary and desirable to amend the Plan to provide that the Plan now applies and pertains to Holdings; and
WHEREAS, pursuant to Section 2(b)(vi) of the, the Board of Managers of the Company (the Board ) may amend the Plan in any respect the Board deems necessary or advisable; and
WHEREAS, the Board has approved and adopted this Amendment.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The title of the Plan is amended and restated in its entirety to read Pluralsight Holdings, LLC Incentive Unit Plan.
2. The definition of Company in Section 13(d) is amended and restated in its entirety to read as follows:
(d) Company means Pluralsight Holdings, LLC, Delaware limited liability company.
3. The definition of LLC Agreement in Section 13(i) is amended and restated in its entirety to read as follows:
(i) LLC Agreement means the Limited Liability Company Agreement of Pluralsight
Holdings, LLC dated as of September 18, 2014, as amended from time to time.
4. The definition of Plan in Section 13(m) is amended and restated in its entirety to read as follows:
(m) Plan means this Pluralsight Holdings, LLC Incentive Unit Plan.
5. For the avoidance of doubt, it is the intention of the Company that, as the result of the foregoing amendments, all references to the Company contained in the Plan shall be deemed to refer to Holdings, and all incentive units in the Company previously issued under the Plan will continue as incentive units in Holdings under the Plan. By its signature below, Holdings hereby assumes the Plan going forward.
Except as provided above, the original terms of the Plan are hereby ratified and confirmed in all respects.
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2
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer effective as of the date first above written.
PLURALSIGHT, LLC | ||
By: |
Pluralsight Holdings, LLC, a Delaware limited liability company |
|
Its: | Manager | |
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: Manager |
ACKNOWLEDGED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN: |
||
PLURALSIGHT HOLDINGS, LLC | ||
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: Manager |
Second Amendment to Incentive Unit Plan (Pluralsight Holding, LLC)
Exhibit 10.4
PLURALSIGHT HOLDINGS, LLC
2017 EQUITY INCENTIVE PLAN
1. PURPOSE . This Plan is intended to provide incentives to attract, retain and motivate eligible persons whose services are important to the success of the Company and its Subsidiaries by offering them an opportunity to participate in the Companys future performance through awards of Options and Restricted Share Units. Capitalized terms not otherwise defined in the text of this Plan document are defined in Section 23 hereof. This Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, but grants may be made pursuant to this Plan which do not qualify for exemption from registration under Rule 701.
2. UNITS SUBJECT TO THE PLAN .
2.1 Number of Units Available . Subject to Sections 2.2 and 17 hereof, the total number of Units reserved and available for grant and issuance pursuant to this Plan will be 3,622,900. Units subject to Awards that at any time are cancelled, forfeited, settled in cash or that expire by their terms will again be available for grant and issuance in connection with other Awards. At all times the Company will reserve and keep available a sufficient number of Units as will be required to satisfy the requirements of all Awards granted and outstanding under this Plan.
2.2 Adjustment of Units . In the event that the number of outstanding Units of the Company is changed by a distribution of Units, recapitalization, Unit split, reverse Unit split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (i) the number of Units reserved for issuance under this Plan and (ii) the Exercise Prices of and number of Units subject to outstanding Options and number of Units subject to other outstanding Awards will be proportionately adjusted subject to any required action by the Committee and compliance with applicable securities laws; provided , however , that fractions of a Unit will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Unit or will be rounded down to the nearest whole Unit, as determined by the Committee.
2.3 Unfunded Plan . The Plan shall be unfunded. Neither the Company, the Board nor the Committee shall be required to establish any special or separate fund or to segregate any assets to assure the performance of the Companys obligations under the Plan.
3. ELIGIBILITY . The Company may grant Options and Restricted Share Units under the Plan to employees, officers, managers, directors and consultants of the Company or any Subsidiary of the Company, provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION .
4.1 Committee Authority . This Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan; (c) approve persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Units or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Subsidiary of the Company; (g) grant waivers of any conditions of this Plan or any Award; (h) determine the terms of vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement or any Exercise Agreement; (j) determine whether an Award has been earned; (k) make all other determinations necessary or advisable for the administration of this Plan; and (l) extend the vesting period beyond a Participants Termination Date.
4.2 Committee Discretion . Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (a) at the time of grant of the Award, or (b) subject to Section 5.8 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan.
4.3 No Uniformity of Treatment . The Committees determinations under the Plan need not be uniform and may be made by it selectively among persons who are eligible to receive, or who actually receive, Awards. Without limiting the generality of the foregoing, the Committee shall be entitled to make non-uniform and selective determinations, amendments and adjustments, and to enter into nonuniform and selective Award Agreements.
4.4 Sub-plans . The Committee may from time to time establish sub-plans under the Plan for purposes of satisfying blue sky, securities, tax or other laws of various jurisdictions, domestic or foreign, in which the Company intends to grant Awards. Any sub-plans shall contain such limitations and other terms and conditions as the Committee determines are necessary or desirable. All sub-plans shall be deemed a part of the Plan, but each sub-plan shall apply only to the Participants in the jurisdiction for which the sub-plan was designed.
5. OPTIONS . The Committee may grant Options to eligible persons described in Section 3 hereof. As to each such Option, the Committee shall determine the number of Units subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following:
5.1 Form of Option Grant . Each Option granted under this Plan will be evidenced by an Award Agreement ( Unit Option Agreement ), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.
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5.2 Date of Grant . The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option. The Unit Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.
5.3 Exercise Period . Options shall be exercisable within the times or upon the events determined by the Committee as set forth in the Unit Option Agreement governing such Option; provided , however , that no Option will be exercisable after the expiration of seven (7) years from the date the Option is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Units or percentage of Units as the Committee determines.
5.4 Exercise Price . The Exercise Price per Unit of an Option will be determined by the Committee when the Option is granted and may not be less than one hundred percent (100%) of the Fair Market Value of per Unit on the date of grant. Payment for the Units purchased must be made in accordance with Section 5.10 hereof.
5.5 Method of Exercise . Options may be exercised only by delivery to the Company of a written Option exercise agreement (the Exercise Agreement ) in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (i) the number of Units being purchased, (ii) the restrictions imposed on the Units purchased under such Exercise Agreement, if any, and (iii) such representations and agreements regarding Participants investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. The Participant shall execute and deliver to the Company the Exercise Agreement together with payment in full of the Exercise Price, and any applicable taxes, for the number of Units being purchased, in the manner described in Section 5.10 hereof. An Option may not be exercised for a fraction of a Unit.
5.6 Termination . Subject to earlier termination pursuant to Sections 17 and 20 hereof and notwithstanding the exercise periods set forth in the Unit Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participants Options only to the extent that such Options are Vested Options upon the Termination Date or as otherwise determined by the Committee, and subject to such additional conditions on exercise as are set forth in the applicable Award Agreement. Such Vested Options, if otherwise exercisable, may only be exercised within ninety (90) days after the Termination Date (or within such longer time period after the Termination Date as may be determined by the Committee, but in any event, no later than the expiration date of the Options, as provided in the applicable Award Agreement).
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(b) If the Participant is Terminated because of Participants death or Disability (or the Participant dies within ninety (90) days after a Termination other than for Cause), then Participants Options may be exercised only to the extent that such Options are Vested Options on the Termination Date, and subject to such additional conditions on exercise as are set forth in the applicable Award Agreement. Such Vested Options, if otherwise exercisable, may only be exercised by Participant (or Participants legal representative or authorized assignee) within twelve (12) months after the Termination Date (or within such longer time period after the Termination Date as may be determined by the Committee, but in any event no later than the expiration date of the Options, as provided in the applicable Award Agreement).
(c) If the Participant is terminated for Cause, except to the extent otherwise determined by the Committee, such Participants Options shall automatically become non-exercisable as of 12:01 am local time on the Termination Date, may not thereafter be exercised even if such Options are otherwise Vested Options on the Termination Date, and shall expire and be of no force and effect as of 12:01 am local time on the Participants Termination Date.
5.7 Limitations on Exercise . The Committee may specify a reasonable minimum number of Units that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Units for which it is then exercisable.
5.8 Modification, Extension or Renewal . The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participants rights under any Option previously granted. The Committee may not reduce the Exercise Price of outstanding Options.
5.9 Restrictions . Any Units issued pursuant to the exercise of an Option will be subject to the restrictions on transfer and, rights of first refusal set forth in the Companys Governance Documents and such additional restrictions and repurchase rights as are specified by the Committee and set forth in the applicable Award Agreement.
5.10 Payment for Units Purchased Through Option Exercise . Payment for Units purchased pursuant to Options granted under this Plan may be made by check or, to the extent expressly permitted under the applicable Award Agreement and applicable law, by one or more of the following methods:
(a) on a net exercise basis by holdback (i.e., retention by the Company) of Units otherwise being sold to the Participant having a then Fair Market Value, as determined by the Committee, equal to the applicable Exercise Price;
(b) with respect only to purchases upon exercise of an Option, and provided that an IPO has occurred, the Units (or shares of stock into which the Units are freely exchangeable) are registered under the Securities Act, and a public market for the Companys Units exists:
(i) through a same day sale commitment from the Participant and a broker-dealer that is a member of the Finance Regulatory Authority (a FINRA Dealer) whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Units so purchased sufficient to pay the total Exercise Price, and whereby the FINRA Dealer irrevocably commits upon receipt of such Units to forward the total Exercise Price directly to the Company; or
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(ii) through a margin commitment from the Participant and a FINRA Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Units so purchased to the FINRA Dealer in a margin account as security for a loan from the FINRA Dealer in the amount of the total Exercise Price, and whereby the FINRA Dealer irrevocably commits upon receipt of such Units to forward the total Exercise Price directly to the Company; or
(c) by any combination of the foregoing.
6. RESTRICTED SHARE UNITS .
6.1 Awards of Restricted Share Units . A Restricted Share Unit (also called a RSU ) is an Award of a contingent right to receive at a designated future time a specified number of Units or payment equal to the then Fair Market Value of a specified number of underlying Units, which Award will be settled and paid in Units or as otherwise provided under Section 6.2 and the applicable Award Agreement. No purchase price shall apply to RSUs or Units or property issued under a Restricted Share Unit Award. All Restricted Share Units will be evidenced by an Award Agreement (a Restricted Share Unit Agreement ) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time determine, and will comply with and be subject to the terms and conditions of this Plan.
6.2 Form and Timing of Settlement . Payment (i.e., settlement) of Vested Restricted Share Units shall be made in the form of Units or, if otherwise determined by the Committee in its discretion and not prohibited by the Companys Governance Documents, with equity securities of an Upstream Public Affiliate or other securities to which Units have been or are being converted or with a combination of Units and such other securities. All Restricted Share Units shall be paid and settled on such dates following vesting as are determined by the Committee in its discretion, provided that settlement and payment of any portion of a Restricted Share Unit which has vested shall in all cases be made not later than March 15 of the calendar year following the calendar year in which such portion becomes vested and no longer subject to risk of forfeiture. No payment shall be made with respect to a Restricted Share Unit except to the extent that it has become a Vested Restricted Share Unit.
6.3 Restrictions . Any Units issued in settlement of Restricted Share Unit Awards shall be subject to the restrictions on transfer and, rights of first refusal set forth in the Companys Governance Documents and such additional restrictions and repurchase rights as are specified by the Committee and set forth in the applicable Award Agreement.
6.4 Forfeiture . Upon Termination of a Participant, the Participant shall automatically and immediately forfeit all of his or her then-Unvested Restricted Share Units except to the extent otherwise expressly provided in his or her Restricted Share Unit Agreement.
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7. WITHHOLDING TAXES .
7.1 Withholding Generally . Whenever Units are to be issued in satisfaction of Awards granted under this Plan, the Participant shall remit to the Company (or the Company Subsidiary that employs the Participant, as directed by the Company)) by check or such other means, including the holdback under Section 7.2 of Units otherwise issuable to the Participant, as are approved by the Committee, an amount sufficient to satisfy all federal, state, foreign and local withholding tax requirements as a condition precedent to issuance of such Units and prior to the delivery of any certificate or certificates for such Units. Whenever, under this Plan, payments in satisfaction of Awards are to be made by the Company or a Subsidiary, such payment will be net of an amount sufficient to satisfy federal, state, foreign and local withholding tax requirements.
7.2 Unit Withholding . When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise, vesting and/or settlement of any Award that is subject to tax withholding and the Participant is obligated to pay the Company or a Subsidiary the tax amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Units to be issued that minimum number of Units having a then Fair Market Value, as determined by the Committee, equal to the minimum tax amount required to be withheld,. All elections by a Participant to have Units withheld for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.
8. CODE SECTION 409A . All Awards under this Plan are intended to qualify for exclusion from the definition of nonqualified deferred compensation subject to Section 409A of the Code, and the Plan shall be interpreted and administered to comply with that intent. Specifically, all Options granted under the Plan are intended to be exempt from Code Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(5) and all rights and payments under RSUs are intended to constitute short-term deferrals within the meaning of Treasury Regulation Section 1.409A-1(b)(4) and as such are intended to be exempt from Code Section 409A. The Company, however, does not guarantee or assure that the Awards will be excluded from the application of Code Section 409A. Notwithstanding any other provision of this Plan, any Award Agreement or any other agreement to the contrary, neither the Company, its Members, the Board, the Committee nor any other person shall have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Participant under Section 409A of the Code and neither the Company, its Members, the Board, the Committee nor any other person the Committee will have any liability to any Participant for such tax or penalty.
9. PRIVILEGES OF UNIT OWNERSHIP . No Participant shall be a Member or equity owner of the Company solely by reason of receiving and holding an Award, and no Participant will have any of the rights as a Member of the Company or otherwise with respect to any Units underlying Awards until the Units are actually issued to the Participant upon exercise or settlement of the Award. No Units will be issued to a Participant unless he or she executes and delivers to the Company a joinder or other written agreement in form satisfactory to the Committee to be bound as a Member by the Companys applicable Governance Documents as then in effect and as subsequently amended. Once Units are issued to the Participant, the Participant will be a Member and have all the rights of a Member with respect to such Units, including the right to vote and receive all distributions made or paid with respect to such Units.
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10. TRANSFERABILITY OF AWARDS . Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and may not be made subject to execution, pledge, attachment or similar process. During the lifetime of the Participant an Award will be exercisable only by the Participant or Participants legal representative and any elections with respect to an Award may be made only by the Participant or Participants legal representative. For the avoidance of doubt, the prohibition against assignment and Transfer applies to Options and RSUs and to the underlying right to Units to be issued on exercise of an Option or settlement of an RSU; and pursuant to the foregoing sentence shall be understood to include, without limitation, a prohibition against any pledge, hypothecation, or other Transfer, including any short position, any put equivalent position or any call equivalent position (in each case, as defined in Rule 16a-1 promulgated under the Exchange Act).
11. RESTRICTIONS ON TRANSFER OF UNITS .
11.1 Restrictions on Transfer . Without limitation of and in addition to any other restriction on Transfer set forth in the applicable Company Governance Documents and the Award Agreement, no Participant shall Transfer any Units issued under the Plan (or other securities issued in exchange for or otherwise with respect to Units issued under the Plan) without the prior written consent of the Board, which consent the Board may withhold or condition in its sole discretion; provided , that upon the Participants death, the Participants Units may be Transferred to his estate, heirs or successors in interest under applicable law provided each such Transferee shall agree, as a condition to any Transfer of Units to such Transferee, to be bound by the restrictions set forth herein and in the applicable Governance Documents as may be amended from time to time in the Companys discretion. The restriction under this Section 11.1 on Transfers of Units without Board approval shall not apply to any Transfer to the Company or, to the purchaser in a Change in Control transaction, or to a Post-IPO Permitted Transfer.
11.2 Securities Law Restrictions . In addition to the restrictions on Transfer of Units set forth in Section 11.1, no Units issued under the Plan may be Transferred unless such Transfer complies with all applicable restrictions on Transfer under applicable Securities Laws, including if applicable SEC Rule 144.
11.3 Effect of Impermissible Transfer . Any Transfer or attempted Transfer of Units in violation of Section 11.1 or Section 11.2 shall be ineffective, null and void.
11.4 Transferee Obligations . Each person to whom Units are Transferred in accordance with the first sentence of Section 11.1 hereof must, as a condition precedent to the validity of such Transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Section 11 and the Companys Governance Documents to the same extent that such Units would be so subject if retained by the Participant.
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12. CERTIFICATES . If the Units are certificated, all certificates for Units or other securities delivered under this Plan will be subject to such Unit transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Units may be listed or quoted.
13. ESCROW OF UNITS . To enforce any restrictions on a Participants Units set forth in the Plan, any Award Agreement or the applicable Governance Documents of the Company, the Committee may require the Participant to deposit all certificates representing Units, together with Unit powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificates.
14. BUYOUT OF AWARDS . The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to buy from a Participant an Award previously granted with such consideration, and based on such terms and conditions, as the Committee and the Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE . Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this Plan (including the issuance of RSUs) that do constitute sales of securities or that otherwise do not qualify for exemption under Rule 701. An Award will not be effective, and no Units will be issued under the Plan unless such Award or Unit issuance, as applicable, complies with all applicable federal, state and foreign securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Units (or shares of capital stock into which the Units may be converted) may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other settlement of any Award. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver Units under this Plan prior to (i) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (ii) compliance with any exemption, completion of any registration or other qualification of such Units under any federal, state or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Units with the SEC or any other governmental agency or to effect compliance with the exemption, registration, qualification or listing requirements of any state or foreign securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.
16. NO EMPLOYMENT RIGHTS . Nothing in this Plan or any Award Agreement under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other service relationship with, the Company or any Subsidiary of the Company, as applicable, or limit in any way the right of the Company or any Subsidiary of the Company to terminate Participants employment or other service relationship at any time, with or without Cause.
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17. CHANGE OF CONTROL TRANSACTIONS .
17.1 Assumption or Replacement of Awards by Successor or Acquiring Company . In the event of a Change in Control of the Company, any or all outstanding Awards may be assumed, converted or replaced by the successor or acquiring entity (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor or acquiring entity may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to equity holders of the Company (after taking into account the existing provisions of the Awards). In connection with any such assumption, conversion, substitution or replacement of Awards, the Committee may in its discretion, and subject to such terms and conditions as it determines, provide for the accelerated vesting, exercisability and/or payment of all or a portion of such Awards immediately prior to such assumption, replacement, conversion or substitution. Notwithstanding any provision herein to the contrary, no assumption, conversion, replacement or substitution of Awards shall occur if such action would result in the Awards in question violating any applicable requirement of Code Section 409A.
17.2 No Assumption of Replacement of Awards on Change in Control Transaction . In the event of a Change in Control transaction in which the successor or acquiring entity (if any) does not assume, convert, replace or substitute Awards, as provided in Section 17.1 above, then the vesting, exercisability and/or payment of such Awards will accelerate immediately prior to the consummation of such Change in Control event only: (i) to the extent, if any, that the applicable Award Agreement expressly provides for such accelerated vesting, exercisability or payment, in whole or in part; and (ii) to the extent the applicable Award Agreement does not so provide, then to the incremental extent if any (and on such additional terms and conditions) as the Committee in its discretion may determine.
17.3 Accelerated Expiration of Options . Notwithstanding any contrary provision in this Plan or any applicable Award Agreement, in connection with a Change in Control, the Committee may in its discretion determine that, in connection with and contingent upon the occurrence of a Change in Control: (a) each Option outstanding immediately prior to the Change in Control shall terminate and cease to be exercisable within a specified number of days after notice to the Participant (and in no event later than immediately prior to the effective time of the Change in Control transaction); and (b) each Participant shall receive in full cancellation of his or her unexercised Options, with respect to each Unit subject to such Option, an amount equal to the excess of the Fair Market Value of such Unit immediately prior to the occurrence of such Change in Control over the Exercise Price per Unit of such Option; such amount to be payable in cash, in one or more kinds of equity securities or property (including the securities or property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine. For avoidance of doubt, in the cases of Options having an Exercise Price per Unit equal to or greater than the Fair Market Value per Unit of the underlying Units, the Participants Options may be cancelled hereunder without any payment to the Participant for his or her cancelled Options hereunder.
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17.4 Accelerated Vesting and Settlement of Restricted Share Units . Any provision in this Plan or any applicable Award Agreement to the contrary notwithstanding, in connection with a Change in Control, the Committee may in its discretion determine that, in connection with and contingent upon the occurrence of a Change in Control of the Company: (a) each RSU outstanding immediately prior to the Change in Control shall vest immediately prior to the effective time of the Change in Control transaction, and (b) each Participant shall receive in full payment for his or her Vested RSUs, with respect to each Unit subject to such Vested RSUs, an amount equal to the Fair Market Value of such Unit immediately prior to the occurrence of such Change in Control (such amount to be paid in Units, or in one or more other kinds of equity securities or property (other than cash), including the securities or property, if any, payable in the transaction, or in a combination thereof, as the Committee, in its discretion, shall determine).
17.5 Other Treatment of Awards . Subject to any greater rights granted to Participants under the foregoing provisions of this Section 17, in the event of the occurrence of any Change in Control transaction, any outstanding Awards will be treated as provided in the applicable agreement or plan of sale of securities, reorganization, merger, consolidation, dissolution, liquidation or sale of assets.
18. ADOPTION . This Plan will become effective on the date that it is adopted by the Board (the Effective Date ).
19. TERM OF PLAN/GOVERNING LAW . Unless earlier terminated as provided herein, no Awards shall be granted under the Plan later than ten (10) years after the Effective Date. This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of Delaware.
20. AMENDMENT OR TERMINATION OF PLAN . Subject to Section 5.8 hereof, the Board may at any time terminate or amend this Plan in any respect, including, without limitation, amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan. The termination of the Plan, or any amendment thereof, shall not affect any Unit previously issued or any Award previously granted under the Plan.
21. NONEXCLUSIVITY OF THE PLAN . Neither the adoption of this Plan by the Board nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
22. ASSIGNMENT OF PAYMENT OBLIGATIONS . The Company may assign to any Affiliate entity, and any Affiliate entity of the Company may assume, the Companys otherwise applicable payment obligations with respect to Awards granted to Participants who are employees or contractors of such Subsidiaries.
23. DEFINITIONS . As used in this Plan, the following terms will have the following meanings:
Affiliate means, with respect to any specified person, any other person directly or indirectly controlling, controlled by or under direct or indirect common control with the specified person.
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Award means any award under this Plan, including any Option or Restricted Share Units.
Award Agreement means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award, including the Unit Option Agreement and Restricted Share Unit Agreement.
Board means the Board of Managers of the Company, or if the Company becomes a corporation, the board of directors of that corporation.
Cause means Termination because of (i) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or Subsidiary of the Company, the Participants conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, (ii) the Participants commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iii) any material breach by the Participant of any provision of any agreement or understanding between the Company or any Subsidiary of the Company and the Participant regarding the terms of the Participants service as an employee, officer, manager, director or consultant to the Company or a Subsidiary of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, officer, manager, director or consultant of the Company or a Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Subsidiary of the Company and the Participant, (iv) Participants disregard of the policies of the Company or any Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Subsidiary of the Company, or (v) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Subsidiary of the Company.
Change in Control means, unless otherwise provided in an Award Agreement (but solely as applicable to any such Award Agreement), the occurrence of any one of the following events after the Effective Date:
(a) Any person (as such term is defined in the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes, as a result of its or its Affiliates acquisition of Company equity securities occurring after the Effective Date, the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Companys then outstanding securities eligible to vote for the election of the Board (the Company Voting Securities ); provided , however , that the event described in this paragraph (a) shall not be deemed to be a Change in Control by virtue of any acquisitions of Company Voting Securities: (i) by the Company, any Subsidiary or any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; (ii) in connection with an IPO (including by any Upstream Public Affiliate or by any underwriter temporarily holding securities being offered in the IPO); (iii) in connection with a statutory conversion of the Company to another form of business entity or Non-Qualifying Transaction
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as defined in paragraph (b) below; or (iv) by a person who was a Member on the Effective Date (or is an Affiliate of such a Member) unless with respect to this clause (iv) such person and its Affiliates thereby become the beneficial owner as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of at least seventy-five percent (75%) of the Company Voting Securities;
(b) The consummation of a merger, consolidation, statutory unit or share exchange or similar form of company transaction involving the Company or any of its Subsidiaries that requires the approval of the Companys Members, whether for such transaction or the issuance of securities in the transaction (a Business Combination ), unless immediately following such Business Combination: (i) more than 50% of the total voting power of (A) the entity resulting from such Business Combination (the Surviving Entity ), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Entity (the Parent Entity ), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by equity securities into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (ii) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Entity or the Parent Entity) is or becomes the beneficial owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect the members of the board of managers or directors of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) and (iii) at least a majority of the members of the board of managers or directors of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Business Combination were members of the Board at the time of the Boards approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (i), (ii) and (iii) above shall be deemed to be a Non-Qualifying Transaction );
(c) A sale, conveyance or other disposition (or series of related sales, conveyances and dispositions) of all or substantially all of the assets or business of the Company, including a sale or multiple related sales of the Subsidiaries of the Company (whether by way of merger, reorganization, consolidation or otherwise) or of all or substantially all of the assets of the Companys Subsidiaries which constitute all or substantially all of the consolidated assets of the Company; or
(d) The Members of the Company approve a plan of complete liquidation or dissolution of the Company or the consummation of a sale of all or substantially all of the assets of the Company or all or substantially all of the assets of its Subsidiaries.
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For avoidance of doubt, a Change in Control shall not be deemed to occur solely because any Person acquires beneficial ownership of more than fifty percent (50%) of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the committee appointed by the Board to administer this Plan, or if no committee is appointed, the Board.
Company means Pluralsight Holdings, LLC, a Delaware limited liability company, or any successor entity thereto. In the event the Company converts to a corporation, that corporation shall be the Company.
Disability means a disability, whether temporary or permanent, partial or total, as determined by the Committee.
Exchange Act means the Securities Exchange Act of 1934, as amended
Exercise Price means the price at which a holder of an Option may purchase the Units issuable upon exercise of the Option.
Fair Market Value means, as of any date, the value of Units determined as follows:
(a) if such Unit is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Unit is listed or admitted to trading as reported by Yahoo.com (or any newspaper or other source as the Board may determine);
(b) if such Unit is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by Yahoo.com (or, if not so reported, as otherwise reported by any newspaper or other source as the Board may determine); or
(c) if none of the foregoing is applicable, by the Committee in good faith.
Governance Documents means the Companys LLC Agreement and certificate of formation of the Company (or if the Company becomes a corporation, such corporations articles or certificate of incorporation, bylaws and shareholders agreement if any), as amended from time to time.
IPO means (a) the first sale of the Companys Units to the general public pursuant to a registration statement under the Securities Act; or if earlier (b) the later of (i) the first sale of Upstream Public Affiliate equity securities to the general public pursuant to a registration statement under the Securities Act; or (ii) the acquisition of twenty percent (20%) or more (by voting power and value) of the equity securities of the Company by a publicly-traded Upstream Public Member (or such lesser percentage as the Board may designate in writing).
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IPO Lockup Agreement means with respect to any IPO, any agreement between the underwriters of the public offering, the Company or other issuer, and persons who immediately prior to the IPO hold equity securities of the Company or an Upstream Public Affiliate, restricting the sale or disposition of such equity securities (or the IPO transaction-related proceeds thereof) for a defined period following the effective date of the IPO or related registration statement.
IPO Lockup Period means any period following an IPO not in excess of 220 days from the effective date of the IPO, as determined by the Committee, during which an IPO Lockup Agreement or SEC Rule 144 restricts the free transferability of Units or other equity securities of the Company or other applicable issuer.
LLC Agreement means the Companys amended and restated limited liability company agreement dated as of March 14, 2016, as subsequently amended and restated from time to time.
Member means a Member of the Company within the meaning of the Companys limited liability company agreement. In the event the Company becomes a corporation, Member shall mean a shareholder of that corporation.
Option means an award of an option to purchase Units pursuant to Section 5 hereof. Participant means a person who receives an Award under this Plan.
Plan means this Pluralsight Holdings, LLC 2017 Equity Incentive Plan, as amended from time to time.
Post-IPO Permitted Transfer means any Transfer of Units following an IPO if (a) the Units Transferred are subject to an effective registration statement under the Securities Act, are no longer subject to an IPO Lockup Agreement, and are otherwise freely tradable under applicable Securities Laws; or (b) the Units are Transferred to an Upstream Public Affiliate.
Restricted Share Unit or RSU means an award made pursuant to Section 6 hereof. The use of the word Share in the phrase Restricted Share Unit is not intended to be limited to shares of stock.
Restricted Share Unit Agreement means a written agreement between the Company and a Participant relating to the award of Restricted Share Units to that Participant.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
Securities Laws means the Securities Act and all, other federal, state and foreign laws governing the registration (or exemption from registration) of securities.
Subsidiary means any corporation, limited liability company or other entity in unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns equity securities representing fifty percent (50%) or more of the total combined voting power of all classes of equity securities in one of the other entities in such chain. As of the Effective Date, Pluralsight, LLC, is a Subsidiary of the Company.
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Termination or Terminated means, for purposes of this Plan with respect to a Participant, that the Participant for any reason, whether voluntarily or involuntarily, has ceased to provide services as an employee, officer, manager, director or consultant to the Company or a Subsidiary of the Company. For greater certainty, Termination includes cessation of a Participants employment or consulting engagement with the Company or with a Subsidiary of the Company as a result of the Participants death, Disability, resignation, expiration of a stated term of engagement, or discharge with or without Cause. A Participant will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days (a) unless reinstatement upon the expiration of such leave is guaranteed by contract or statute, or (b) unless provided otherwise pursuant to formal policy adopted from time to time by the Board and issued and promulgated in writing. In the case of any Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the Company or a Subsidiary of the Company as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Unit Option Agreement.
Termination Date means the effective date of a Participants Termination as determined for purposes of this Plan by the Committee in its sole discretion.
Transfer and Transferred mean and include any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of an Award or Units or any legal or beneficial interest in such Award or Units, whether or not for value and whether voluntary or involuntary or by operation of law, including without limitation, a transfer of an Award or Units to a nominee (regardless of whether there in a corresponding change in beneficial ownership); provided , however , that the following shall not be considered a Transfer: (a) the granting of a revocable proxy to officers of the Company at the request of the Companys Board in connection with actions to be taken at a meeting of the Members; or (b) entering into a voting agreement to which the Company is party.
Units means (a) Class A Common Units as defined in the Companys limited liability company agreement (i.e., common units of membership interest in the Company entitling their holder to one vote per unit), and (b) any successor equity security of the Company (including shares of common stock into which Units are converted as a result of the conversion of the Company to a corporation) or shares of common stock of an Upstream Public Affiliate if the Units are convertible into such shares.
Unvested RSUs means Unvested RSUs as defined in the applicable Restricted Share Unit Agreement.
Unvested Options means Unvested Options as defined in the applicable Unit Option Agreement.
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Upstream Public Affiliate means a Member of the Company that meets all of the following requirements: (a) the Member is an entity the common equity securities of which are offered and issued or being offered to the public pursuant to a registration statement filed under the Securities Act; (b) the Member holds or has the right to acquire twenty percent (20%) or more (by voting power and value) of the equity securities of the Company (or such lesser percentage as the Board may designate in writing); (c) the primary business purpose of Member is to invest in Company equity securities; and (d) the Board in its discretion by action in writing designates the Member as an Upstream Public Affiliate.
Vested RSUs means Vested RSUs as defined in the applicable Restricted Share Unit Agreement.
Vested Options means Vested Options as defined in the applicable Unit Option Agreement.
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24. EXECUTION . To record the Boards and Companys adoption of the Plan, the Company has caused the undersigned authorized officer of the Company to execute this Plan document effective as of June 1, 2017.
PLURALSIGHT HOLDINGS, LLC | ||
By: |
/s/ James Budge |
|
Name: | James Budge | |
Title: | CFO |
Exhibit 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the Agreement) is made and entered into effective as of the 16th day of August, 2017 (the Effective Date), by and between Pluralsight, LLC (the Company) and Aaron Skonnard (Executive).
RECITALS
Employee desires to be or is currently employed by the Company as an at-will employee. The Company desires to employ or continue employing Executive and Executive desires to be employed or continue to be employed by the Company on the terms and conditions set forth herein.
This Agreement, together with the Confidentiality, Intellectual Property Assignment and Non-Solicitation Agreement (the Confidentiality Agreement) executed by Executive concurrently herewith and the terms of which are incorporated herein by this reference, shall govern the terms and conditions of employment between the Executive and the Company. As of the Effective Date, this Agreement and the Confidentiality Agreement shall supersede and negate all previous agreements between the Company and Executive except as expressly set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, and in consideration of the mutual covenants and agreements set forth in this Agreement, the Company and Executive hereby mutually covenant and agree as set forth below.
1. Employment . The Company hereby agrees to employ Executive in the position of Chief Executive Officer, and Executive hereby accepts employment with the Company, upon the terms and conditions set forth herein.
2. Term . Executive shall be employed by the Company from the Effective Date until Executives employment with the Company is terminated in accordance with Section 7 below (the Term).
3. Duties .
3.1 General Duties . Executive will have and perform those duties and responsibilities which are appropriate and customary to the position held by Executive and assigned or delegated to Executive from time to time by the Companys Board of Managers (the Board). The Board may, in its sole discretion, alter, modify, or change Executives duties, offices, positions, responsibilities and obligations set forth in this Agreement at any time.
3.2 Performance . To the best of Executives ability and experience, Executive will at all times loyally and conscientiously perform all duties, and discharge all responsibilities and obligations, required of and from Executive pursuant to the terms hereof and to the reasonable satisfaction of the Company. During the Term of this Agreement, Executive will be a full-time employee of the Company and will devote substantially all of his or her business time, energy, skill, and attention to the business of the Company, and the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services, and advice of Executive rendered to the Company. Executive shall faithfully adhere to, and execute, and fulfill all lawful policies established from time to time by the Company as well as all applicable federal, state, and local laws and regulations relating to the business of the Company and its associated operations.
3.3 Undivided Attention . During the Term, Executive agrees not to perform services for any other person, business, or entity unrelated to the Company, whether as an employee, independent contractor, or otherwise without the prior written consent of the Board; it being understood that the Boards consent is likely to be granted where the services are in the nature of engaging in non-profit charitable/ civic activities or serving as an advisor or director to companies that do not compete with the business of the Company, provided that such pursuits or activities do not materially interfere with the services required to be rendered to the Company hereunder; provided, however, that nothing in this Agreement shall prohibit Executives pursuit of personal investment opportunities, provided that such pursuit does not interfere with the services required to be rendered to the Company hereunder, is consistent with the Companys policies regarding conflicts of interest, including without limitation Section 8 hereof, and does not in any way violate or infringe the covenants set forth in this Agreement or the Confidentiality Agreement.
4. Compensation and Related Matters .
4.1 Base Salary . In consideration for services rendered to the Company as provided herein, the Company will pay to Executive a base salary at a rate of $0 per annum, payable in accordance with the Companys standard payroll practices in effect from time to time (the Base Salary). The Base Salary may be increased or decreased from time to time in accordance with normal business practices of the Company. The Company will provide an amount up to $3,000 per year with 100% of such amount going to FSA contributions.
4.2 Bonus . During the term of this Agreement, Executive shall be eligible to participate in any annual bonus plan made available by the Company to its employees generally, which plan may be modified, amended or terminated at any time, in the Companys discretion. Individual goals and performance assessment, and discretionary bonus payments, if any, will be determined by the Companys Board (the Board). If Executives employment with the Company terminates for any reason, Executive shall not be entitled to any portion of the bonus applicable to the year in which Executive was terminated or for any calendar year thereafter.
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4.3 Expenses . Executive will be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in performing services hereunder, including expenses of travel while away from home on business in the service of the Company, provided that all expenses are incurred, documented, and accounted for in accordance with the policies and procedures as are established from time to time by the Company.
4.4 Executive Benefit Plans . During the term of this Agreement, Executive is entitled to participate in any employee benefit plans that may be made available by the Company to its employees generally, including, but not limited to, cafeteria plans and health, life, dental, or other insurance plans as may be in effect and/or modified from time to time and in accordance with and subject to the qualification requirements and the terms, conditions, and limitations established from time to time for individual participation in such plans.
4.5 Paid Leave . Executive will be eligible to receive paid leave for vacation and/or sick leave consistent with policies adopted by the Company from time to time. Executive also will be entitled to all paid holidays given by the Company to its employees generally. Scheduling and use of paid leave and, if applicable, accrual of and compensation for unused paid leave, will be subject to the Companys policies and procedures, as modified from time to time.
4.6 Employee Perquisites . During the term of this Agreement, Executive is entitled to participate in any employee perquisites that may be made available by the Company to its employees generally, including but not limited to (i) gym and wellness reimbursement of up to $50 per month; (ii) snacks, drinks and other food policies as may be in effect from time to time; and (iii) tuition reimbursement in pre-approved courses at pre-approved locations of up to $1,500 per semester or $3,000 per year. All perquisites and reimbursements referenced in this Section 4.6 are subject to change or discontinuation at any time in accordance with the normal business practices of the Company.
4.7 Deductions; Taxes . The Company shall have the right to deduct from the compensation due to Executive under this Agreement any and all sums required for Social Security, Medicare and other income withholding taxes and for any other federal, state, or local tax or charge which may be hereafter enacted or required by law as a charge on compensation of Executive. Neither the Company, nor any of its subsidiaries, affiliates, members, officers, managers, employees, or agents (a) has made any representation, assurance or guarantee to Executive regarding the tax treatment of any compensation to be paid to Executive hereunder; or (b) shall have any obligation or liability to indemnify, gross-up or reimburse Executive for, or hold him or her harmless against, any taxes or tax-related penalties or interest applicable to compensation earned by Executive under this Agreement or otherwise, including without limitation any taxes incurred under Internal Revenue Code (the Code) Sections 409A or 4999.
5. Incentive Units . Nothing in this Agreement shall alter, limit, or void the respective rights and obligations of the parties with regard to any grant of incentive units to Executive under any Pluralsight Holdings, LLC Incentive Unit Offer Letter (the Incentive Unit Offer Letter).
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6. Conflict of Interest . Executive will not become involved in a situation which reasonably might create or appear to create a conflict of interest, including but not limited to being connected directly or indirectly with any business (as owner, officer, director, manager, participant, licensee, consultant, shareholder, or the recipient of wages) which is involved with any aspect of Executives duties or which is in direct or indirect competition with the Company. Executive will report immediately any circumstances or situations arising in the future that might involve Executive or appear to involve Executive in a conflict of interest, including without limitation the reporting of gifts, entertainment, or any other personal favors given to or received from anyone with whom the Company has or is likely to have any business dealings which go beyond common courtesies usually associated with accepted business practices.
7. Termination . The employment of Executive hereunder shall be at will and may be terminated at any time, for any or no reason, by either the Company or Executive on thirty (30) days written notice to the other party. Notwithstanding the foregoing, (i) the Company may terminate Executives employment immediately and without prior notice for Cause (as defined below) or at the Companys sole discretion by providing Executive with pay in lieu of the 30-day notice period; and (ii) the Executive may terminate the employment immediate and without prior notice for Good Reason (as defined below) and satisfaction of the criteria set forth in the definition of Good Reason. In the event Executive terminates this Agreement for any reason other than immediately for Good Cause, then during the 30-day notice period, the Company may in its sole discretion terminate Executives employment at any time, in which case all obligations of the Company to Executive shall cease except as set forth in Section 9 below.
8. Certain Defined Terms . For purposes of this Agreement:
8.1 Cause shall mean (i) Executives willful conduct that is materially injurious to the Company or any of its affiliates (whether monetary or otherwise) or the commission of any other material act or omission involving dishonesty with respect to the Company; (ii) Executives conviction of a felony or of a misdemeanor involving a crime of moral turpitude; (iii) Executives fraud, embezzlement, or misappropriation of any money, assets, or other property of the Company; (iv) Executives insubordination or other willful refusal to comply with any lawful request of the Board, including without limitation failure to cooperate in any investigation conducted and/or undertaken by the Company that has reasonable and legitimate objectives; (v) Executives material breach of any of his or her obligations, duties, or agreements to the Company, including without limitation this Agreement or the Confidentiality Agreement, which breach cannot be cured or, if capable of being cured, is not cured within thirty (30) days after receipt of written notice of the need to cure from the Companys Board (or the Companys CFO or General Counsel acting under the authority of the Board); (vi) Executives death; and/or (vii) Executives Disability (as defined below).
8.2 Disability shall mean any physical or mental incapacitation that results in Executives inability to perform substantially all of his or her duties and responsibilities for the Company for a total of ninety (90) consecutive working days, as determined in accordance with the Family and Medical Leave Act, or an aggregate of one hundred eighty (180) working days during any twelve-month period, as determined by the CFO in his or her good faith judgment.
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8.3 Good Reason shall mean (i) a material adverse change in Executives job duties or authorities, including demotion or change in line of reporting, without Executives advance written consent; (ii) a reduction in the Base Salary without Executives advance written consent; and/or (iii) the Companys material breach of this Agreement. Notwithstanding the foregoing, any act or failure to act by the Company shall not be deemed material unless the Company has failed to cure such act or failure to act within thirty (30) days of the date that the Company is provided written notice by Executive stating in reasonable detail the grounds for Executives determination of such act or failure to act, and Executive resigns from employment within thirty (30) days after the expiration of the Companys cure period.
9. Effect of Termination .
9.1 Continuing Obligations . In the event Executives employment is terminated for any reason, all obligations of the Company and Executive under this Agreement shall cease, except that the terms of Section 10 and any other provision which by its terms is so intended shall survive such termination. Upon such termination, Executive or his or her estate (in the event of Executives death) shall be entitled to receive any applicable compensation, benefits, and reimbursements set forth in Section 4 through the date of termination. Executive acknowledges that upon termination of Executives employment, Executive is entitled to no other compensation, severance, or other benefits other than those specifically set forth in this Agreement and in the Incentive Unit Offer Letter.
9.2 Termination Without Cause / For Good Reason . If the Company terminates this Agreement without Cause, or if Executive terminates this Agreement for Good Reason, then subject to Executives execution and delivery to the Company within a time period specified by the Company after Executives effective date of termination (Termination Date) of a separation agreement and release of all claims (Separation Agreement) in a form acceptable to the Company and Executives non-revocation of such Separation Agreement: (i) the Company shall pay Executive severance pay in an amount equal to $200,000.00, less applicable withholdings (Severance Payment); and (ii) if Executive properly elects continuation coverage under the Companys group medical insurance plan pursuant to Sections 601 through 607 of the Employee Retirement Income Security Act of 1974, as amended (COBRA), the Company will pay that percentage of the premium for such medical plan coverage which the Company bears for similarly situated active Company employees and their enrolled family members immediately prior to the Termination Date through the earlier of (a) six (6) months from the Termination Date; (b) the date Executive first becomes eligible for coverage under any group health plan maintained by another employer of Executive or his or her spouse; or (c) the date such COBRA continuation coverage otherwise terminates as to Executive under the provisions of the Companys group medical insurance plan (COBRA Coverage). Except as otherwise provided below, the Severance Payment shall be payable in equal periodic
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installments in accordance with the Companys payroll practices and subject to withholding taxes on each regular payroll date of the Company commencing on the applicable Severance Commencement Date and continuing through the six month anniversary thereof (the Severance Period). The applicable Severance Commencement Date shall be the first regularly scheduled Company payroll date that is at least 45 days after the Executives Termination Date. Collectively, the Severance Payment and COBRA Coverage shall be referred to herein as the Severance Benefits.
9.2.1 Notwithstanding the foregoing, Executive shall be entitled to Severance Benefits in accordance with this Section 9.2 only so long as Executive has not breached any of the provisions of the Separation Agreement, the Confidentiality Agreement, or Section 10 of this Agreement.
9.2.2 Notwithstanding the foregoing, if any equity securities of the Company or of any direct or indirect entity that is an affiliate of the Company is publicly traded within the meaning of Code Section 409A(a)(2)(B) and Executive is a specified employee (as defined in Treasury Regulation Section 1.409A-1(i)) at the time this Agreement is terminated, then subject to Section 9.2.3 below, any Severance Payments otherwise payable to Executive during the first six months and one day following the date of his or her separation from service pursuant to this Section 9.2.2 shall be deferred until the date that is six months and one day following such separation from service, and if such payments are required to be so deferred, the first payment shall be in an amount equal to the total amount to which Executive would otherwise have been entitled to during the period following the date of termination if the deferral had not been required, less any portion of the Executives premium the Company paid on his or her behalf for COBRA coverage as set forth above.
9.2.3 Notwithstanding Section 9.2.2, any portion of the Severance Payments payable hereunder that do not exceed two times the lesser of (i) the sum of Executives annualized compensation based on the Executives annual rate of pay for the year immediately preceding the year of termination (or for the year of termination if Executives employment with Company commenced in the year of termination), adjusted for any increase in pay that was expected to continue indefinitely if the termination had not occurred and (ii) the Code Section 401(a)(17) limit applicable in the year of termination, shall be treated as separate benefits and payments for purposes of Code Section 409A, shall not be subject to the six-month and one-day delay rule in Section 9.2.2, and shall be paid as otherwise provided in Section 9.2
9.2.4 Notwithstanding the foregoing, the Severance Payment payable pursuant to this Section 9.2 shall be reduced by the amount of any compensation Executive earns with respect to any other employment during the Severance Period; provided that Executive shall have no duty or obligation to seek other employment during the Severance Period or otherwise mitigate damages hereunder. Notwithstanding any other provision of this Agreement, if, following the termination of his or her employment, Executive is entitled to payments or other benefits under this Section 9.2, but the Company later determines that Cause with respect to Executive exists or existed on, prior to, or after such termination of Executive, then (i) Executive shall not be entitled to any Severance Benefits pursuant to this Section 9.2, (ii) any and all Severance Benefits pursuant to this Section 9.2 shall cease, and (iii) any Separation Payments previously paid to Executive shall be returned immediately to the Company by Executive.
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9.2.5 The Severance Benefits shall not constitute, and are not intended to constitute, an employee welfare benefit plan, a welfare plan, an employee pension benefit plan, a pension plan or any other plan under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (ERISA).
9.3 Termination With Cause / Without Good Reason . If the Company terminates this Agreement for Cause or if Executive terminates this Agreement without Good Reason, then the Company shall pay Executive only his or her Base Salary due and owing through the date of termination of employment and shall have no obligation to pay any further sums to Executive other than Executives business expenses that shall be reimbursed in accordance with Section 4.3 above or as otherwise required under the Incentive Unit Offer Letter.
9.4 Return of Company Property . Upon ceasing employment with the Company for any reason, Executive shall immediately return to the Company, and Executive shall have absolutely no right to use, any equipment and/or tangible property entrusted to Executive by the Company.
10. Restrictive Covenants .
10.1 Acknowledgment . Executive acknowledges that (i) the Company has spent substantial time, effort, and money to develop the Companys goodwill; recruitment and training of personnel, customer, author, and supplier relations; Confidential Information (as that term is defined in the Confidentiality Agreement); and its worldwide business in the educational technology and online software development training industry (the Training Industry); (ii) the Companys customers, suppliers, authors, and independent contractors are and shall remain the sole and exclusive customers, suppliers, authors, and independent contractors of the Company; (iii) any new business or improvement in customer, supplier, author, or independent contractor relations attributable to Executive during Executives employment is for the sole benefit of the Company; (iv) the Company has and will continue to make a significant investment in the training and education of Executive, regardless of job title and department; (v) Executive will render services to the Company that are special, unique, and extraordinary; (vi) Executives efforts will contribute to the goodwill of the Company; and (vii) Executive has the means to support Executive and Executives dependents other than by engaging in the Training Industry as restricted herein.
10.2 Covenant Period . For purposes of this Agreement, the term Covenant Period shall be defined as beginning on the earlier of the date of Executives acceptance of an offer of employment with the Company or the Effective Date of this Agreement and continuing for one (1) year from the date of termination of Executives employment with the Company, whether Executive retires, resigns, quits, is fired or discharged, or otherwise ceases employment with the Company.
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10.3 Covenant Not to Compete . As a material term of this Agreement and to protect the goodwill, the Confidential Information, and the business of the Company, Executive agrees that during the Term of this Agreement, Executive does not, and will not, have any relationship with any customer, supplier, or independent contractor of the Company that is independent of Executives role as an Executive of the Company, unless the Company has given its prior written consent. Executive further agrees that during the Covenant Period, Executive shall not, anywhere in the world which engages in the Training Industry, either individually or on behalf of or with any Person, directly or indirectly (a) compete with or against the Company or engage in any aspect of the Training Business in competition with the Company; (b) directly or indirectly own, manage, operate, control, be employed by, or provide management or consulting services to any individual, firm, corporation, entity, or organization (each, a Person) (other than the Company, or any affiliate of the Company, or as a stockholder of less than 5% of the equities of a publicly traded corporation) that competes with, or is a competitor of, the Company (Competing Person); (c) discuss the possibility of employment or other relationship with any Competing Person; (d) render or provide any services to or for any Competing Person; or (e) discuss or otherwise deal with any customer, supplier, or independent contractor of the Company regarding the extent or nature of the present or future business of any customer, supplier, or independent contractor with the Company.
10.4 Reformation . The Company intends to restrict Executive under this Agreement only to the extent necessary for the protection of the Companys legitimate business interests. The Company and Executive agree that the scope, duration, and geographic area provisions are reasonable. In the event a court of competent jurisdiction concludes that any provision of this Agreement is too restrictive, such provision(s) shall nevertheless be valid and enforceable to the fullest extent permitted by such court, and such provision(s) shall be reformed to the maximum scope, time, or geographic limitations determined appropriate by such court.
10.5 Remedies . The Company and Executive intend that the covenants of Executive are separate and independent of any covenants of the Company in this Agreement or elsewhere, and any breach by the Company shall not justify or excuse any breach by Executive. In the event of an actual or threatened breach of this Section 10, Executive specifically acknowledges that the Company will suffer irreparable damage and other damages beyond those that can be calculated, for which the Company has no adequate remedy at law. Executive therefore acknowledges that the Company shall be entitled to ex parte injunctive relief, both preliminary and permanent, immediately and permanently restraining Executive from such continuing or threatened breach. Executive hereby expressly waives any and all right to prior notice or to security in connection with temporary injunctive relief on behalf of the Company and to security in connection with permanent injunctive relief on behalf of the Company. Executive shall also remain liable for any damages sustained by reason of any actual or threatened breach by Executive of Sections 10. The exercise of one or more of the rights or remedies provided by this Agreement or otherwise shall not preclude the exercise of any other rights also provided.
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11. Rights of Other Persons . Executive shall not disclose to the Company, or use in the performance of his or her work or responsibilities for the Company, any proprietary or confidential information, any trade secret, or any other intellectual property of (a) Executive, (b) any former employer of Executive, or (c) any other Person, unless the Company has received written authorization from Executive or such former employer or other Person and the Company has instructed Executive in writing to do so. The provisions of this Section 11 are not intended to create any rights as an intended or third-party beneficiary for any third party.
12. Executives Representations and Warranties . Executive acknowledges, represents and warrants that the Recitals above are true and correct, and that Executive has read and understands the terms of this Agreement and has had the opportunity, if Executive so desires, to consult with independent legal counsel. Executive further warrants and represents that Executives employment with the Company will not conflict with or be constrained by any prior employment or consulting agreement with any other Person, including but not limited to any prior employer.
13. Subpoena; Court Order; Other Legal Requirement . If Executive is requested, under the terms of a subpoena or order or other compulsory instrument issued by or under the authority of a court or arbitrator(s) of competent jurisdiction or by a governmental agency, or is advised in writing by counsel for any such party that there is otherwise a legal obligation to disclose (i) all or any part of the Confidential Information, (ii) the fact that the Confidential Information has been made available to Executive, or (iii) any of the terms, conditions, or other facts with respect to Executives employment with the Company or the services provided by Executive to the Company, Executive agrees to, at the Companys expense: (1) provide the Company with prompt written notice of the existence, terms, and circumstances surrounding such request or requirement; (2) consult with the Company on the advisability of taking steps to resist or narrow that request; (3) if disclosure of Confidential Information is required, furnish only such portion of the Confidential Information as Executive is advised in writing by Executives counsel is legally required to be disclosed; and (4) cooperate with the Company, at the request of the Company and at the Companys expense, in its efforts to obtain an order excusing the Confidential Information from disclosure, or an order or other reliable assurance that confidential treatment will be accorded to that portion of the Confidential Information that is required to be disclosed.
14. Post-Employment Cooperation . During Executives employment and for a period of two (2) years after the termination of Executives employment with the Company for any reason, Executive, in good faith and using diligent efforts, shall reasonably cooperate and assist the Company, at the Companys sole cost and expense, in any dispute, controversy, or litigation in which the Company may be involved (excluding any such proceeding in which Executive is an adverse party), including without limitation Executives participation in any court, arbitration, or other proceedings, the giving of testimony, the signing of affidavits or declarations, or such other reasonable cooperation and assistance as the Company or counsel for the Company may reasonably request.
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15. Miscellaneous .
15.1 Severability . In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, then only the portions of this Agreement which violate such statute or public policy shall be stricken. All portions of this Agreement which do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms to give as much effect as possible to the intentions of the parties under this Agreement.
15.2 Notices . Any notice required by this Agreement shall either be hand-delivered or sent by registered or certified mail, return receipt requested, to Executives residence or business address last known to the Company and to the Companys regular business address last known to Executive or to such other address as a party may specify to the other in writing. Mailed notices shall be deemed delivered three days after the date of mailing.
15.3 New Employer Notification . Following the termination of this Agreement, Executive expressly consents to allow the Company to notify Executives subsequent employer(s) about the Companys rights and Executives obligations under this Agreement.
15.4 Governing Law and Mandatory Venue . This Agreement shall be governed by the laws of the State of Utah without regard to any conflict of law provisions. All claims or disputes arising hereunder or in any way relating to Executives employment with the Company shall be subject to the exclusive jurisdiction of the state or federal courts situated in Salt Lake County, State of Utah, and each party hereby submits himself/herself/itself to the personal jurisdiction and mandatory venue of such courts. If any party violates this provision and files suit in another forum, the other party shall be entitled to anti-suit injunctive relief in the state and federal courts situated in Salt Lake County, State of Utah, enjoining the action in the improper forum.
15.5 Successors and Assigns . The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Executive agrees that this includes, but is not limited to, Section 10. This Agreement is for the unique personal services of Executive, and Executive shall not be entitled to assign any of Executives rights or obligations hereunder.
15.6 Entire Agreement; Amendment . This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, and except as expressly stated herein, supersedes all prior agreements and understandings with respect thereto. Notwithstanding any Utah statutory or common law to the contrary, this Agreement can be amended or modified only in a writing signed by Executive and the CFO, whether or not a claimed modification is supported by separate consideration.
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15.7 No Waiver . No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.
15.8 Headings . The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.
15.9 Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile, PDF or other electronically delivered copies of signature pages to this Agreement shall be treated between the parties as original signatures for all purposes.
15.10 Attorneys Fees . Notwithstanding any Utah statutory or common law to the contrary, in the event of any action at law or in equity, whether relating to this Agreement or to Executives employment with the Company or the termination thereof, each party shall pay its/his/her own attorneys fees incurred in prosecuting or defending any such action and hereby waives any right to seek attorneys fees from the other party hereto.
15.11 Code Section 409A . To the extent any payments under this Agreement are subject to the provisions of Code Section 409A, it is intended that the Agreement will comply fully with and meet all the requirements of Code Section 409A. Notwithstanding anything in this Agreement to the contrary, the Employee acknowledges and agrees that neither the Company nor its subsidiaries, affiliates, owners, directors, managers, officers or other agents makes or has made any representation, warranty, covenant or commitment to the Employee regarding the tax treatment of any compensation or other benefits provided to the Employee, including without limitation any representation, warranty, covenant or commitment relating to Code Section 409A. Neither the Company, nor its subsidiaries, affiliates, owners, directors, managers, officers or other agents, shall have any obligation or liability to reimburse or indemnify the Employee for, or hold the Employee harmless against, any taxes imposed on the Employee under the Code or otherwise.
16. Waiver of Trial by Jury . The Company and Executive hereby irrevocably waive any and all constitutional, statutory, and other rights to a trial by jury in any and all actions or proceedings arising from or in any related to this Agreement or to Executives employment with the Company, including without limitation claims for breach of express or implied contract, discrimination, termination in violation of public policy, whistleblowing, defamation, and emotional distress.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
THE COMPANY: |
Pluralsight, LLC |
By: |
/s/ James Budge |
Name: James Budge | ||
Its: Chief Financial Officer |
EXECUTIVE: | ||
/s/ Aaron Skonnard |
||
Aaron Skonnard |
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Exhibit A
CEO Compensation
As of the Effective Date, all prior compensation arrangements for the Executive are replaced with the following:
(i) | Executives annual base salary is reduced to the minimum level necessary to comply with relevant employment laws and withholding obligations; in exchange, the Company will pay for private air travel for Executive up to an amount equal to Executives market benchmarked salary ($400,000.00) plus the airfare the Company would normally cover per the Companys travel policy (estimated at approximately $100,000.00 per year); |
(ii) | Executives target bonus is set at $400,000 (with the expense incurred by the Company in connection with air travel on Company business considered by the Board when determining the actual bonus to be paid to Executive) |
(iii) | Executive will receive a grant of 3,000,000 Class B RSUs with two vesting cliffs: (a) post liquidity event (change of control or IPO with standard post-IPO lockup period) and (b) standard four-year vesting with a one-year cliff, with the grant date to be upon creation of the new RSU class; and |
(iv) | Executive will receive a grant of 3,000,000 Class B Incentive Units with a standard four-year vesting schedule (including one-year cliff). |
The Class B RSUs and Class B Incentive Units will be granted pursuant to separate award agreements; these award agreements will include, in addition to standard terms and conditions, a provision that in the event of a Sale of the Company (as defined in the award agreements), then all outstanding unvested RSUs or Incentive Units, as the case may be, will automatically vest.
Exhibit 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the Agreement) is made and entered into effective as of the 15th day of September, 2017 (the Effective Date), by and between Pluralsight, LLC (the Company) and James Budge (Executive).
RECITALS
Employee desires to be or is currently employed by the Company as an at-will employee. The Company desires to employ or continue employing Executive and Executive desires to be employed or continue to be employed by the Company on the terms and conditions set forth herein.
This Agreement, together with the Confidentiality, Intellectual Property Assignment and Non-Solicitation Agreement (the Confidentiality Agreement) executed by Executive concurrently herewith and the terms of which are incorporated herein by this reference, shall govern the terms and conditions of employment between the Executive and the Company. As of the Effective Date, this Agreement and the Confidentiality Agreement shall supersede and negate all previous agreements between the Company and Executive except as expressly set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, and in consideration of the mutual covenants and agreements set forth in this Agreement, the Company and Executive hereby mutually covenant and agree as set forth below.
1. Employment . The Company hereby agrees to employ Executive in the position of Chief Financial Officer, and Executive hereby accepts employment with the Company, upon the terms and conditions set forth herein.
2. Term . Executive shall be employed by the Company from the Effective Date until Executives employment with the Company is terminated in accordance with Section 7 below (the Term).
3. Duties .
3.1 General Duties . Executive will have and perform those duties and responsibilities which are appropriate and customary to the position held by Executive and assigned or delegated to Executive from time to time by the Companys CEO (the CEO). The CEO may, in its sole discretion, alter, modify, or change Executives duties, offices, positions, responsibilities and obligations set forth in this Agreement at any time.
3.2 Performance . To the best of Executives ability and experience, Executive will at all times loyally and conscientiously perform all duties, and discharge all responsibilities and obligations, required of and from Executive pursuant to the terms hereof and to the reasonable satisfaction of the Company. During the Term of this Agreement, Executive will be a
full-time employee of the Company and will devote substantially all of his or her business time, energy, skill, and attention to the business of the Company, and the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services, and advice of Executive rendered to the Company. Executive shall faithfully adhere to, and execute, and fulfill all lawful policies established from time to time by the Company as well as all applicable federal, state, and local laws and regulations relating to the business of the Company and its associated operations.
3.3 Undivided Attention . During the Term, Executive agrees not to perform services for any other person, business, or entity unrelated to the Company, whether as an employee, independent contractor, or otherwise without the prior written consent of the CEO; it being understood that the CEOs consent is likely to be granted where the services are in the nature of engaging in non-profit charitable/ civic activities or serving as an advisor or director to companies that do not compete with the business of the Company, provided that such pursuits or activities do not materially interfere with the services required to be rendered to the Company hereunder; provided, however, that nothing in this Agreement shall prohibit Executives pursuit of personal investment opportunities, provided that such pursuit does not interfere with the services required to be rendered to the Company hereunder, is consistent with the Companys policies regarding conflicts of interest, including without limitation Section 8 hereof, and does not in any way violate or infringe the covenants set forth in this Agreement or the Confidentiality Agreement.
4. Compensation and Related Matters .
4.1 Base Salary . In consideration for services rendered to the Company as provided herein, the Company will pay to Executive a base salary at a rate of $0 per annum, payable in accordance with the Companys standard payroll practices in effect from time to time (the Base Salary). The Base Salary may be increased or decreased from time to time in accordance with normal business practices of the Company. The Company will provide an amount up to $3,000 per year with 100% of such amount going to FSA contributions.
4.2 Bonus . During the term of this Agreement, Executive shall be eligible to participate in any annual bonus plan made available by the Company to its employees generally, which plan may be modified, amended or terminated at any time, in the Companys discretion. Individual goals and performance assessment, and discretionary bonus payments, if any, will be determined by the Companys CEO or Board of Directors (the Board). If Executives employment with the Company terminates for any reason, Executive shall not be entitled to any portion of the bonus applicable to the year in which Executive was terminated or for any calendar year thereafter.
4.3 Expenses . Executive will be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in performing services hereunder, including expenses of travel while away from home on business in the service of the Company, provided that all expenses are incurred, documented, and accounted for in accordance with the policies and procedures as are established from time to time by the Company.
4.4 Executive Benefit Plans . During the term of this Agreement, Executive is entitled to participate in any employee benefit plans that may be made available by the Company to its employees generally, including, but not limited to, cafeteria plans and health, life, dental, or other insurance plans as may be in effect and/or modified from time to time and in accordance with and subject to the qualification requirements and the terms, conditions, and limitations established from time to time for individual participation in such plans.
4.5 Paid Leave . Executive will be eligible to receive paid leave for vacation and/or sick leave consistent with policies adopted by the Company from time to time. Executive also will be entitled to all paid holidays given by the Company to its employees generally. Scheduling and use of paid leave and, if applicable, accrual of and compensation for unused paid leave, will be subject to the Companys policies and procedures, as modified from time to time.
4.6 Employee Perquisites . During the term of this Agreement, Executive is entitled to participate in any employee perquisites that may be made available by the Company to its employees generally, including but not limited to (i) gym and wellness reimbursement of up to $50 per month; (ii) snacks, drinks and other food policies as may be in effect from time to time; and (iii) tuition reimbursement in pre-approved courses at pre-approved locations of up to $1,500 per semester or $3,000 per year. All perquisites and reimbursements referenced in this Section 4.6 are subject to change or discontinuation at any time in accordance with the normal business practices of the Company.
4.7 Deductions; Taxes . The Company shall have the right to deduct from the compensation due to Executive under this Agreement any and all sums required for Social Security, Medicare and other income withholding taxes and for any other federal, state, or local tax or charge which may be hereafter enacted or required by law as a charge on compensation of Executive. Neither the Company, nor any of its subsidiaries, affiliates, members, officers, managers, employees, or agents (a) has made any representation, assurance or guarantee to Executive regarding the tax treatment of any compensation to be paid to Executive hereunder; or (b) shall have any obligation or liability to indemnify, gross-up or reimburse Executive for, or hold him or her harmless against, any taxes or tax-related penalties or interest applicable to compensation earned by Executive under this Agreement or otherwise, including without limitation any taxes incurred under Internal Revenue Code (the Code) Sections 409A or 4999.
4.8 Corporate Housing . The Company will provide a housing reimbursement of up to $2,500 per month and reasonable travel reimbursement between California and Utah through August 31, 2018 (or such later date as may be determined by the Companys CEO in his sole discretion). At such time as Executive is ready to relocate his family to Utah, the Company will cover reasonable relocation expenses.
5. Incentive Units . Nothing in this Agreement shall alter, limit, or void the respective rights and obligations of the parties with regard to any grant of incentive units to Executive under any Pluralsight Holdings, LLC Incentive Unit Offer Letter (the Incentive Unit Offer Letter).
6. Conflict of Interest . Executive will not become involved in a situation which reasonably might create or appear to create a conflict of interest, including but not limited to being connected directly or indirectly with any business (as owner, officer, director, manager, participant, licensee, consultant, shareholder, or the recipient of wages) which is involved with any aspect of Executives duties or which is in direct or indirect competition with the Company. Executive will report immediately any circumstances or situations arising in the future that might involve Executive or appear to involve Executive in a conflict of interest, including without limitation the reporting of gifts, entertainment, or any other personal favors given to or received from anyone with whom the Company has or is likely to have any business dealings which go beyond common courtesies usually associated with accepted business practices.
7. Termination . The employment of Executive hereunder shall be at will and may be terminated at any time, for any or no reason, by either the Company or Executive on thirty (30) days written notice to the other party. Notwithstanding the foregoing, (i) the Company may terminate Executives employment immediately and without prior notice for Cause (as defined below) or at the Companys sole discretion by providing Executive with pay in lieu of the 30-day notice period; and (ii) the Executive may terminate the employment immediate and without prior notice for Good Reason (as defined below) and satisfaction of the criteria set forth in the definition of Good Reason. In the event Executive terminates this Agreement for any reason other than immediately for Good Cause, then during the 30-day notice period, the Company may in its sole discretion terminate Executives employment at any time, in which case all obligations of the Company to Executive shall cease except as set forth in Section 9 below.
8. Certain Defined Terms . For purposes of this Agreement:
8.1 Cause shall mean (i) Executives willful conduct that is materially injurious to the Company or any of its affiliates (whether monetary or otherwise) or the commission of any other material act or omission involving dishonesty with respect to the Company; (ii) Executives conviction of a felony or of a misdemeanor involving a crime of moral turpitude; (iii) Executives fraud, embezzlement, or misappropriation of any money, assets, or other property of the Company; (iv) Executives insubordination or other willful refusal to comply with any lawful request of the CEO or the Board, including without limitation failure to cooperate in any investigation conducted and/or undertaken by the Company that has reasonable and legitimate objectives; (v) Executives material breach of any of his or her obligations, duties, or agreements to the Company, including without limitation this Agreement or the Confidentiality Agreement, which breach cannot be cured or, if capable of being cured, is not cured within thirty (30) days after receipt of written notice of the need to cure from the CEO, CFO or General Counsel acting under the authority of the Board); (vi) Executives death; and/or (vii) Executives Disability (as defined below).
8.2 Disability shall mean any physical or mental incapacitation that results in Executives inability to perform substantially all of his or her duties and responsibilities for the Company for a total of ninety (90) consecutive working days, as determined in accordance with the Family and Medical Leave Act, or an aggregate of one hundred eighty (180) working days during any twelve-month period, as determined by the CFO in his or her good faith judgment.
8.3 Good Reason shall mean (i) a material adverse change in Executives job duties or authorities, including demotion or change in line of reporting, without Executives advance written consent; (ii) a reduction in the Base Salary without Executives advance written consent; and/or (iii) the Companys material breach of this Agreement. Notwithstanding the foregoing, any act or failure to act by the Company shall not be deemed material unless the Company has failed to cure such act or failure to act within thirty (30) days of the date that the Company is provided written notice by Executive stating in reasonable detail the grounds for Executives determination of such act or failure to act, and Executive resigns from employment within thirty (30) days after the expiration of the Companys cure period.
9. Effect of Termination .
9.1 Continuing Obligations . In the event Executives employment is terminated for any reason, all obligations of the Company and Executive under this Agreement shall cease, except that the terms of Section 10 and any other provision which by its terms is so intended shall survive such termination. Upon such termination, Executive or his or her estate (in the event of Executives death) shall be entitled to receive any applicable compensation, benefits, and reimbursements set forth in Section 4 through the date of termination. Executive acknowledges that upon termination of Executives employment, Executive is entitled to no other compensation, severance, or other benefits other than those specifically set forth in this Agreement and in the Incentive Unit Offer Letter.
9.2 Termination Without Cause / For Good Reason . If the Company terminates this Agreement without Cause, or if Executive terminates this Agreement for Good Reason, then subject to Executives execution and delivery to the Company within a time period specified by the Company after Executives effective date of termination (Termination Date) of a separation agreement and release of all claims (Separation Agreement) in a form acceptable to the Company and Executives non-revocation of such Separation Agreement: (i) the Company shall pay Executive severance pay in an amount equal to $200,000.00, less applicable withholdings (Severance Payment); and (ii) if Executive properly elects continuation coverage under the Companys group medical insurance plan pursuant to Sections 601 through 607 of the Employee Retirement Income Security Act of 1974, as amended (COBRA), the Company will pay that percentage of the premium for such medical plan coverage which the Company bears for similarly situated active Company employees and their enrolled family members immediately prior to the Termination Date through the earlier of (a) six (6) months from the Termination Date; (b) the date Executive first becomes eligible for coverage under any group health plan maintained by another employer of Executive or his or her spouse; or (c) the date such COBRA continuation coverage otherwise terminates as to Executive under the provisions of the Companys group medical insurance plan (COBRA Coverage). Except as otherwise provided below, the Severance Payment shall be payable in equal periodic installments in accordance with the Companys payroll practices and subject to withholding taxes on each regular payroll date of the Company commencing on the applicable Severance Commencement Date and continuing through the six month anniversary thereof (the Severance Period). The applicable Severance Commencement Date shall be the first regularly scheduled Company payroll date that is at least 45 days after the Executives Termination Date. Collectively, the Severance Payment and COBRA Coverage shall be referred to herein as the Severance Benefits.
9.2.1 Notwithstanding the foregoing, Executive shall be entitled to Severance Benefits in accordance with this Section 9.2 only so long as Executive has not breached any of the provisions of the Separation Agreement, the Confidentiality Agreement, or Section 10 of this Agreement.
9.2.2 Notwithstanding the foregoing, if any equity securities of the Company or of any direct or indirect entity that is an affiliate of the Company is publicly traded within the meaning of Code Section 409A(a)(2)(B) and Executive is a specified employee (as defined in Treasury Regulation Section 1.409A-1(i)) at the time this Agreement is terminated, then subject to Section 9.2.3 below, any Severance Payments otherwise payable to Executive during the first six months and one day following the date of his or her separation from service pursuant to this Section 9.2.2 shall be deferred until the date that is six months and one day following such separation from service, and if such payments are required to be so deferred, the first payment shall be in an amount equal to the total amount to which Executive would otherwise have been entitled to during the period following the date of termination if the deferral had not been required, less any portion of the Executives premium the Company paid on his or her behalf for COBRA coverage as set forth above.
9.2.3 Notwithstanding Section 9.2.2, any portion of the Severance Payments payable hereunder that do not exceed two times the lesser of (i) the sum of Executives annualized compensation based on the Executives annual rate of pay for the year immediately preceding the year of termination (or for the year of termination if Executives employment with Company commenced in the year of termination), adjusted for any increase in pay that was expected to continue indefinitely if the termination had not occurred and (ii) the Code Section 401(a)(17) limit applicable in the year of termination, shall be treated as separate benefits and payments for purposes of Code Section 409A, shall not be subject to the six-month and one-day delay rule in Section 9.2.2, and shall be paid as otherwise provided in Section 9.2
9.2.4 Notwithstanding the foregoing, the Severance Payment payable pursuant to this Section 9.2 shall be reduced by the amount of any compensation Executive earns with respect to any other employment during the Severance Period; provided that Executive shall have no duty or obligation to seek other employment during the Severance Period or otherwise mitigate damages hereunder. Notwithstanding any other provision of this Agreement, if, following the termination of his or her employment, Executive is entitled to payments or other benefits under this Section 9.2, but the Company later determines that Cause with respect to Executive exists or existed on, prior to, or after such termination of Executive, then (i) Executive shall not be entitled to any Severance Benefits pursuant to this Section 9.2, (ii) any and all Severance Benefits pursuant to this Section 9.2 shall cease, and (iii) any Separation Payments previously paid to Executive shall be returned immediately to the Company by Executive.
9.2.5 The Severance Benefits shall not constitute, and are not intended to constitute, an employee welfare benefit plan, a welfare plan, an employee pension benefit plan, a pension plan or any other plan under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq . (ERISA).
9.3 Termination With Cause / Without Good Reason . If the Company terminates this Agreement for Cause or if Executive terminates this Agreement without Good Reason, then the Company shall pay Executive only his or her Base Salary due and owing through the date of termination of employment and shall have no obligation to pay any further sums to Executive other than Executives business expenses that shall be reimbursed in accordance with Section 4.3 above or as otherwise required under the Incentive Unit Offer Letter.
9.4 Return of Company Property . Upon ceasing employment with the Company for any reason, Executive shall immediately return to the Company, and Executive shall have absolutely no right to use, any equipment and/or tangible property entrusted to Executive by the Company.
10. Restrictive Covenants .
10.1 Acknowledgment . Executive acknowledges that (i) the Company has spent substantial time, effort, and money to develop the Companys goodwill; recruitment and training of personnel, customer, author, and supplier relations; Confidential Information (as that term is defined in the Confidentiality Agreement); and its worldwide business in the educational technology and online software development training industry (the Training Industry); (ii) the Companys customers, suppliers, authors, and independent contractors are and shall remain the sole and exclusive customers, suppliers, authors, and independent contractors of the Company; (iii) any new business or improvement in customer, supplier, author, or independent contractor relations attributable to Executive during Executives employment is for the sole benefit of the Company; (iv) the Company has and will continue to make a significant investment in the training and education of Executive, regardless of job title and department; (v) Executive will render services to the Company that are special, unique, and extraordinary; (vi) Executives efforts will contribute to the goodwill of the Company; and (vii) Executive has the means to support Executive and Executives dependents other than by engaging in the Training Industry as restricted herein.
10.2 Covenant Period . For purposes of this Agreement, the term Covenant Period shall be defined as beginning on the earlier of the date of Executives acceptance of an offer of employment with the Company or the Effective Date of this Agreement and continuing for one (1) year from the date of termination of Executives employment with the Company, whether Executive retires, resigns, quits, is fired or discharged, or otherwise ceases employment with the Company.
10.3 Covenant Not to Compete . As a material term of this Agreement and to protect the goodwill, the Confidential Information, and the business of the Company, Executive agrees that during the Term of this Agreement, Executive does not, and will not, have any relationship with any customer, supplier, or independent contractor of the Company that is independent of Executives role as an Executive of the Company, unless the Company has given its prior written consent. Executive further agrees that during the Covenant Period, Executive shall not, anywhere in the world which engages in the Training Industry, either individually or on behalf of or with any Person, directly or indirectly (a) compete with or against the Company or engage in any aspect of the Training Business in competition with the Company; (b) directly or indirectly own, manage, operate, control, be employed by, or provide management or consulting services to any individual, firm, corporation, entity, or organization (each, a Person)
(other than the Company, or any affiliate of the Company, or as a stockholder of less than 5% of the equities of a publicly traded corporation) that competes with, or is a competitor of, the Company (Competing Person); (c) discuss the possibility of employment or other relationship with any Competing Person; (d) render or provide any services to or for any Competing Person; or (e) discuss or otherwise deal with any customer, supplier, or independent contractor of the Company regarding the extent or nature of the present or future business of any customer, supplier, or independent contractor with the Company.
10.4 Reformation . The Company intends to restrict Executive under this Agreement only to the extent necessary for the protection of the Companys legitimate business interests. The Company and Executive agree that the scope, duration, and geographic area provisions are reasonable. In the event a court of competent jurisdiction concludes that any provision of this Agreement is too restrictive, such provision(s) shall nevertheless be valid and enforceable to the fullest extent permitted by such court, and such provision(s) shall be reformed to the maximum scope, time, or geographic limitations determined appropriate by such court.
10.5 Remedies . The Company and Executive intend that the covenants of Executive are separate and independent of any covenants of the Company in this Agreement or elsewhere, and any breach by the Company shall not justify or excuse any breach by Executive. In the event of an actual or threatened breach of this Section 10, Executive specifically acknowledges that the Company will suffer irreparable damage and other damages beyond those that can be calculated, for which the Company has no adequate remedy at law. Executive therefore acknowledges that the Company shall be entitled to ex parte injunctive relief, both preliminary and permanent, immediately and permanently restraining Executive from such continuing or threatened breach. Executive hereby expressly waives any and all right to prior notice or to security in connection with temporary injunctive relief on behalf of the Company and to security in connection with permanent injunctive relief on behalf of the Company. Executive shall also remain liable for any damages sustained by reason of any actual or threatened breach by Executive of Sections 10. The exercise of one or more of the rights or remedies provided by this Agreement or otherwise shall not preclude the exercise of any other rights also provided.
11. Rights of Other Persons . Executive shall not disclose to the Company, or use in the performance of his or her work or responsibilities for the Company, any proprietary or confidential information, any trade secret, or any other intellectual property of (a) Executive, (b) any former employer of Executive, or (c) any other Person, unless the Company has received written authorization from Executive or such former employer or other Person and the Company has instructed Executive in writing to do so. The provisions of this Section 11 are not intended to create any rights as an intended or third-party beneficiary for any third party.
12. Executives Representations and Warranties . Executive acknowledges, represents and warrants that the Recitals above are true and correct, and that Executive has read and understands the terms of this Agreement and has had the opportunity, if Executive so desires, to consult with independent legal counsel. Executive further warrants and represents that Executives employment with the Company will not conflict with or be constrained by any prior employment or consulting agreement with any other Person, including but not limited to any prior employer.
13. Subpoena; Court Order; Other Legal Requirement . If Executive is requested, under the terms of a subpoena or order or other compulsory instrument issued by or under the authority of a court or arbitrator(s) of competent jurisdiction or by a governmental agency, or is advised in writing by counsel for any such party that there is otherwise a legal obligation to disclose (i) all or any part of the Confidential Information, (ii) the fact that the Confidential Information has been made available to Executive, or (iii) any of the terms, conditions, or other facts with respect to Executives employment with the Company or the services provided by Executive to the Company, Executive agrees to, at the Companys expense: (1) provide the Company with prompt written notice of the existence, terms, and circumstances surrounding such request or requirement; (2) consult with the Company on the advisability of taking steps to resist or narrow that request; (3) if disclosure of Confidential Information is required, furnish only such portion of the Confidential Information as Executive is advised in writing by Executives counsel is legally required to be disclosed; and (4) cooperate with the Company, at the request of the Company and at the Companys expense, in its efforts to obtain an order excusing the Confidential Information from disclosure, or an order or other reliable assurance that confidential treatment will be accorded to that portion of the Confidential Information that is required to be disclosed.
14. Post-Employment Cooperation . During Executives employment and for a period of two (2) years after the termination of Executives employment with the Company for any reason, Executive, in good faith and using diligent efforts, shall reasonably cooperate and assist the Company, at the Companys sole cost and expense, in any dispute, controversy, or litigation in which the Company may be involved (excluding any such proceeding in which Executive is an adverse party), including without limitation Executives participation in any court, arbitration, or other proceedings, the giving of testimony, the signing of affidavits or declarations, or such other reasonable cooperation and assistance as the Company or counsel for the Company may reasonably request.
15. Miscellaneous .
15.1 Severability . In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, then only the portions of this Agreement which violate such statute or public policy shall be stricken. All portions of this Agreement which do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms to give as much effect as possible to the intentions of the parties under this Agreement.
15.2 Notices . Any notice required by this Agreement shall either be hand-delivered or sent by registered or certified mail, return receipt requested, to Executives residence or business address last known to the Company and to the Companys regular business address last known to Executive or to such other address as a party may specify to the other in writing. Mailed notices shall be deemed delivered three days after the date of mailing.
15.3 New Employer Notification . Following the termination of this Agreement, Executive expressly consents to allow the Company to notify Executives subsequent employer(s) about the Companys rights and Executives obligations under this Agreement.
15.4 Governing Law and Mandatory Venue . This Agreement shall be governed by the laws of the State of Utah without regard to any conflict of law provisions. All claims or disputes arising hereunder or in any way relating to Executives employment with the Company shall be subject to the exclusive jurisdiction of the state or federal courts situated in Salt Lake County, State of Utah, and each party hereby submits himself/herself/itself to the personal jurisdiction and mandatory venue of such courts. If any party violates this provision and files suit in another forum, the other party shall be entitled to anti-suit injunctive relief in the state and federal courts situated in Salt Lake County, State of Utah, enjoining the action in the improper forum.
15.5 Successors and Assigns . The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Executive agrees that this includes, but is not limited to, Section 10. This Agreement is for the unique personal services of Executive, and Executive shall not be entitled to assign any of Executives rights or obligations hereunder.
15.6 Entire Agreement; Amendment . This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, and except as expressly stated herein, supersedes all prior agreements and understandings with respect thereto. Notwithstanding any Utah statutory or common law to the contrary, this Agreement can be amended or modified only in a writing signed by Executive and the CFO, whether or not a claimed modification is supported by separate consideration.
15.7 No Waiver . No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.
15.8 Headings . The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.
15.9 Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile, PDF or other electronically delivered copies of signature pages to this Agreement shall be treated between the parties as original signatures for all purposes.
15.10 Attorneys Fees . Notwithstanding any Utah statutory or common law to the contrary, in the event of any action at law or in equity, whether relating to this Agreement or to Executives employment with the Company or the termination thereof, each party shall pay its/his/her own attorneys fees incurred in prosecuting or defending any such action and hereby waives any right to seek attorneys fees from the other party hereto.
15.11 Code Section 409A . To the extent any payments under this Agreement are subject to the provisions of Code Section 409A, it is intended that the Agreement will comply fully with and meet all the requirements of Code Section 409A. Notwithstanding anything in this Agreement to the contrary, the Employee acknowledges and agrees that neither the Company nor its subsidiaries, affiliates, owners, directors, managers, officers or other agents makes or has made any representation, warranty, covenant or commitment to the Employee regarding the tax treatment of any compensation or other benefits provided to the Employee, including without limitation any representation, warranty, covenant or commitment relating to Code Section 409A. Neither the Company, nor its subsidiaries, affiliates, owners, directors, managers, officers or other agents, shall have any obligation or liability to reimburse or indemnify the Employee for, or hold the Employee harmless against, any taxes imposed on the Employee under the Code or otherwise.
16. Waiver of Trial by Jury . The Company and Executive hereby irrevocably waive any and all constitutional, statutory, and other rights to a trial by jury in any and all actions or proceedings arising from or in any related to this Agreement or to Executives employment with the Company, including without limitation claims for breach of express or implied contract, discrimination, termination in violation of public policy, whistleblowing, defamation, and emotional distress.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
THE COMPANY: | ||
Pluralsight, LLC |
By: |
/s/ Aaron Skonnard |
Name: Aaron Skonnard | ||
Its: Chief Executive Officer | ||
EXECUTIVE: | ||
/s/ James Budge James Budge |
Exhibit 10.9
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the Agreement) is made and entered into effective as of the 15th day of September, 2017 (the Effective Date), by and between Pluralsight, LLC (the Company) and Nate Walkingshaw (Executive).
RECITALS
Employee desires to be or is currently employed by the Company as an at-will employee. The Company desires to employ or continue employing Executive and Executive desires to be employed or continue to be employed by the Company on the terms and conditions set forth herein.
This Agreement, together with the Confidentiality, Intellectual Property Assignment and Non-Solicitation Agreement (the Confidentiality Agreement) executed by Executive concurrently herewith and the terms of which are incorporated herein by this reference, shall govern the terms and conditions of employment between the Executive and the Company. As of the Effective Date, this Agreement and the Confidentiality Agreement shall supersede and negate all previous agreements between the Company and Executive except as expressly set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, and in consideration of the mutual covenants and agreements set forth in this Agreement, the Company and Executive hereby mutually covenant and agree as set forth below.
1. Employment . The Company hereby agrees to employ Executive in the position of Chief Experience Officer, and Executive hereby accepts employment with the Company, upon the terms and conditions set forth herein.
2. Term . Executive shall be employed by the Company from the Effective Date until Executives employment with the Company is terminated in accordance with Section 7 below (the Term).
3. Duties .
3.1 General Duties . Executive will have and perform those duties and responsibilities which are appropriate and customary to the position held by Executive and assigned or delegated to Executive from time to time by the Companys CEO (the CEO). The CEO may, in its sole discretion, alter, modify, or change Executives duties, offices, positions, responsibilities and obligations set forth in this Agreement at any time.
3.2 Performance . To the best of Executives ability and experience, Executive will at all times loyally and conscientiously perform all duties, and discharge all responsibilities and obligations, required of and from Executive pursuant to the terms hereof and to the reasonable satisfaction of the Company. During the Term of this Agreement, Executive will be a full-time employee of the Company and will devote substantially all of his or her business time, energy, skill, and attention to the business of the Company, and the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services, and advice of Executive rendered to the Company. Executive shall faithfully adhere to, and execute, and fulfill all lawful policies established from time to time by the Company as well as all applicable federal, state, and local laws and regulations relating to the business of the Company and its associated operations.
3.3 Undivided Attention . During the Term, Executive agrees not to perform services for any other person, business, or entity unrelated to the Company, whether as an employee, independent contractor, or otherwise without the prior written consent of the CEO; it being understood that the CEOs consent is likely to be granted where the services are in the nature of engaging in non-profit charitable/ civic activities or serving as an advisor or director to companies that do not compete with the business of the Company, provided that such pursuits or activities do not materially interfere with the services required to be rendered to the Company hereunder; provided, however, that nothing in this Agreement shall prohibit Executives pursuit of personal investment opportunities, provided that such pursuit does not interfere with the services required to be rendered to the Company hereunder, is consistent with the Companys policies regarding conflicts of interest, including without limitation Section 8 hereof, and does not in any way violate or infringe the covenants set forth in this Agreement or the Confidentiality Agreement.
4. Compensation and Related Matters .
4.1 Base Salary . In consideration for services rendered to the Company as provided herein, beginning January 1, 2018, the Company will pay to Executive a base salary at a rate of $330,000.00 per annum, payable in accordance with the Companys standard payroll practices in effect from time to time (the Base Salary). The Base Salary may be increased or decreased from time to time in accordance with normal business practices of the Company.
4.2 Bonus . During the term of this Agreement, Executive shall be eligible to participate in any annual bonus plan made available by the Company to its employees generally, which plan may be modified, amended or terminated at any time, in the Companys discretion. Individual goals and performance assessment, and discretionary bonus payments, if any, will be determined by the Companys CEO or Board of Directors (the Board). If Executives employment with the Company terminates for any reason, Executive shall not be entitled to any portion of the bonus applicable to the year in which Executive was terminated or for any calendar year thereafter.
4.3 Expenses . Executive will be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in performing services hereunder, including expenses of travel while away from home on business in the service of the Company, provided that all expenses are incurred, documented, and accounted for in accordance with the policies and procedures as are established from time to time by the Company.
4.4 Executive Benefit Plans . During the term of this Agreement, Executive is entitled to participate in any employee benefit plans that may be made available by the Company to its employees generally, including, but not limited to, cafeteria plans and health, life, dental, or other insurance plans as may be in effect and/or modified from time to time and in accordance with and subject to the qualification requirements and the terms, conditions, and limitations established from time to time for individual participation in such plans.
4.5 Paid Leave . Executive will be eligible to receive paid leave for vacation and/or sick leave consistent with policies adopted by the Company from time to time. Executive also will be entitled to all paid holidays given by the Company to its employees generally. Scheduling and use of paid leave and, if applicable, accrual of and compensation for unused paid leave, will be subject to the Companys policies and procedures, as modified from time to time.
4.6 Employee Perquisites . During the term of this Agreement, Executive is entitled to participate in any employee perquisites that may be made available by the Company to its employees generally, including but not limited to (i) gym and wellness reimbursement of up to $50 per month; (ii) snacks, drinks and other food policies as may be in effect from time to time; and (iii) tuition reimbursement in pre-approved courses at pre-approved locations of up to $1,500 per semester or $3,000 per year. All perquisites and reimbursements referenced in this Section 4.6 are subject to change or discontinuation at any time in accordance with the normal business practices of the Company.
4.7 Deductions; Taxes . The Company shall have the right to deduct from the compensation due to Executive under this Agreement any and all sums required for Social Security, Medicare and other income withholding taxes and for any other federal, state, or local tax or charge which may be hereafter enacted or required by law as a charge on compensation of Executive. Neither the Company, nor any of its subsidiaries, affiliates, members, officers, managers, employees, or agents (a) has made any representation, assurance or guarantee to Executive regarding the tax treatment of any compensation to be paid to Executive hereunder; or (b) shall have any obligation or liability to indemnify, gross-up or reimburse Executive for, or hold him or her harmless against, any taxes or tax-related penalties or interest applicable to compensation earned by Executive under this Agreement or otherwise, including without limitation any taxes incurred under Internal Revenue Code (the Code) Sections 409A or 4999.
5. Incentive Units . Nothing in this Agreement shall alter, limit, or void the respective rights and obligations of the parties with regard to any grant of incentive units to Executive under any Pluralsight Holdings, LLC Incentive Unit Offer Letter (the Incentive Unit Offer Letter).
6. Conflict of Interest . Executive will not become involved in a situation which reasonably might create or appear to create a conflict of interest, including but not limited to being connected directly or indirectly with any business (as owner, officer, director, manager, participant, licensee, consultant, shareholder, or the recipient of wages) which is involved with any aspect of Executives duties or which is in direct or indirect competition with the Company. Executive will report immediately any circumstances or situations arising in the future that might involve Executive or appear to involve Executive in a conflict of interest, including without limitation the reporting of gifts, entertainment, or any other personal favors given to or received from anyone with whom the Company has or is likely to have any business dealings which go beyond common courtesies usually associated with accepted business practices.
7. Termination . The employment of Executive hereunder shall be at will and may be terminated at any time, for any or no reason, by either the Company or Executive on thirty (30) days written notice to the other party. Notwithstanding the foregoing, (i) the Company may terminate Executives employment immediately and without prior notice for Cause (as defined below) or at the Companys sole discretion by providing Executive with pay in lieu of the 30-day notice period; and (ii) the Executive may terminate the employment immediate and without prior notice for Good Reason (as defined below) and satisfaction of the criteria set forth in the definition of Good Reason. In the event Executive terminates this Agreement for any reason other than immediately for Good Cause, then during the 30-day notice period, the Company may in its sole discretion terminate Executives employment at any time, in which case all obligations of the Company to Executive shall cease except as set forth in Section 9 below.
8. Certain Defined Terms . For purposes of this Agreement:
8.1 Cause shall mean (i) Executives willful conduct that is materially injurious to the Company or any of its affiliates (whether monetary or otherwise) or the commission of any other material act or omission involving dishonesty with respect to the Company; (ii) Executives conviction of a felony or of a misdemeanor involving a crime of moral turpitude; (iii) Executives fraud, embezzlement, or misappropriation of any money, assets, or other property of the Company; (iv) Executives insubordination or other willful refusal to comply with any lawful request of the Board, including without limitation failure to cooperate in any investigation conducted and/or undertaken by the Company that has reasonable and legitimate objectives; (v) Executives material breach of any of his or her obligations, duties, or agreements to the Company, including without limitation this Agreement or the Confidentiality Agreement, which breach cannot be cured or, if capable of being cured, is not cured within thirty (30) days after receipt of written notice of the need to cure from the CEO, CFO or General Counsel acting under the authority of the Board); (vi) Executives death; and/or (vii) Executives Disability (as defined below).
8.2 Disability shall mean any physical or mental incapacitation that results in Executives inability to perform substantially all of his or her duties and responsibilities for the Company for a total of ninety (90) consecutive working days, as determined in accordance with the Family and Medical Leave Act, or an aggregate of one hundred eighty (180) working days during any twelve-month period, as determined by the CFO in his or her good faith judgment.
8.3 Good Reason shall mean (i) a material adverse change in Executives job duties or authorities, including demotion or change in line of reporting, without Executives advance written consent; (ii) a reduction in the Base Salary without Executives advance written consent; and/or (iii) the Companys material breach of this Agreement. Notwithstanding the foregoing, any act or failure to act by the Company shall not be deemed material unless the Company has failed to cure such act or failure to act within thirty (30) days of the date that the Company is provided written notice by Executive stating in reasonable detail the grounds for Executives determination of such act or failure to act, and Executive resigns from employment within thirty (30) days after the expiration of the Companys cure period.
9. Effect of Termination .
9.1 Continuing Obligations . In the event Executives employment is terminated for any reason, all obligations of the Company and Executive under this Agreement shall cease, except that the terms of Section 10 and any other provision which by its terms is so intended shall survive such termination. Upon such termination, Executive or his or her estate (in the event of Executives death) shall be entitled to receive any applicable compensation, benefits, and reimbursements set forth in Section 4 through the date of termination. Executive acknowledges that upon termination of Executives employment, Executive is entitled to no other compensation, severance, or other benefits other than those specifically set forth in this Agreement and in the Incentive Unit Offer Letter.
9.2 Termination Without Cause / For Good Reason . If the Company terminates this Agreement without Cause, or if Executive terminates this Agreement for Good Reason, then subject to Executives execution and delivery to the Company within a time period specified by the Company after Executives effective date of termination (Termination Date) of a separation agreement and release of all claims (Separation Agreement) in a form acceptable to the Company and Executives non-revocation of such Separation Agreement: (i) the Company shall pay Executive severance pay in an amount equal to $200,000.00, less applicable withholdings (Severance Payment); and (ii) if Executive properly elects continuation coverage under the Companys group medical insurance plan pursuant to Sections 601 through 607 of the Employee Retirement Income Security Act of 1974, as amended (COBRA), the Company will pay that percentage of the premium for such medical plan coverage which the Company bears for similarly situated active Company employees and their enrolled family members immediately prior to the Termination Date through the earlier of (a) six (6) months from the Termination Date; (b) the date Executive first becomes eligible for coverage under any group health plan maintained by another employer of Executive or his or her spouse; or (c) the date such COBRA continuation coverage otherwise terminates as to Executive under the provisions of the Companys group medical insurance plan (COBRA Coverage). Except as otherwise provided below, the Severance Payment shall be payable in equal periodic installments in accordance with the Companys payroll practices and subject to withholding
taxes on each regular payroll date of the Company commencing on the applicable Severance Commencement Date and continuing through the six month anniversary thereof (the Severance Period). The applicable Severance Commencement Date shall be the first regularly scheduled Company payroll date that is at least 45 days after the Executives Termination Date. Collectively, the Severance Payment and COBRA Coverage shall be referred to herein as the Severance Benefits.
9.2.1 Notwithstanding the foregoing, Executive shall be entitled to Severance Benefits in accordance with this Section 9.2 only so long as Executive has not breached any of the provisions of the Separation Agreement, the Confidentiality Agreement, or Section 10 of this Agreement.
9.2.2 Notwithstanding the foregoing, if any equity securities of the Company or of any direct or indirect entity that is an affiliate of the Company is publicly traded within the meaning of Code Section 409A(a)(2)(B) and Executive is a specified employee (as defined in Treasury Regulation Section 1.409A-1(i)) at the time this Agreement is terminated, then subject to Section 9.2.3 below, any Severance Payments otherwise payable to Executive during the first six months and one day following the date of his or her separation from service pursuant to this Section 9.2.2 shall be deferred until the date that is six months and one day following such separation from service, and if such payments are required to be so deferred, the first payment shall be in an amount equal to the total amount to which Executive would otherwise have been entitled to during the period following the date of termination if the deferral had not been required, less any portion of the Executives premium the Company paid on his or her behalf for COBRA coverage as set forth above.
9.2.3 Notwithstanding Section 9.2.2, any portion of the Severance Payments payable hereunder that do not exceed two times the lesser of (i) the sum of Executives annualized compensation based on the Executives annual rate of pay for the year immediately preceding the year of termination (or for the year of termination if Executives employment with Company commenced in the year of termination), adjusted for any increase in pay that was expected to continue indefinitely if the termination had not occurred and (ii) the Code Section 401(a)(17) limit applicable in the year of termination, shall be treated as separate benefits and payments for purposes of Code Section 409A, shall not be subject to the six-month and one-day delay rule in Section 9.2.2, and shall be paid as otherwise provided in Section 9.2
9.2.4 Notwithstanding the foregoing, the Severance Payment payable pursuant to this Section 9.2 shall be reduced by the amount of any compensation Executive earns with respect to any other employment during the Severance Period; provided that Executive shall have no duty or obligation to seek other employment during the Severance Period or otherwise mitigate damages hereunder. Notwithstanding any other provision of this Agreement, if, following the termination of his or her employment, Executive is entitled to payments or other benefits under this Section 9.2, but the Company later determines that Cause with respect to Executive exists or existed on, prior to, or after such termination of Executive, then (i) Executive shall not be entitled to any Severance Benefits pursuant to this Section 9.2, (ii) any and all Severance Benefits pursuant to this Section 9.2 shall cease, and (iii) any Separation Payments previously paid to Executive shall be returned immediately to the Company by Executive.
9.2.5 The Severance Benefits shall not constitute, and are not intended to constitute, an employee welfare benefit plan, a welfare plan, an employee pension benefit plan, a pension plan or any other plan under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq . (ERISA).
9.3 Termination With Cause / Without Good Reason . If the Company terminates this Agreement for Cause or if Executive terminates this Agreement without Good Reason, then the Company shall pay Executive only his or her Base Salary due and owing through the date of termination of employment and shall have no obligation to pay any further sums to Executive other than Executives business expenses that shall be reimbursed in accordance with Section 4.3 above or as otherwise required under the Incentive Unit Offer Letter.
9.4 Return of Company Property . Upon ceasing employment with the Company for any reason, Executive shall immediately return to the Company, and Executive shall have absolutely no right to use, any equipment and/or tangible property entrusted to Executive by the Company.
10. Restrictive Covenants .
10.1 Acknowledgment . Executive acknowledges that (i) the Company has spent substantial time, effort, and money to develop the Companys goodwill; recruitment and training of personnel, customer, author, and supplier relations; Confidential Information (as that term is defined in the Confidentiality Agreement); and its worldwide business in the educational technology and online software development training industry (the Training Industry); (ii) the Companys customers, suppliers, authors, and independent contractors are and shall remain the sole and exclusive customers, suppliers, authors, and independent contractors of the Company; (iii) any new business or improvement in customer, supplier, author, or independent contractor relations attributable to Executive during Executives employment is for the sole benefit of the Company; (iv) the Company has and will continue to make a significant investment in the training and education of Executive, regardless of job title and department; (v) Executive will render services to the Company that are special, unique, and extraordinary; (vi) Executives efforts will contribute to the goodwill of the Company; and (vii) Executive has the means to support Executive and Executives dependents other than by engaging in the Training Industry as restricted herein.
10.2 Covenant Period . For purposes of this Agreement, the term Covenant Period shall be defined as beginning on the earlier of the date of Executives acceptance of an offer of employment with the Company or the Effective Date of this Agreement and continuing for one (1) year from the date of termination of Executives employment with the Company, whether Executive retires, resigns, quits, is fired or discharged, or otherwise ceases employment with the Company.
10.3 Covenant Not to Compete . As a material term of this Agreement and to protect the goodwill, the Confidential Information, and the business of the Company, Executive agrees that during the Term of this Agreement, Executive does not, and will not, have any relationship with any customer, supplier, or independent contractor of the Company that is independent of Executives role as an Executive of the Company, unless the Company has given its prior written consent. Executive further agrees that during the Covenant Period, Executive shall not, anywhere in the world which engages in the Training Industry, either individually or on behalf of or with any Person, directly or indirectly (a) compete with or against the Company or engage in any aspect of the Training Business in competition with the Company; (b) directly or indirectly own, manage, operate, control, be employed by, or provide management or consulting services to any individual, firm, corporation, entity, or organization (each, a Person) (other than the Company, or any affiliate of the Company, or as a stockholder of less than 5% of the equities of a publicly traded corporation) that competes with, or is a competitor of, the Company (Competing Person); (c) discuss the possibility of employment or other relationship with any Competing Person; (d) render or provide any services to or for any Competing Person; or (e) discuss or otherwise deal with any customer, supplier, or independent contractor of the Company regarding the extent or nature of the present or future business of any customer, supplier, or independent contractor with the Company.
10.4 Reformation . The Company intends to restrict Executive under this Agreement only to the extent necessary for the protection of the Companys legitimate business interests. The Company and Executive agree that the scope, duration, and geographic area provisions are reasonable. In the event a court of competent jurisdiction concludes that any provision of this Agreement is too restrictive, such provision(s) shall nevertheless be valid and enforceable to the fullest extent permitted by such court, and such provision(s) shall be reformed to the maximum scope, time, or geographic limitations determined appropriate by such court.
10.5 Remedies . The Company and Executive intend that the covenants of Executive are separate and independent of any covenants of the Company in this Agreement or elsewhere, and any breach by the Company shall not justify or excuse any breach by Executive. In the event of an actual or threatened breach of this Section 10, Executive specifically acknowledges that the Company will suffer irreparable damage and other damages beyond those that can be calculated, for which the Company has no adequate remedy at law. Executive therefore acknowledges that the Company shall be entitled to ex parte injunctive relief, both preliminary and permanent, immediately and permanently restraining Executive from such continuing or threatened breach. Executive hereby expressly waives any and all right to prior notice or to security in connection with temporary injunctive relief on behalf of the Company and to security in connection with permanent injunctive relief on behalf of the Company. Executive shall also remain liable for any damages sustained by reason of any actual or threatened breach by Executive of Sections 10. The exercise of one or more of the rights or remedies provided by this Agreement or otherwise shall not preclude the exercise of any other rights also provided.
11. Rights of Other Persons . Executive shall not disclose to the Company, or use in the performance of his or her work or responsibilities for the Company, any proprietary or confidential information, any trade secret, or any other intellectual property of (a) Executive, (b) any former employer of Executive, or (c) any other Person, unless the Company has received written authorization from Executive or such former employer or other Person and the Company has instructed Executive in writing to do so. The provisions of this Section 11 are not intended to create any rights as an intended or third-party beneficiary for any third party.
12. Executives Representations and Warranties . Executive acknowledges, represents and warrants that the Recitals above are true and correct, and that Executive has read and understands the terms of this Agreement and has had the opportunity, if Executive so desires, to consult with independent legal counsel. Executive further warrants and represents that Executives employment with the Company will not conflict with or be constrained by any prior employment or consulting agreement with any other Person, including but not limited to any prior employer.
13. Subpoena; Court Order; Other Legal Requirement . If Executive is requested, under the terms of a subpoena or order or other compulsory instrument issued by or under the authority of a court or arbitrator(s) of competent jurisdiction or by a governmental agency, or is advised in writing by counsel for any such party that there is otherwise a legal obligation to disclose (i) all or any part of the Confidential Information, (ii) the fact that the Confidential Information has been made available to Executive, or (iii) any of the terms, conditions, or other facts with respect to Executives employment with the Company or the services provided by Executive to the Company, Executive agrees to, at the Companys expense: (1) provide the Company with prompt written notice of the existence, terms, and circumstances surrounding such request or requirement; (2) consult with the Company on the advisability of taking steps to resist or narrow that request; (3) if disclosure of Confidential Information is required, furnish only such portion of the Confidential Information as Executive is advised in writing by Executives counsel is legally required to be disclosed; and (4) cooperate with the Company, at the request of the Company and at the Companys expense, in its efforts to obtain an order excusing the Confidential Information from disclosure, or an order or other reliable assurance that confidential treatment will be accorded to that portion of the Confidential Information that is required to be disclosed.
14. Post-Employment Cooperation . During Executives employment and for a period of two (2) years after the termination of Executives employment with the Company for any reason, Executive, in good faith and using diligent efforts, shall reasonably cooperate and assist the Company, at the Companys sole cost and expense, in any dispute, controversy, or litigation in which the Company may be involved (excluding any such proceeding in which Executive is an adverse party), including without limitation Executives participation in any court, arbitration, or other proceedings, the giving of testimony, the signing of affidavits or declarations, or such other reasonable cooperation and assistance as the Company or counsel for the Company may reasonably request.
15. Miscellaneous .
15.1 Severability . In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, then only the portions of this Agreement which violate such statute or public policy shall be stricken. All portions of this Agreement which do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms to give as much effect as possible to the intentions of the parties under this Agreement.
15.2 Notices . Any notice required by this Agreement shall either be hand-delivered or sent by registered or certified mail, return receipt requested, to Executives residence or business address last known to the Company and to the Companys regular business address last known to Executive or to such other address as a party may specify to the other in writing. Mailed notices shall be deemed delivered three days after the date of mailing.
15.3 New Employer Notification . Following the termination of this Agreement, Executive expressly consents to allow the Company to notify Executives subsequent employer(s) about the Companys rights and Executives obligations under this Agreement.
15.4 Governing Law and Mandatory Venue . This Agreement shall be governed by the laws of the State of Utah without regard to any conflict of law provisions. All claims or disputes arising hereunder or in any way relating to Executives employment with the Company shall be subject to the exclusive jurisdiction of the state or federal courts situated in Salt Lake County, State of Utah, and each party hereby submits himself/herself/itself to the personal jurisdiction and mandatory venue of such courts. If any party violates this provision and files suit in another forum, the other party shall be entitled to anti-suit injunctive relief in the state and federal courts situated in Salt Lake County, State of Utah, enjoining the action in the improper forum.
15.5 Successors and Assigns . The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Executive agrees that this includes, but is not limited to, Section 10. This Agreement is for the unique personal services of Executive, and Executive shall not be entitled to assign any of Executives rights or obligations hereunder.
15.6 Entire Agreement; Amendment . This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, and except as expressly stated herein, supersedes all prior agreements and understandings with respect thereto. Notwithstanding any Utah statutory or common law to the contrary, this Agreement can be amended or modified only in a writing signed by Executive and the CFO, whether or not a claimed modification is supported by separate consideration.
15.7 No Waiver . No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.
15.8 Headings . The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.
15.9 Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile, PDF or other electronically delivered copies of signature pages to this Agreement shall be treated between the parties as original signatures for all purposes.
15.10 Attorneys Fees . Notwithstanding any Utah statutory or common law to the contrary, in the event of any action at law or in equity, whether relating to this Agreement or to Executives employment with the Company or the termination thereof, each party shall pay its/his/her own attorneys fees incurred in prosecuting or defending any such action and hereby waives any right to seek attorneys fees from the other party hereto.
15.11 Code Section 409A . To the extent any payments under this Agreement are subject to the provisions of Code Section 409A, it is intended that the Agreement will comply fully with and meet all the requirements of Code Section 409A. Notwithstanding anything in this Agreement to the contrary, the Employee acknowledges and agrees that neither the Company nor its subsidiaries, affiliates, owners, directors, managers, officers or other agents makes or has made any representation, warranty, covenant or commitment to the Employee regarding the tax treatment of any compensation or other benefits provided to the Employee, including without limitation any representation, warranty, covenant or commitment relating to Code Section 409A. Neither the Company, nor its subsidiaries, affiliates, owners, directors, managers, officers or other agents, shall have any obligation or liability to reimburse or indemnify the Employee for, or hold the Employee harmless against, any taxes imposed on the Employee under the Code or otherwise.
16. Waiver of Trial by Jury . The Company and Executive hereby irrevocably waive any and all constitutional, statutory, and other rights to a trial by jury in any and all actions or proceedings arising from or in any related to this Agreement or to Executives employment with the Company, including without limitation claims for breach of express or implied contract, discrimination, termination in violation of public policy, whistleblowing, defamation, and emotional distress.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
THE COMPANY: | ||
Pluralsight, LLC | ||
By: |
/s/ Aaron Skonnard |
|
Name: | Aaron Skonnard | |
Its: | Chief Executive Officer | |
EXECUTIVE: | ||
/s/ Nate Walkingshaw |
||
Nate Walkingshaw |
Exhibit 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the Agreement) is made and entered into effective as of the 15th day of September, 2017 (the Effective Date), by and between Pluralsight, LLC (the Company) and Joseph DiBartolomeo (Executive).
RECITALS
Employee desires to be or is currently employed by the Company as an at-will employee. The Company desires to employ or continue employing Executive and Executive desires to be employed or continue to be employed by the Company on the terms and conditions set forth herein.
This Agreement, together with the Confidentiality, Intellectual Property Assignment and Non-Solicitation Agreement (the Confidentiality Agreement) executed by Executive concurrently herewith and the terms of which are incorporated herein by this reference, shall govern the terms and conditions of employment between the Executive and the Company. As of the Effective Date, this Agreement and the Confidentiality Agreement shall supersede and negate all previous agreements between the Company and Executive except as expressly set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, and in consideration of the mutual covenants and agreements set forth in this Agreement, the Company and Executive hereby mutually covenant and agree as set forth below.
1. Employment . The Company hereby agrees to employ Executive in the position of Chief Revenue Officer, and Executive hereby accepts employment with the Company, upon the terms and conditions set forth herein.
2. Term . Executive shall be employed by the Company from the Effective Date until Executives employment with the Company is terminated in accordance with Section 7 below (the Term).
3. Duties .
3.1 General Duties . Executive will have and perform those duties and responsibilities which are appropriate and customary to the position held by Executive and assigned or delegated to Executive from time to time by the Companys CEO (the CEO). The CEO may, in its sole discretion, alter, modify, or change Executives duties, offices, positions, responsibilities and obligations set forth in this Agreement at any time.
3.2 Performance . To the best of Executives ability and experience, Executive will at all times loyally and conscientiously perform all duties, and discharge all responsibilities and obligations, required of and from Executive pursuant to the terms hereof and to the reasonable satisfaction of the Company. During the Term of this Agreement, Executive will be a
full-time employee of the Company and will devote substantially all of his or her business time, energy, skill, and attention to the business of the Company, and the Company will be entitled to all of the benefits and profits arising from or incident to all such work, services, and advice of Executive rendered to the Company. Executive shall faithfully adhere to, and execute, and fulfill all lawful policies established from time to time by the Company as well as all applicable federal, state, and local laws and regulations relating to the business of the Company and its associated operations.
3.3 Undivided Attention . During the Term, Executive agrees not to perform services for any other person, business, or entity unrelated to the Company, whether as an employee, independent contractor, or otherwise without the prior written consent of the CEO; it being understood that the CEOs consent is likely to be granted where the services are in the nature of engaging in non-profit charitable/ civic activities or serving as an advisor or director to companies that do not compete with the business of the Company, provided that such pursuits or activities do not materially interfere with the services required to be rendered to the Company hereunder; provided, however, that nothing in this Agreement shall prohibit Executives pursuit of personal investment opportunities, provided that such pursuit does not interfere with the services required to be rendered to the Company hereunder, is consistent with the Companys policies regarding conflicts of interest, including without limitation Section 8 hereof, and does not in any way violate or infringe the covenants set forth in this Agreement or the Confidentiality Agreement.
4. Compensation and Related Matters .
4.1 Base Salary . In consideration for services rendered to the Company as provided herein, the Company will pay to Executive a base salary at a rate of $350,000.00 per annum, payable in accordance with the Companys standard payroll practices in effect from time to time (the Base Salary). The Base Salary may be increased or decreased from time to time in accordance with normal business practices of the Company.
4.2 Bonus . During the term of this Agreement, Executive shall be eligible to participate in any annual bonus plan made available by the Company to its employees generally, which plan may be modified, amended or terminated at any time, in the Companys discretion. Individual goals and performance assessment, and discretionary bonus payments, if any, will be determined by the Companys CEO or Board of Directors (the Board). If Executives employment with the Company terminates for any reason, Executive shall not be entitled to any portion of the bonus applicable to the year in which Executive was terminated or for any calendar year thereafter.
4.3 Expenses . Executive will be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in performing services hereunder, including expenses of travel while away from home on business in the service of the Company, provided that all expenses are incurred, documented, and accounted for in accordance with the policies and procedures as are established from time to time by the Company.
4.4 Executive Benefit Plans . During the term of this Agreement, Executive is entitled to participate in any employee benefit plans that may be made available by the Company to its employees generally, including, but not limited to, cafeteria plans and health, life, dental, or other insurance plans as may be in effect and/or modified from time to time and in accordance with and subject to the qualification requirements and the terms, conditions, and limitations established from time to time for individual participation in such plans.
4.5 Paid Leave . Executive will be eligible to receive paid leave for vacation and/or sick leave consistent with policies adopted by the Company from time to time. Executive also will be entitled to all paid holidays given by the Company to its employees generally. Scheduling and use of paid leave and, if applicable, accrual of and compensation for unused paid leave, will be subject to the Companys policies and procedures, as modified from time to time.
4.6 Employee Perquisites . During the term of this Agreement, Executive is entitled to participate in any employee perquisites that may be made available by the Company to its employees generally, including but not limited to (i) gym and wellness reimbursement of up to $50 per month; (ii) snacks, drinks and other food policies as may be in effect from time to time; and (iii) tuition reimbursement in pre-approved courses at pre-approved locations of up to $1,500 per semester or $3,000 per year. All perquisites and reimbursements referenced in this Section 4.6 are subject to change or discontinuation at any time in accordance with the normal business practices of the Company.
4.7 Deductions; Taxes . The Company shall have the right to deduct from the compensation due to Executive under this Agreement any and all sums required for Social Security, Medicare and other income withholding taxes and for any other federal, state, or local tax or charge which may be hereafter enacted or required by law as a charge on compensation of Executive. Neither the Company, nor any of its subsidiaries, affiliates, members, officers, managers, employees, or agents (a) has made any representation, assurance or guarantee to Executive regarding the tax treatment of any compensation to be paid to Executive hereunder; or (b) shall have any obligation or liability to indemnify, gross-up or reimburse Executive for, or hold him or her harmless against, any taxes or tax-related penalties or interest applicable to compensation earned by Executive under this Agreement or otherwise, including without limitation any taxes incurred under Internal Revenue Code (the Code) Sections 409A or 4999.
4.8 Corporate Housing . The Company will provide a housing reimbursement of up to $2,500 per month.
5. Incentive Units . Nothing in this Agreement shall alter, limit, or void the respective rights and obligations of the parties with regard to any grant of incentive units to Executive under any Pluralsight Holdings, LLC Incentive Unit Offer Letter (the Incentive Unit Offer Letter).
6. Conflict of Interest . Executive will not become involved in a situation which reasonably might create or appear to create a conflict of interest, including but not limited to being connected directly or indirectly with any business (as owner, officer, director, manager, participant, licensee, consultant, shareholder, or the recipient of wages) which is involved with any aspect of Executives duties or which is in direct or indirect competition with the Company. Executive will report immediately any circumstances or situations arising in the future that might involve Executive or appear to involve Executive in a conflict of interest, including without limitation the reporting of gifts, entertainment, or any other personal favors given to or received from anyone with whom the Company has or is likely to have any business dealings which go beyond common courtesies usually associated with accepted business practices.
7. Termination . The employment of Executive hereunder shall be at will and may be terminated at any time, for any or no reason, by either the Company or Executive on thirty (30) days written notice to the other party. Notwithstanding the foregoing, (i) the Company may terminate Executives employment immediately and without prior notice for Cause (as defined below) or at the Companys sole discretion by providing Executive with pay in lieu of the 30-day notice period; and (ii) the Executive may terminate the employment immediate and without prior notice for Good Reason (as defined below) and satisfaction of the criteria set forth in the definition of Good Reason. In the event Executive terminates this Agreement for any reason other than immediately for Good Cause, then during the 30-day notice period, the Company may in its sole discretion terminate Executives employment at any time, in which case all obligations of the Company to Executive shall cease except as set forth in Section 9 below.
8. Certain Defined Terms . For purposes of this Agreement:
8.1 Cause shall mean (i) Executives willful conduct that is materially injurious to the Company or any of its affiliates (whether monetary or otherwise) or the commission of any other material act or omission involving dishonesty with respect to the Company; (ii) Executives conviction of a felony or of a misdemeanor involving a crime of moral turpitude; (iii) Executives fraud, embezzlement, or misappropriation of any money, assets, or other property of the Company; (iv) Executives insubordination or other willful refusal to comply with any lawful request of the Board, including without limitation failure to cooperate in any investigation conducted and/or undertaken by the Company that has reasonable and legitimate objectives; (v) Executives material breach of any of his or her obligations, duties, or agreements to the Company, including without limitation this Agreement or the Confidentiality Agreement, which breach cannot be cured or, if capable of being cured, is not cured within thirty (30) days after receipt of written notice of the need to cure from the CEO, CFO or General Counsel acting under the authority of the Board); (vi) Executives death; and/or (vii) Executives Disability (as defined below).
8.2 Disability shall mean any physical or mental incapacitation that results in Executives inability to perform substantially all of his or her duties and responsibilities for the Company for a total of ninety (90) consecutive working days, as determined in accordance with the Family and Medical Leave Act, or an aggregate of one hundred eighty (180) working days during any twelve-month period, as determined by the CFO in his or her good faith judgment.
8.3 Good Reason shall mean (i) a material adverse change in Executives job duties or authorities, including demotion or change in line of reporting, without Executives advance written consent; (ii) a reduction in the Base Salary without Executives advance written consent; and/or (iii) the Companys material breach of this Agreement. Notwithstanding the foregoing, any act or failure to act by the Company shall not be deemed material unless the Company has failed to cure such act or failure to act within thirty (30) days of the date that the Company is provided written notice by Executive stating in reasonable detail the grounds for Executives determination of such act or failure to act, and Executive resigns from employment within thirty (30) days after the expiration of the Companys cure period.
9. Effect of Termination .
9.1 Continuing Obligations . In the event Executives employment is terminated for any reason, all obligations of the Company and Executive under this Agreement shall cease, except that the terms of Section 10 and any other provision which by its terms is so intended shall survive such termination. Upon such termination, Executive or his or her estate (in the event of Executives death) shall be entitled to receive any applicable compensation, benefits, and reimbursements set forth in Section 4 through the date of termination. Executive acknowledges that upon termination of Executives employment, Executive is entitled to no other compensation, severance, or other benefits other than those specifically set forth in this Agreement and in the Incentive Unit Offer Letter.
9.2 Termination Without Cause / For Good Reason . If the Company terminates this Agreement without Cause, or if Executive terminates this Agreement for Good Reason, then subject to Executives execution and delivery to the Company within a time period specified by the Company after Executives effective date of termination (Termination Date) of a separation agreement and release of all claims (Separation Agreement) in a form acceptable to the Company and Executives non-revocation of such Separation Agreement: (i) the Company shall pay Executive severance pay in an amount equal to $200,000.00, less applicable withholdings (Severance Payment); and (ii) if Executive properly elects continuation coverage under the Companys group medical insurance plan pursuant to Sections 601 through 607 of the Employee Retirement Income Security Act of 1974, as amended (COBRA), the Company will pay that percentage of the premium for such medical plan coverage which the Company bears for similarly situated active Company employees and their enrolled family members immediately prior to the Termination Date through the earlier of (a) six (6) months from the Termination Date; (b) the date Executive first becomes eligible for coverage under any group health plan maintained by another employer of Executive or his or her spouse; or (c) the date such COBRA continuation coverage otherwise terminates as to Executive under the provisions of the Companys group medical insurance plan (COBRA Coverage). Except as otherwise provided below, the Severance Payment shall be payable in equal periodic installments in accordance with the Companys payroll practices and subject to withholding taxes on each regular payroll date of the Company commencing on the applicable Severance Commencement Date and continuing through the six month anniversary thereof (the Severance Period). The applicable Severance Commencement Date shall be the first regularly scheduled Company payroll date that is at least 45 days after the Executives Termination Date. Collectively, the Severance Payment and COBRA Coverage shall be referred to herein as the Severance Benefits.
9.2.1 Notwithstanding the foregoing, Executive shall be entitled to Severance Benefits in accordance with this Section 9.2 only so long as Executive has not breached any of the provisions of the Separation Agreement, the Confidentiality Agreement, or Section 10 of this Agreement.
9.2.2 Notwithstanding the foregoing, if any equity securities of the Company or of any direct or indirect entity that is an affiliate of the Company is publicly traded within the meaning of Code Section 409A(a)(2)(B) and Executive is a specified employee (as defined in Treasury Regulation Section 1.409A-1(i)) at the time this Agreement is terminated, then subject to Section 9.2.3 below, any Severance Payments otherwise payable to Executive during the first six months and one day following the date of his or her separation from service pursuant to this Section 9.2.2 shall be deferred until the date that is six months and one day following such separation from service, and if such payments are required to be so deferred, the first payment shall be in an amount equal to the total amount to which Executive would otherwise have been entitled to during the period following the date of termination if the deferral had not been required, less any portion of the Executives premium the Company paid on his or her behalf for COBRA coverage as set forth above.
9.2.3 Notwithstanding Section 9.2.2, any portion of the Severance Payments payable hereunder that do not exceed two times the lesser of (i) the sum of Executives annualized compensation based on the Executives annual rate of pay for the year immediately preceding the year of termination (or for the year of termination if Executives employment with Company commenced in the year of termination), adjusted for any increase in pay that was expected to continue indefinitely if the termination had not occurred and (ii) the Code Section 401(a)(17) limit applicable in the year of termination, shall be treated as separate benefits and payments for purposes of Code Section 409A, shall not be subject to the six-month and one-day delay rule in Section 9.2.2, and shall be paid as otherwise provided in Section 9.2
9.2.4 Notwithstanding the foregoing, the Severance Payment payable pursuant to this Section 9.2 shall be reduced by the amount of any compensation Executive earns with respect to any other employment during the Severance Period; provided that Executive shall have no duty or obligation to seek other employment during the Severance Period or otherwise mitigate damages hereunder. Notwithstanding any other provision of this Agreement, if, following the termination of his or her employment, Executive is entitled to payments or other benefits under this Section 9.2, but the Company later determines that Cause with respect to Executive exists or existed on, prior to, or after such termination of Executive, then (i) Executive shall not be entitled to any Severance Benefits pursuant to this Section 9.2, (ii) any and all Severance Benefits pursuant to this Section 9.2 shall cease, and (iii) any Separation Payments previously paid to Executive shall be returned immediately to the Company by Executive.
9.2.5 The Severance Benefits shall not constitute, and are not intended to constitute, an employee welfare benefit plan, a welfare plan, an employee pension benefit plan, a pension plan or any other plan under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (ERISA).
9.3 Termination With Cause / Without Good Reason . If the Company terminates this Agreement for Cause or if Executive terminates this Agreement without Good Reason, then the Company shall pay Executive only his or her Base Salary due and owing through the date of termination of employment and shall have no obligation to pay any further sums to Executive other than Executives business expenses that shall be reimbursed in accordance with Section 4.3 above or as otherwise required under the Incentive Unit Offer Letter.
9.4 Return of Company Property . Upon ceasing employment with the Company for any reason, Executive shall immediately return to the Company, and Executive shall have absolutely no right to use, any equipment and/or tangible property entrusted to Executive by the Company.
10. Restrictive Covenants .
10.1 Acknowledgment . Executive acknowledges that (i) the Company has spent substantial time, effort, and money to develop the Companys goodwill; recruitment and training of personnel, customer, author, and supplier relations; Confidential Information (as that term is defined in the Confidentiality Agreement); and its worldwide business in the educational technology and online software development training industry (the Training Industry); (ii) the Companys customers, suppliers, authors, and independent contractors are and shall remain the sole and exclusive customers, suppliers, authors, and independent contractors of the Company; (iii) any new business or improvement in customer, supplier, author, or independent contractor relations attributable to Executive during Executives employment is for the sole benefit of the Company; (iv) the Company has and will continue to make a significant investment in the training and education of Executive, regardless of job title and department; (v) Executive will render services to the Company that are special, unique, and extraordinary; (vi) Executives efforts will contribute to the goodwill of the Company; and (vii) Executive has the means to support Executive and Executives dependents other than by engaging in the Training Industry as restricted herein.
10.2 Covenant Period . For purposes of this Agreement, the term Covenant Period shall be defined as beginning on the earlier of the date of Executives acceptance of an offer of employment with the Company or the Effective Date of this Agreement and continuing for one (1) year from the date of termination of Executives employment with the Company, whether Executive retires, resigns, quits, is fired or discharged, or otherwise ceases employment with the Company.
10.3 Covenant Not to Compete . As a material term of this Agreement and to protect the goodwill, the Confidential Information, and the business of the Company, Executive agrees that during the Term of this Agreement, Executive does not, and will not, have any relationship with any customer, supplier, or independent contractor of the Company that is independent of Executives role as an Executive of the Company, unless the Company has given its prior written consent. Executive further agrees that during the Covenant Period, Executive shall not, anywhere in the world which engages in the Training Industry, either individually or on behalf of or with any Person, directly or indirectly (a) compete with or against the Company or engage in any aspect of the Training Business in competition with the Company; (b) directly or indirectly own, manage, operate, control, be employed by, or provide management or consulting services to any individual, firm, corporation, entity, or organization (each, a Person) (other than the Company, or any affiliate of the Company, or as a stockholder of less than 5% of the equities of a publicly traded corporation) that competes with, or is a competitor of, the Company (Competing Person); (c) discuss the possibility of employment or other relationship with any Competing Person; (d) render or provide any services to or for any Competing Person; or (e) discuss or otherwise deal with any customer, supplier, or independent contractor of the Company regarding the extent or nature of the present or future business of any customer, supplier, or independent contractor with the Company.
10.4 Reformation . The Company intends to restrict Executive under this Agreement only to the extent necessary for the protection of the Companys legitimate business interests. The Company and Executive agree that the scope, duration, and geographic area provisions are reasonable. In the event a court of competent jurisdiction concludes that any provision of this Agreement is too restrictive, such provision(s) shall nevertheless be valid and enforceable to the fullest extent permitted by such court, and such provision(s) shall be reformed to the maximum scope, time, or geographic limitations determined appropriate by such court.
10.5 Remedies . The Company and Executive intend that the covenants of Executive are separate and independent of any covenants of the Company in this Agreement or elsewhere, and any breach by the Company shall not justify or excuse any breach by Executive. In the event of an actual or threatened breach of this Section 10, Executive specifically acknowledges that the Company will suffer irreparable damage and other damages beyond those that can be calculated, for which the Company has no adequate remedy at law. Executive therefore acknowledges that the Company shall be entitled to ex parte injunctive relief, both preliminary and permanent, immediately and permanently restraining Executive from such continuing or threatened breach. Executive hereby expressly waives any and all right to prior notice or to security in connection with temporary injunctive relief on behalf of the Company and to security in connection with permanent injunctive relief on behalf of the Company. Executive shall also remain liable for any damages sustained by reason of any actual or threatened breach by Executive of Sections 10. The exercise of one or more of the rights or remedies provided by this Agreement or otherwise shall not preclude the exercise of any other rights also provided.
11. Rights of Other Persons . Executive shall not disclose to the Company, or use in the performance of his or her work or responsibilities for the Company, any proprietary or confidential information, any trade secret, or any other intellectual property of (a) Executive, (b) any former employer of Executive, or (c) any other Person, unless the Company has received written authorization from Executive or such former employer or other Person and the Company has instructed Executive in writing to do so. The provisions of this Section 11 are not intended to create any rights as an intended or third-party beneficiary for any third party.
12. Executives Representations and Warranties . Executive acknowledges, represents and warrants that the Recitals above are true and correct, and that Executive has read and understands the terms of this Agreement and has had the opportunity, if Executive so desires, to consult with independent legal counsel. Executive further warrants and represents that Executives employment with the Company will not conflict with or be constrained by any prior employment or consulting agreement with any other Person, including but not limited to any prior employer.
13. Subpoena; Court Order; Other Legal Requirement . If Executive is requested, under the terms of a subpoena or order or other compulsory instrument issued by or under the authority of a court or arbitrator(s) of competent jurisdiction or by a governmental agency, or is advised in writing by counsel for any such party that there is otherwise a legal obligation to
disclose (i) all or any part of the Confidential Information, (ii) the fact that the Confidential Information has been made available to Executive, or (iii) any of the terms, conditions, or other facts with respect to Executives employment with the Company or the services provided by Executive to the Company, Executive agrees to, at the Companys expense: (1) provide the Company with prompt written notice of the existence, terms, and circumstances surrounding such request or requirement; (2) consult with the Company on the advisability of taking steps to resist or narrow that request; (3) if disclosure of Confidential Information is required, furnish only such portion of the Confidential Information as Executive is advised in writing by Executives counsel is legally required to be disclosed; and (4) cooperate with the Company, at the request of the Company and at the Companys expense, in its efforts to obtain an order excusing the Confidential Information from disclosure, or an order or other reliable assurance that confidential treatment will be accorded to that portion of the Confidential Information that is required to be disclosed.
14. Post-Employment Cooperation . During Executives employment and for a period of two (2) years after the termination of Executives employment with the Company for any reason, Executive, in good faith and using diligent efforts, shall reasonably cooperate and assist the Company, at the Companys sole cost and expense, in any dispute, controversy, or litigation in which the Company may be involved (excluding any such proceeding in which Executive is an adverse party), including without limitation Executives participation in any court, arbitration, or other proceedings, the giving of testimony, the signing of affidavits or declarations, or such other reasonable cooperation and assistance as the Company or counsel for the Company may reasonably request.
15. Miscellaneous .
15.1 Severability . In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, then only the portions of this Agreement which violate such statute or public policy shall be stricken. All portions of this Agreement which do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms to give as much effect as possible to the intentions of the parties under this Agreement.
15.2 Notices . Any notice required by this Agreement shall either be hand-delivered or sent by registered or certified mail, return receipt requested, to Executives residence or business address last known to the Company and to the Companys regular business address last known to Executive or to such other address as a party may specify to the other in writing. Mailed notices shall be deemed delivered three days after the date of mailing.
15.3 New Employer Notification . Following the termination of this Agreement, Executive expressly consents to allow the Company to notify Executives subsequent employer(s) about the Companys rights and Executives obligations under this Agreement.
15.4 Governing Law and Mandatory Venue . This Agreement shall be governed by the laws of the State of Utah without regard to any conflict of law provisions. All claims or disputes arising hereunder or in any way relating to Executives employment with the Company shall be subject to the exclusive jurisdiction of the state or federal courts situated in Salt Lake County, State of Utah, and each party hereby submits himself/herself/itself to the personal jurisdiction and mandatory venue of such courts. If any party violates this provision and files suit in another forum, the other party shall be entitled to anti-suit injunctive relief in the state and federal courts situated in Salt Lake County, State of Utah, enjoining the action in the improper forum.
15.5 Successors and Assigns . The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Executive agrees that this includes, but is not limited to, Section 10. This Agreement is for the unique personal services of Executive, and Executive shall not be entitled to assign any of Executives rights or obligations hereunder.
15.6 Entire Agreement; Amendment . This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, and except as expressly stated herein, supersedes all prior agreements and understandings with respect thereto. Notwithstanding any Utah statutory or common law to the contrary, this Agreement can be amended or modified only in a writing signed by Executive and the CFO, whether or not a claimed modification is supported by separate consideration.
15.7 No Waiver . No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.
15.8 Headings . The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.
15.9 Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Facsimile, PDF or other electronically delivered copies of signature pages to this Agreement shall be treated between the parties as original signatures for all purposes.
15.10 Attorneys Fees . Notwithstanding any Utah statutory or common law to the contrary, in the event of any action at law or in equity, whether relating to this Agreement or to Executives employment with the Company or the termination thereof, each party shall pay its/his/her own attorneys fees incurred in prosecuting or defending any such action and hereby waives any right to seek attorneys fees from the other party hereto.
15.11 Code Section 409A . To the extent any payments under this Agreement are subject to the provisions of Code Section 409A, it is intended that the Agreement will comply fully with and meet all the requirements of Code Section 409A. Notwithstanding anything in this Agreement to the contrary, the Employee acknowledges and agrees that neither the Company nor its subsidiaries, affiliates, owners, directors, managers, officers or other agents makes or has made any representation, warranty, covenant or commitment to the Employee
regarding the tax treatment of any compensation or other benefits provided to the Employee, including without limitation any representation, warranty, covenant or commitment relating to Code Section 409A. Neither the Company, nor its subsidiaries, affiliates, owners, directors, managers, officers or other agents, shall have any obligation or liability to reimburse or indemnify the Employee for, or hold the Employee harmless against, any taxes imposed on the Employee under the Code or otherwise.
16. Waiver of Trial by Jury . The Company and Executive hereby irrevocably waive any and all constitutional, statutory, and other rights to a trial by jury in any and all actions or proceedings arising from or in any related to this Agreement or to Executives employment with the Company, including without limitation claims for breach of express or implied contract, discrimination, termination in violation of public policy, whistleblowing, defamation, and emotional distress.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
THE COMPANY: | ||
Pluralsight, LLC |
By: |
/s/ Aaron Skonnard |
Name: Aaron Skonnard | ||
Its: Chief Executive Officer | ||
EXECUTIVE: | ||
/s/ Joseph DiBartolomeo |
||
Joseph DiBartolomeo |
Exhibit 10.11
PLURALSIGHT HOLDINGS, LLC
May 30, 2016
Gary Crittenden
Dear Mr. Crittenden:
This letter agreement (this Agreement) confirms our understanding that Pluralsight Holdings, LLC, a Delaware limited liability company (the Company, we, or us), has engaged you to act in the capacity and to provide the services to the Company as set forth below, upon the terms and conditions set Forth below. For your information, the controlling instrument with respect to the business, activities and governance of the Company is the Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC dated as of March 14, 2016, as amended, modified, or supplemented from time to time, a copy of which has been provided to you (the LLC Agreement). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings as set forth in the LLC Agreement.
1. Capacity; Services . You shall be a member of the Board of Managers (the Board) of the Company with the authority and duties as set forth in the LLC Agreement and as are normally associated with that position.
2. Unit Award . As consideration for your service as a member of the Board, the Company will award or grant to you 209,000 Incentive Units (representing approximately 0.20%, in total, of the aggregate outstanding Units of the Company on a fully-diluted basis as of the date hereof). The Incentive Units will be subject to the terms and conditions of the LLC Agreement, the Pluralsight Holdings, LLC Incentive Unit Plan dated as of May 24, 2013, as amended, modified, or supplemented from time to time, and an Incentive Unit Offer Letter between you and the Company (the Offer Letter). We anticipate that the strike price for your Incentive Units (as set forth in the Offer Letter) will be an amount equal to $9.42 per Incentive Unit and your applicable Catch-up Amount (as defined in the LLC Agreement) is $4.27 per Incentive Unit, subject to review and confirmation from our tax, legal, and accounting representatives, and subject to Board approval. Additionally, we anticipate that your units will vest over the course of three years on a quarterly basis, beginning on July 1, 2016 (all as further set forth in the Offer Letter).
3. Reimbursement of Expenses . The Company agrees to reimburse you for reasonable out-of-pocket expenses incurred by you for attendance at each meeting of the Board and for such additional reasonable out-of-pocket expenses incurred by you on behalf of the Company in connection with the services provided pursuant to this Agreement as are approved in advance by the Company. Reimbursement of out-of-pocket expenses will be paid promptly by the Company after receipt of reasonable documentation covering such expenses.
4. Information; Confidentiality .
(a) The Company understands and agrees that in performing the services hereunder you will use and rely upon the information provided by the Company and its advisors and that you do not assume responsibility for independent verification of any information, whether publicly available or otherwise furnished to you concerning the Company including, without limitation, any financial information, forecasts or projections, considered in connection with the rendering of your services. Accordingly, you shall he entitled to assume and rely upon the accuracy and completeness of all such information and are not required to conduct a physical inspection of any of the properties or assets, or to prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities of the Company (except to the extent required to satisfy your fiduciary responsibilities).
(b) During the term of this Agreement, you will have access to and become acquainted with confidential information of the Company and/or any of its subsidiaries, including among other things customer relationships, processes, and compilations of information, records and specifications, which are owned by the Company or any of its subsidiaries. You shall not use or disclose any of the Companys or any of its subsidiaries confidential information in any way that is detrimental to the interests of the Company or any of its subsidiaries, directly or indirectly, either during or after the term of this Agreement, except as required in the course of this Agreement. You agree to use reasonable efforts to ensure that your employees, agents, and representatives similarly maintain the confidentiality of such proprietary and confidential information of the Company and its subsidiaries.
5. Indemnity . The Company agrees to indemnify and hold you harmless to the full extent allowed by law and as set forth in the LLC Agreement against all expense, liability, and loss (including attorneys fees, judgments, fines, excise taxes or penalties and amounts paid in settlement) reasonably incurred by you in connection with your engagement hereunder; provided, however, there shall be excluded from such indemnification any such expense, liability, and loss (a) for acts or omissions involving actual fraud or willful misconduct or (b) with respect to any transaction from which you derived improper personal benefit.
6. Term . Your services hereunder and the term of this Agreement may be terminated at any time (a) by you, upon written notice to the Company, or (b) by the Members of the Company, as provided in the LLC Agreement.
7. Notice . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7).
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If to you:
Gary Crittenden
If to the Company:
Pluralsight Holdings, LLC
182 North Union Avenue
Farmington, Utah 84025
Attention: Legal Counsel
8. Independent Contractor . In providing the services hereunder, you are acting as an independent contractor and it is expressly understood and agreed that this Agreement is not intended to create, and does not create, any partnership, agency, joint venture or similar relationship and that no party has the right or ability to contract for or on behalf of any other party or to effect any transaction for the account of any other party. Nothing herein shall be construed to an employee/employer relationship. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be deemed or construed to enlarge your fiduciary duties and responsibilities, if any, including without limitation in your capacity as a member of the Board.
9. Entire Agreement; Amendment and Modification; Waiver . This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
10. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. However, neither this Agreement nor any of the rights of the parties hereunder may otherwise be transferred or assigned by any party hereto, except that if the Company shall merge or consolidate with or into, or sell or otherwise transfer substantially all its assets to, another company which assumes the Companys obligations under this Agreement, the Company may assign its rights hereunder to that company. Any attempted transfer or assignment in violation of this Section 10 shall be void.
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11. Legal Matters .
(a) Governing Law . This Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule.
(b) Jurisdiction . Any legal suit, action or proceeding arising out of or based upon or relating to this Agreement or the transactions contemplated hereby shall be instituted in the federal courts of the United States of America or the courts of the State of Utah in each case located in the City of Salt Lake and County of Salt Lake, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified mail in accordance with Section 7 shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
(c) Waiver of Trial by Jury . Each party acknowledges and agrees that any controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each party to this Agreement certifies and acknowledges that (i) no representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (ii) such party has considered the implications of this waiver, (iii) such party makes this waiver voluntarily, and (iv) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 11(e).
(d) Equitable Remedies . The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to equitable relief, including injunctive relief or specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
(e) Fees and Costs . In the event that any party institutes any legal suit, action or proceeding against the other party to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach or this Agreement) or otherwise arising out of or relating to this Agreement, the prevailing party in the suit, action or proceeding shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit, action or proceeding, including reasonable attorneys fees and expenses and court costs.
12. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
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13. No Strict Construction . The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
[Signature Page Follows]
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Please confirm that the foregoing correctly sets forth our agreement with respect to the subject matter hereof by signing and returning to the undersigned a copy of this Letter.
Pluralsight Holdings, LLC |
By: |
/s/ Aaron Skonnard |
Name: Aaron Skonnard | ||
Its: President/Chief Executive Officer |
The foregoing Letter is accepted and agreed to as of the date first set forth above.
/s/ Gary Crittenden |
Gary Crittenden, an individual |
Exhibit 10.12
PLURALSIGHT HOLDINGS, LLC
May 27 th , 2016
Arne Duncan
Dear Mr. Duncan:
This letter agreement (this Agreement) confirms our understanding that Pluralsight Holdings, LLC, a Delaware limited liability company (the Company, we, or us), has engaged you to act in the capacity and to provide the services to the Company as set forth below, upon the terms and conditions set forth below. For your information, the controlling instrument with respect to the business, activities and governance of the Company is the Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC dated as of March 14, 2016, as amended, modified, or supplemented from time to time, a copy of which has been provided to you (the LLC Agreement). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings as set forth in the LLC Agreement.
1. Capacity; Services . You shall be a member of the Board of Managers (the Board) of the Company with the authority and duties as set forth in the LLC Agreement and as are normally associated with that position.
2. Unit Award . As consideration for your service as a member of the Board, the Company will award or grant to you 209,000 Incentive Units (representing approximately 0.20%, in total, of the aggregate outstanding Units of the Company on a fully-diluted basis as of the date hereof). The Incentive Units will be subject to the terms and conditions of the LLC Agreement, the Pluralsight Holdings, LLC Incentive Unit Plan dated as of May 24, 2013, as amended, modified, or supplemented from time to time, and an Incentive Unit Offer Letter between you and the Company (the Offer Letter). We anticipate that the strike price for your Incentive Units (as set forth in the Offer Letter) will be an amount equal to $9.42 per Incentive Unit and your applicable Catch-up Amount (as defined in the LLC Agreement) is $4.27 per Incentive Unit, subject to review and confirmation from our tax, legal, and accounting representatives, and subject to Board approval. Additionally, we anticipate that your units will vest over the course of three years on a quarterly basis, beginning on July 1, 2016 (all as further set forth in the Offer Letter).
3. Reimbursement of Expenses . The Company agrees to reimburse you for reasonable out-of-pocket expenses incurred by you for attendance at each meeting of the Board and for such additional reasonable out-of-pocket expenses incurred by you on behalf of the Company in connection with the services provided pursuant to this Agreement as are approved in advance by the Company. Reimbursement of out-of-pocket expenses will be paid promptly by the Company after receipt of reasonable documentation covering such expenses.
4. Information; Confidentiality .
(a) The Company understands and agrees that in performing the services hereunder you will use and rely upon the information provided by the Company and its advisors and that you do not assume responsibility for independent verification of any information, whether publicly available or otherwise furnished to you concerning the Company including, without limitation, any financial information, forecasts or projections, considered in connection with the rendering of your services. Accordingly, you shall he entitled to assume and rely upon the accuracy and completeness of all such information and are not required to conduct a physical inspection of any of the properties or assets, or to prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities of the Company (except to the extent required to satisfy your fiduciary responsibilities).
(b) During the term of this Agreement, you will have access to and become acquainted with confidential information of the Company and/or any of its subsidiaries, including among other things customer relationships, processes, and compilations of information, records and specifications, which are owned by the Company or any of its subsidiaries. You shall not use or disclose any of the Companys or any of its subsidiaries confidential information in any way that is detrimental to the interests of the Company or any of its subsidiaries, directly or indirectly, either during or after the term of this Agreement, except as required in the course of this Agreement. You agree to use reasonable efforts to ensure that your employees, agents, and representatives similarly maintain the confidentiality of such proprietary and confidential information of the Company and its subsidiaries.
5. Indemnity . The Company agrees to indemnify and hold you harmless to the full extent allowed by law and as set forth in the LLC Agreement against all expense, liability, and loss (including attorneys fees, judgments, fines, excise taxes or penalties and amounts paid in settlement) reasonably incurred by you in connection with your engagement hereunder; provided, however, there shall be excluded from such indemnification any such expense, liability, and loss (a) for acts or omissions involving actual fraud or willful misconduct or (b) with respect to any transaction from which you derived improper personal benefit.
6. Term . Your services hereunder and the term of this Agreement may be terminated at any time (a) by you, upon written notice to the Company, or (b) by the Members of the Company, as provided in the LLC Agreement.
7. Notice . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7).
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If to you:
Arne Duncan
If to the Company:
Pluralsight Holdings, LLC
182 North Union Avenue
Farmington, Utah 84025
Attention: Legal Counsel
8. Independent Contractor . In providing the services hereunder, you are acting as an independent contractor and it is expressly understood and agreed that this Agreement is not intended to create, and does not create, any partnership, agency, joint venture or similar relationship and that no party has the right or ability to contract for or on behalf of any other party or to effect any transaction for the account of any other party. Nothing herein shall be construed to an employee/employer relationship. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be deemed or construed to enlarge your fiduciary duties and responsibilities, if any, including without limitation in your capacity as a member of the Board.
9. Entire Agreement; Amendment and Modification; Waiver . This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
10. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. However, neither this Agreement nor any of the rights of the parties hereunder may otherwise be transferred or assigned by any party hereto, except that if the Company shall merge or consolidate with or into, or sell or otherwise transfer substantially all its assets to, another company which assumes the Companys obligations under this Agreement, the Company may assign its rights hereunder to that company. Any attempted transfer or assignment in violation of this Section 10 shall be void.
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11. Legal Matters .
(a) Governing Law . This Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule.
(b) Jurisdiction . Any legal suit, action or proceeding arising out of or based upon or relating to this Agreement or the transactions contemplated hereby shall be instituted in the federal courts of the United States of America or the courts of the State of Utah in each case located in the City of Salt Lake and County of Salt Lake, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified mail in accordance with Section 7 shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
(c) Waiver of Trial by Jury . Each party acknowledges and agrees that any controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each party to this Agreement certifies and acknowledges that (i) no representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (ii) such party has considered the implications of this waiver, (iii) such party makes this waiver voluntarily, and (iv) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 11(e).
(d) Equitable Remedies . The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to equitable relief, including injunctive relief or specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
(e) Fees and Costs . In the event that any party institutes any legal suit, action or proceeding against the other party to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach or this Agreement) or otherwise arising out of or relating to this Agreement, the prevailing party in the suit, action or proceeding shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit, action or proceeding, including reasonable attorneys fees and expenses and court costs.
12. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
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13. No Strict Construction . The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
[Signature Page Follows]
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Please confirm that the foregoing correctly sets forth our agreement with respect to the subject matter hereof by signing and returning to the undersigned a copy of this Letter.
Pluralsight Holdings, LLC |
By: |
/s/ Aaron Skonnard |
Name: Aaron Skonnard Its: President/Chief Executive Officer |
||
The foregoing Letter is accepted and agreed to as of the date first set forth above.
/s/ Arne Duncan |
Arne Duncan, an individual |
Exhibit 10.13
PLURALSIGHT HOLDINGS, LLC
INCENTIVE UNIT OFFER LETTER
December 13, 2016
Arne Duncan
Re: Pluralsight Holdings, LLC Incentive Units
Dear Arne:
In appreciation for your anticipated future services, I am writing to set forth the terms and conditions under which Pluralsight Holdings, LLC, a Delaware limited liability company (the Company ), will grant to you the units of membership interest in the Company described below ( Incentive Units ) pursuant to the Pluralsight Holdings, LLC Incentive Unit Plan (as amended, modified, or supplemented from time to time, the Plan ). The Incentive Units would give you a non-voting ownership interest in the Company without requiring you to make any out-of-pocket payment to the Company for that ownership stake.
Here are the details regarding the Companys offer to grant Incentive Units to you:
1. Grant of Incentive Units . Effective upon your timely acceptance and return to me of this Offer Letter, the Company will grant to you without charge under the Plan ONE HUNDRED SIXTY NINE THOUSAND AND SEVEN (169,007) Incentive Units. The grant of those Incentive Units (your Unit Award) will be subject to the terms and conditions set forth in this Offer Letter, the Plan and the Amended and Restated Limited Liability Company Agreement of the Company dated as of March 14, 2016, (as amended, modified, or supplemented from time to time, the LLC Agreement ). Copies of both the Plan and LLC Agreement are attached to this Offer Letter as Exhibit B and Exhibit C for your reference. Capitalized terms used in this Offer Letter and not otherwise defined in this Offer Letter have the meanings set forth in the Plan or LLC Agreement, as applicable.
2. Strike Price and Catch-up Amount . For purposes of computing your share of future Liquidation Event distributions from the Company with respect to the offered Incentive Units, (a) the Strike Price (within the meaning of the LLC Agreement) of the Company associated with your Incentive Units is $1,000,000,000; and (b) your applicable Catch-up Amount (as defined in the LLC Agreement) is $3.76 per Incentive Unit. As a result, your Incentive Units will entitle you to share in Liquidation Event distributions from the Company only to the extent that the cumulative amount of such distributions with respect to other Units of Percentage Interest exceed the Strike Price.
3. Threshold Vesting Condition . The Incentive Units to be granted to you under this Offer Letter will be subject to substantial risk of forfeiture and will vest (i.e., become Vested Incentive Units within the meaning of the Plan and LLC Agreement) if, and only to the extent that, you satisfy the vesting conditions set forth in this Section 3 and in Section 4 below.
If you complete the services set forth on the attached Exhibit D to the reasonable satisfaction of the Company during the vesting period of the Incentive Units set forth in Section 4 below (the Threshold Vesting Condition ), your Incentive Units shall vest according to the time-based vesting schedule set forth in Section 4 below. If you fail to complete the services set forth on the attached Exhibit D (in whole or in part) during the first year after the grant of the Incentive Units, as determined by the Company in its reasonable discretion, all of the Incentive Units will be forfeited automatically, and you will have no further rights in respect to them.
4. Time Vesting of Incentive Units, Provided that Threshold Vesting Condition Is Met . Your Incentive Units will become Vested Incentive Units if, and only to the extent that, you satisfy the (i) Threshold Vesting Condition set forth in Section 3 above and (ii) following time-based vesting schedule:
(a) 42,251 Incentive Units subject to this Offer Letter (representing approximately 25% of the Incentive Units subject to this Agreement) will vest on December 1, 2017; provided you remain in Continuous Service with the Company through that vesting date and meet the Threshold Vesting Condition; and
(b) The remaining Incentive Units subject to this Offer Letter will vest in equal quarterly installments of 10,563 Incentive Units each (representing approximately 6.25% of the Incentive Units subject to this Offer Letter) on March 1, June 1, September 1, and December 1 of each year, commencing March 1, 2018 and continuing through December 1, 2020; provided you remain in Continuous Service with the Company through the quarterly vesting date in question and meet the Threshold Vesting Condition.
Upon termination of your Continuous Service with the Company prior to December 1, 2020 for any reason, whether voluntarily or involuntarily, with or without cause, all of your then unvested Incentive Units under this Offer Letter will be forfeited automatically, to the extent not previously forfeited under Section 3. Notwithstanding the above vesting schedule, however, upon or in connection with a Sale of the Company (as defined in the Plan) on or prior to termination of your Continuous Service with the Company, the other members of the Companys Board may in their discretion elect to accelerate the vesting of all or a portion of your then outstanding Unvested Incentive Units.
5. Non-Transferability of Incentive Units . As provided in the Plan, you may not Transfer your Unit Award or your Incentive Units, voluntarily or involuntarily, prior to vesting. Additionally, upon vesting, you may only Transfer your Vested Incentive Units to the limited extent and in a manner permitted under the LLC Agreement.
6. Acceptance of Plan and LLC Agreement . By accepting and executing this Offer Letter you also accept, consent to, and agree to be bound by the Plan as a Participant within the meaning of the Plan and by the LLC Agreement as a Member. For example, you will be bound by the provisions of Section 5(e) of the Plan and Section 6.6 of the LLC Agreement requiring that certain distributions on your Unvested Incentive Units be escrowed and subjecting such escrowed distributions to risk of forfeiture, and by the provisions of Section 6 of the Plan giving the Company the right to redeem your Vested Incentive Units upon the occurrence of certain events. If requested by the Company, you will execute and deliver to the Company such additional signature pages to the LLC Agreement or other instruments as the Company reasonably requests to evidence your agreement to be bound as a Member by the LLC Agreement. The provisions of the Plan and LLC Agreement are incorporated herein by reference. In the event of a conflict between the provisions of this Offer Letter and either the LLC Agreement or Plan, the provisions of the LLC Agreement and Plan will be controlling.
7. Taxes . The Incentive Units being offered to you are intended to constitute profits interests within the meaning of Internal Revenue Service Revenue Procedures 1993-27 and 2001-43. As such, the Company does not anticipate that their grant will be taxable income to you. The Company, however, makes no representation or guarantee regarding, and takes no responsibility for, the income or employment tax treatment of your Unit Award or Incentive Units. Additionally, if you accept the offered Incentive Units, you agree to file with the Internal Revenue Service and the Company an election under Section 83(b) of the Code with respect to all of your Incentive Units within 30 days after the grant of your Incentive Units. We will provide you with a form for that election if you accept the Unit Award described in this Offer Letter.
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8. General . This Offer Letter, the Plan and the LLC Agreement constitute the entire agreement with respect to your Unit Award and the Incentive Units referenced in this Offer Letter, and supersede any and all prior undertakings and agreements of the Company and you with respect to the subject matter hereof. Nothing herein modifies or negates your or the Companys right to terminate your employment, consulting or other services relationship with the Company at will at any time for any reason. The provisions of the Plan and LLC Agreement are incorporated in this Offer Letter by reference. In the event of a conflict between this Offer Letter and either the LLC Agreement or Plan, the provisions of the LLC Agreement and Plan will be controlling.
**************************************
Please contact me if you have questions about this Offer Letter or the Incentive Units. If the terms of your proposed Unit Award of Incentive Units, as set forth in this Offer Letter and the attached Exhibits, are acceptable to you, please sign this Offer Letter under the caption heading ACCEPTED below and return the original of this Offer Letter and your signed Investment Representation Statement (copy attached) to me within two weeks of the date of this Offer Letter. If you fail to execute and return this Offer Letter and the Investment Representation Statement to me by that deadline, this Offer Letter will lapse and you will not receive the offered Incentive Units.
Very truly yours,
/s/ Aaron Skonnard |
Aaron Skonnard, President/ Chief Executive Officer |
ACCEPTED:
I hereby accept the offered Unit Award of Incentive Units set forth in this Offer Letter and agree to all of the terms, conditions and provisions set forth in this Offer Letter, the Plan and LLC Agreement. I specifically agree that I will hold the Incentive Units issued to me as a Member of the Company subject to the LLC Agreement and the Plan and I hereby accept and agree to be bound by the LLC Agreement and the Plan.
/s/ Arne Duncan Name: Arne Duncan |
Date: December 13, 2016 |
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EXHIBIT A
INVESTMENT REPRESENTATION STATEMENT
PARTICIPANT NAME: Arne Duncan
COMPANY: PLURALSIGHT HOLDINGS, LLC
NUMBER OF INCENTIVE UNITS: 169,007
In connection with my acquisition of the above Incentive Units of the Pluralsight Holdings, LLC (the Incentive Units ), under the Pluralsight Holdings, LLC Incentive Unit Plan (the Plan ) the undersigned Plan Participant represents to Pluralsight Holdings, LLC (the Company ) and its members, managers, employees and agents as follows:
(a) I am familiar with and aware of the Companys business affairs and financial condition and have acquired sufficient information to reach an informed and knowledgeable decision to acquire the Incentive Units. I am acquiring the Incentive Units for investment for my 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 of 1933, as amended (the Securities Act ). I am a resident of the State of Illinois.
(b) I acknowledge and understand that the Incentive Units constitute restricted securities under the Securities Act and have not been registered under the Securities Act in reliance upon one or more specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of my investment intent as expressed herein. In this connection, I understand that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if my representation was predicated solely upon a present intention to hold the Incentive Units for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Incentive Units, or for a period of one (1) year or any other fixed period in the future. I further understand that the Incentive Units must be held by me indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. I further acknowledge and understand that the Company is under no obligation to register the Incentive Units. I understand that any certificate evidencing the Incentive Units shall be imprinted with any legend required under applicable securities laws.
(c) I have not relied upon, and no one has given to me, any representation, assurance, guarantee, prediction or estimate as to the future value of or appreciation in my Incentive Units or the Company. I further acknowledge that the Incentive Units are a speculative investment and represent that I am financially able to bear the risk of losing my entire investment in the Incentive Units.
PARTICIPANT
/s/ Arne Duncan |
Arne Duncan
|
Date: December 13, 2016 |
EXHIBIT B
PLAN
(See attached)
EXHIBIT C
LLC AGREEMENT
(See attached)
EXHIBIT D
DESCRIPTION OF SERVICES
Mr. Duncan will participate in between four (4) and six (6) marketing events on behalf of Pluralsight as mutually agreed between Mr. Duncan and Pluralsights Chief Marketing Officer. Pluralsight will be fully responsible for all travel, accommodation, and entry fees associated with such marketing events. Pluralsights CMO and Mr. Duncan will work in good faith to identify the marketing events that are subject to this Agreement.
If Mr. Duncan is unable, for whatever reason, to participate in at least four (4) marketing events during any given year, then the units associated with that particular year, whether vested or unvested, will be forfeited.
Exhibit 10.14
PLURALSIGHT HOLDINGS, LLC
April 15, 2016
Tim Maudlin
Dear Mr. Maudlin:
This Letter (this Agreement) confirms our understanding that Pluralsight Holdings, LLC, a Delaware limited liability company (the Company, we, or us), has engaged you to act in the capacity and to provide the services to the Company as set forth below, upon the terms and conditions set forth below. For your information, the controlling instrument with respect to the business, activities and governance of the Company is the Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC dated as of March 14, 2016, as amended, modified, or supplemented from time to time, a copy of which has been provided to you (the LLC Agreement). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings as set forth in the LLC Agreement.
1. Capacity; Services . You shall be a member of the Board of Managers (the Board) of the Company with the authority and duties as set forth in the LLC Agreement and as are normally associated with that position.
2. Unit Award . As consideration for your service as a member of the Board, the Company will award or grant to you 209,000 Incentive Units (representing approximately 0.20%, in total, of the aggregate outstanding Units of the Company on a fully-diluted basis as of the date hereof). The Incentive Units will be subject to the terms and conditions of the LLC Agreement, the Pluralsight Holdings, LLC Incentive Unit Plan dated as of May 24, 2013, as amended, modified, or supplemented from time to time, and an Incentive Unit Offer Letter between you and the Company (the Offer Letter). We anticipate that the strike price for your Incentive Units (as set forth in the Offer Letter) will be an amount equal to $9.42 per Incentive Unit and your applicable Catch-up Amount (as defined in the LLC Agreement) is $4.27 per Incentive Unit, subject to review and confirmation from our tax, legal, and accounting representatives, and subject to Board approval. Additionally, we anticipate that your units will vest over the course of three years on a quarterly basis, with first amount vesting upon execution of this Agreement and subsequent amounts vesting on July 1, 2016 and thereafter on each quarterly anniversary of July (all as further set forth in the Offer Letter).
3. Reimbursement of Expenses . The Company agrees to reimburse you for reasonable out-of-pocket expenses incurred by you for attendance at each meeting of the Board and for such additional reasonable out-of-pocket expenses incurred by you on behalf of the Company in connection with the services provided pursuant to this Agreement as are approved in advance by the Company. Reimbursement of out-of-pocket expenses will be paid promptly by the Company after receipt of reasonable documentation covering such expenses.
4. Information; Confidentiality .
(a) The Company understands and agrees that in performing the services hereunder you will use and rely upon the information provided by the Company and its advisors and that you do not assume responsibility for independent verification of any information, whether publicly available or otherwise furnished to you concerning the Company including, without limitation, any financial information, forecasts or projections, considered in connection with the rendering of your services. Accordingly, you shall he entitled to assume and rely upon the accuracy and completeness of all such information and are not required to conduct a physical inspection of any of the properties or assets, or to prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities of the Company (except to the extent required to satisfy your fiduciary responsibilities).
(b) During the term of this Agreement, you will have access to and become acquainted with confidential information of the Company and/or any of its subsidiaries, including among other things customer relationships, processes, and compilations of information, records and specifications, which are owned by the Company or any of its subsidiaries. You shall not use or disclose any of the Companys and/or any of its subsidiaries confidential information in any way that is detrimental to the interests of the Company and/or any of its subsidiaries, directly or indirectly, either during or after the term of this Agreement, except as required in the course of this Agreement. You agree to use reasonable efforts to ensure that your employees, agents, and representatives similarly maintain the confidentiality of such proprietary and confidential information of the Company and its subsidiaries.
5. Indemnity . The Company agrees to indemnify and hold you harmless to the full extent allowed by law and as set forth in the LLC Agreement against all expense, liability, and loss (including attorneys fees, judgments, fines, excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by you in connection with your engagement hereunder; provided, however, there shall be excluded from such indemnification any such expense, liability, and loss (a) for acts or omissions involving actual fraud or willful misconduct or (b) with respect to any transaction from which you derived improper personal benefit.
6. Term . Your services hereunder and the term of this Agreement may be terminated at any time (a) by you, upon written notice to the Company, or (b) by the Members of the Company, as provided in the LLC Agreement.
7. Notice . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7).
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If to you:
Tim Maudlin
If to the Company:
Pluralsight Holdings, LLC
182 North Union Avenue
Farmington, Utah 84025
Attention: Legal Counsel
8. Independent Contractor . In providing the services hereunder, you are acting as an independent contractor and it is expressly understood and agreed that this Agreement is not intended to create, and does not create, any partnership, agency, joint venture or similar relationship and that no party has the right or ability to contract for or on behalf of any other party or to effect any transaction for the account of any other party. Nothing herein shall be construed to an employee/employer relationship. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be deemed or construed to enlarge your fiduciary duties and responsibilities, if any, including without limitation in your capacity as a member of the Board.
9. Entire Agreement; Amendment and Modification; Waiver . This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
10. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. However, neither this Agreement nor any of the rights of the parties hereunder may otherwise be transferred or assigned by any party hereto, except that if the Company shall merge or consolidate with or into, or sell or otherwise transfer substantially all its assets to, another company which assumes the Companys obligations under this Agreement, the Company may assign its rights hereunder to that company. Any attempted transfer or assignment in violation of this Section 10 shall be void.
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11. Legal Matters .
(a) Governing Law . This Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule.
(b) Jurisdiction . Any legal suit, action or proceeding arising out of or based upon or relating to this Agreement or the transactions contemplated hereby shall be instituted in the federal courts of the United States of America or the courts of the State of Utah in each case located in the City of Salt Lake and County of Salt Lake, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified mail in accordance with Section 7 shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
(c) Waiver of Trial by Jury . Each party acknowledges and agrees that any controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each party to this Agreement certifies and acknowledges that (i) no representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (ii) such party has considered the implications of this waiver, (iii) such party makes this waiver voluntarily, and (iv) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 11(c).
(d) Equitable Remedies . The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to equitable relief, including injunctive relief or specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
(e) Fees and Costs . In the event that any party institutes any legal suit, action or proceeding against the other party to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach or this Agreement) or otherwise arising out of or relating to this Agreement, the prevailing party in the suit, action or proceeding shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit, action or proceeding, including reasonable attorneys fees and expenses and court costs.
12. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
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13. No Strict Construction . The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
[Signature Page Follows]
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Please confirm that the foregoing correctly sets forth our agreement with respect to the subject matter hereof by signing and returning to the undersigned a copy of this Letter.
Pluralsight Holdings, LLC |
By: |
/s/ Aaron Skonnard |
Name: Aaron Skonnard Its: President/Chief Executive Officer |
||
The foregoing Letter is accepted and agreed to as of the date first set forth above.
/s/ Tim Maudlin Tim Maudlin, an individual |
EXHIBIT A
INVESTMENT REPRESENTATION STATEMENT
PARTICIPANT NAME: Tim Maudlin
COMPANY: PLURALSIGHT HOLDINGS, LLC
NUMBER OF INCENTIVE UNITS: 209,000
In connection with my acquisition of the above Incentive Units of the Pluralsight Holdings, LLC (the Incentive Units ), under the Pluralsight Holdings, LLC Incentive Unit Plan (the Plan ) the undersigned Plan Participant represents to Pluralsight Holdings, LLC (the Company ) and its members, managers, employees and agents as follows:
(a) I am familiar with and aware of the Companys business affairs and financial condition and have acquired sufficient information to reach an informed and knowledgeable decision to acquire the Incentive Units. I am acquiring the Incentive Units for investment for my 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 of 1933, as amended (the Securities Act ). I am a resident of the State of Minnesota.
(b) I acknowledge and understand that the Incentive Units constitute restricted securities under the Securities Act and have not been registered under the Securities Act in reliance upon one or more specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of my investment intent as expressed herein. In this connection, I understand that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if my representation was predicated solely upon a present intention to hold the Incentive Units for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Incentive Units, or for a period of one (1) year or any other fixed period in the future. I further understand that the Incentive Units must be held by me indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. I further acknowledge and understand that the Company is under no obligation to register the Incentive Units. I understand that any certificate evidencing the Incentive Units shall be imprinted with any legend required under applicable securities laws.
(c) I have not relied upon, and no one has given to me, any representation, assurance, guarantee, prediction or estimate as to the future value of or appreciation in my Incentive Units or the Company. I further acknowledge that the Incentive Units are a speculative investment and represent that I am financially able to bear the risk of losing my entire investment in the Incentive Units.
PARTICIPANT
/s/ Timothy I. Maudlin |
Tim I. Maudlin |
Date: April 22, 2016 |
Exhibit 10.15
PLURALSIGHT HOLDINGS, LLC
May 27, 2016
Dear Mr. Rencher:
This letter agreement (this Agreement) confirms our understanding that Pluralsight Holdings, LLC, a Delaware limited liability company (the Company, we, or us), has engaged you to act in the capacities and to provide the services to the Company as set forth below, upon the terms and conditions set forth below. For your information, the controlling instrument with respect to the business, activities and governance of the Company is the Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC dated as of March 14, 2016, as amended, modified, or supplemented from time to time, a copy of which has been provided to you (the LLC Agreement). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings as set forth in the LLC Agreement.
1. Capacities; Services . You shall be a member of the Board of Managers (the Board) of the Company with the authority and duties as set forth in the LLC Agreement and as are normally associated with that position.
2. Unit Award . As consideration for your service as a member of the Board, the Company will award or grant to you 209,000 Incentive Units (representing approximately 0.20%, in total, of the aggregate outstanding Units of the Company on a fully-diluted basis as of the date hereof). The Incentive Units will be subject to the terms and conditions of the LLC Agreement, the Pluralsight Holdings, LLC Incentive Unit Plan dated as of May 24, 2013, as amended, modified, or supplemented from time to time, and an Incentive Unit Offer Letter between you and the Company (the Offer Letter). We anticipate that the strike price for your Incentive Units (as set forth in the Offer Letter) will be an amount equal to $9.42 per Incentive Unit and your applicable Catch-up Amount (as defined in the LLC Agreement) is $4.27 per Incentive Unit, subject to review and confirmation from our tax, legal, and accounting representatives, and subject to Board approval. Additionally, we anticipate that your units will vest over the course of three years on a quarterly basis, beginning on July 1, 2016 (all as further set forth in the Offer Letter).
3. Reimbursement of Expenses . The Company agrees to reimburse you for reasonable out-of-pocket expenses incurred by you for attendance at each meeting of the Board and for such additional reasonable out-of-pocket expenses incurred by you on behalf of the Company in connection with the services provided pursuant to this Agreement as are approved in advance by the Company. Reimbursement of out-of-pocket expenses will be paid promptly by the Company after receipt of reasonable documentation covering such expenses.
4. Information; Confidentiality .
(a) The Company understands and agrees that in performing the services hereunder you will use and rely upon the information provided by the Company and its advisors and that you do not assume responsibility for independent verification of any information, whether publicly available or otherwise furnished to you concerning the Company including, without limitation, any financial information, forecasts or projections, considered in connection with the rendering of your services. Accordingly, you shall be entitled to assume and rely upon the accuracy and completeness of all such information and are not required to conduct a physical inspection of any of the properties or assets, or to prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities of the Company (except to the extent required to satisfy your fiduciary responsibilities).
(b) During the term of this Agreement, you will have access to and become acquainted with confidential information of the Company and/or any of its subsidiaries, including among other things customer relationships, processes, and compilations of information, records and specifications, which are owned by the Company or any of its subsidiaries. You shall not use or disclose any of the Companys or any of its subsidiaries confidential information in any way that is detrimental to the interests of the Company or any of its subsidiaries, directly or indirectly, either during or after the term of this Agreement, except as required in the course of this Agreement. You agree to use reasonable efforts to ensure that your employees, agents, and representatives similarly maintain the confidentiality of such proprietary and confidential information of the Company and its subsidiaries.
5. Indemnity . The Company agrees to indemnify and hold you harmless to the full extent allowed by law and as set forth in the LLC Agreement against all expense, liability, and loss (including attorneys fees, judgments, fines, excise taxes or penalties and amounts paid in settlement) reasonably incurred by you in connection with your engagement hereunder; provided, however, there shall be excluded from such indemnification any such expense, liability, and loss (a) for acts or omissions involving actual fraud or willful misconduct or (b) with respect to any transaction from which you derived improper personal benefit.
6. Term . Your services hereunder and the term of this Agreement may be terminated at any time (a) by you, upon written notice to the Company, or (b) by the Members of the Company, as provided in the LLC Agreement.
7. Notice . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7).
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If to you:
Bradley Rencher
If to the Company:
Pluralsight Holdings, LLC
182 North Union Avenue
Farmington, Utah 84025
Attention: Legal Counsel
8. Independent Contractor . In providing the services hereunder, you are acting as an independent contractor and it is expressly understood and agreed that this Agreement is not intended to create, and does not create, any partnership, agency, joint venture or similar relationship and that no party has the right or ability to contract for or on behalf of any other party or to effect any transaction for the account of any other party. Nothing herein shall be construed to an employee/employer relationship. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be deemed or construed to enlarge your fiduciary duties and responsibilities, if any, including without limitation in your capacity as a member of the Board.
9. Entire Agreement; Amendment and Modification; Waiver . This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
10. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. However, neither this Agreement nor any of the rights of the parties hereunder may otherwise be transferred or assigned by any party hereto, except that if the Company shall merge or consolidate with or into, or sell or otherwise transfer substantially all its assets to, another company which assumes the Companys obligations under this Agreement, the Company may assign its rights hereunder to that company. Any attempted transfer or assignment in violation of this Section 10 shall be void.
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11. Legal Matters .
(a) Governing Law . This Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule.
(b) Jurisdiction . Any legal suit, action or proceeding arising out of or based upon or relating to this Agreement or the transactions contemplated hereby shall be instituted in the federal courts of the United States of America or the courts of the State of Utah in each case located in the City of Salt Lake and County of Salt Lake, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified mail in accordance with Section 7 shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
(c) Waiver of Trial by Jury . Each party acknowledges and agrees that any controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each party to this Agreement certifies and acknowledges that (i) no representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (ii) such party has considered the implications of this waiver, (iii) such party makes this waiver voluntarily, and (iv) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 11(c).
(d) Equitable Remedies . The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to equitable relief, including injunctive relief or specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
(e) Fees and Costs . In the event that any party institutes any legal suit, action or proceeding against the other party to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach of this Agreement) or otherwise arising out of or relating to this Agreement, the prevailing party in the suit, action or proceeding shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit, action or proceeding, including reasonable attorneys fees and expenses and court costs.
12. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
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13. No Strict Construction . The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
[Signature Page Follows]
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Please confirm that the foregoing correctly sets forth our agreement with respect to the subject matter hereof by signing and returning to the undersigned a copy of this Letter.
Pluralsight Holdings, LLC | ||
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard Its: President/Chief Executive Officer |
||
The foregoing Letter is accepted and agreed to as of the date first set forth above.
/s/ Bradley Rencher
Bradley Rencher, an individual |
Exhibit 10.16
MULTI-TENANT
OFFICE
LEASE AGREEMENT
STATION PARK CENTERCAL, LLC, as Landlord,
and
PLURALSIGHT, LLC, as Tenant.
STATION PARK
FARMINGTON, UTAH
TABLE OF CONTENTS
Page | ||||||
ARTICLE 1 LEASE OF PREMISES AND LEASE TERM | 3 | |||||
1.1 |
Premises |
3 | ||||
1.2 |
Term, Delivery and Commencement |
3 | ||||
ARTICLE 2 RENTAL AND OTHER PAYMENTS | 4 | |||||
2.1 |
Basic Rent |
4 | ||||
2.2 |
Additional Rent |
5 | ||||
2.3 |
Delinquent Rental Payments |
5 | ||||
2.4 |
Independent Obligations |
5 | ||||
2.5 |
Security Deposit |
5 | ||||
ARTICLE 3 PERSONAL PROPERTY TAXES | 6 | |||||
3.1 |
Personal Property Taxes |
6 | ||||
ARTICLE 4 USE | 6 | |||||
4.1 |
Permitted Use |
6 | ||||
4.2 |
Acceptance of Premises |
6 | ||||
4.3 |
Increased Insurance |
6 | ||||
4.4 |
Laws/Building Rules |
7 | ||||
4.5 |
Common Area |
7 | ||||
4.6 |
Signs |
7 | ||||
ARTICLE 5 HAZARDOUS MATERIALS | 8 | |||||
5.1 |
Compliance with Hazardous Materials Laws |
8 | ||||
5.2 |
Notice Actions |
8 | ||||
5.3 |
Disclosure and Warning Obligations |
8 | ||||
5.4 |
Indemnification by Tenant |
9 | ||||
5.5 |
Indemnification by Landlord |
9 | ||||
ARTICLE 6 SERVICES | 9 | |||||
6.1 |
Landlords Obligations |
9 | ||||
6.2 |
Tenants Obligations |
10 | ||||
6.3 |
Other Provisions Relating to Services |
10 | ||||
6.4 |
Tenant Devices |
10 | ||||
6.5 |
Interruption of Services |
10 | ||||
ARTICLE 7 MAINTENANCE AND REPAIR | 11 | |||||
7.1 |
Landlords Obligations |
11 | ||||
7.2 |
Tenants Obligations |
11 | ||||
ARTICLE 8 CHANGES AND ALTERATIONS | 12 | |||||
8.1 |
Landlord Approval |
12 | ||||
8.2 |
Tenants Responsibility for Cost and Insurance |
12 | ||||
8.3 |
Construction Obligations and Ownership |
12 | ||||
8.4 |
Liens |
13 | ||||
8.5 |
Indemnification |
13 | ||||
ARTICLE 9 RIGHTS RESERVED BY LANDLORD | 13 | |||||
9.1 |
Landlords Entry |
13 | ||||
9.2 |
Control of Shopping Center |
13 | ||||
9.3 |
Lock Box Agent/Rent Collection Agent |
14 |
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ARTICLE 10 INSURANCE AND CERTAIN WAIVERS AND INDEMNIFICATIONS | 14 | |||||
10.1 |
Tenants Insurance Obligations |
14 | ||||
10.2 |
Landlords Insurance Obligations |
15 | ||||
10.3 |
Waivers and Releases of Claims and Subrogation |
16 | ||||
10.4 |
Tenants Indemnification of Landlord |
17 | ||||
10.5 |
Landlords Indemnification of Tenant |
17 | ||||
ARTICLE 11 DAMAGE OR DESTRUCTION | 17 | |||||
11.1 |
Tenantable Within 270 Days |
17 | ||||
11.2 |
Not Tenantable Within 270 Days |
18 | ||||
11.3 |
Building Substantially Damaged |
18 | ||||
11.4 |
Insufficient Proceeds |
18 | ||||
11.5 |
Landlords Repair Obligations |
18 | ||||
11.6 |
Rent Apportionment Upon Termination |
18 | ||||
11.7 |
Exclusive Casualty Remedy |
18 | ||||
ARTICLE 12 EMINENT DOMAIN | 19 | |||||
12.1 |
Termination of Lease |
19 | ||||
12.2 |
Landlords Repair Obligations |
19 | ||||
12.3 |
Tenants Participation |
19 | ||||
12.4 |
Exclusive Taking Remedy |
20 | ||||
ARTICLE 13 TRANSFERS | 20 | |||||
13.1 |
Restriction on Transfers |
20 | ||||
13.2 |
Costs |
20 | ||||
ARTICLE 14 DEFAULTS; REMEDIES | 21 | |||||
14.1 |
Events of Default |
21 | ||||
14.2 |
Remedies |
21 | ||||
14.3 |
Costs |
22 | ||||
14.4 |
Waiver and Release by Tenant |
23 | ||||
14.5 |
Landlords Default |
23 | ||||
14.6 |
No Waiver |
23 | ||||
ARTICLE 15 CREDITORS; ESTOPPEL CERTIFICATES | 23 | |||||
15.1 |
SubordinationNon-Disturbance |
23 | ||||
15.2 |
Attornment |
24 | ||||
15.3 |
Mortgagee Protection Clause |
24 | ||||
15.4 |
Estoppel Certificates |
24 | ||||
ARTICLE 16 TERMINATION OF LEASE | 24 | |||||
16.1 |
Surrender of Premises |
24 | ||||
16.2 |
Holding Over |
25 | ||||
ARTICLE 17 ADDITIONAL PROVISIONS | 25 | |||||
17.1 |
Initial Improvements |
25 | ||||
ARTICLE 18 MISCELLANEOUS PROVISIONS | 26 | |||||
18.1 |
Notices |
26 | ||||
18.2 |
Transfer of Landlords Interest |
26 | ||||
18.3 |
Successors |
26 | ||||
18.4 |
Captions and Interpretation |
26 |
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18.5 |
Relationship of Parties |
26 | ||||
18.6 |
Entire Agreement; Amendment |
26 | ||||
18.7 |
Severability |
27 | ||||
18.8 |
Landlords Limited Liability |
27 | ||||
18.9 |
Survival |
27 | ||||
18.10 |
Attorneys Fees |
27 | ||||
18.11 |
Brokers |
27 | ||||
18.12 |
Governing Law |
27 | ||||
18.13 |
Time is of the Essence |
27 | ||||
18.14 |
Joint and Several Liability |
27 | ||||
18.15 |
Tenants and Guarantors Organizational Documents; Authority |
28 | ||||
18.16 |
Provisions are Covenants and Conditions |
28 | ||||
18.17 |
Force Majeure |
28 | ||||
18.18 |
Management |
28 | ||||
18.19 |
Financial Statements |
28 | ||||
18.20 |
Quiet Enjoyment |
28 | ||||
18.21 |
No Recording |
28 | ||||
18.22 |
Construction of Lease and Terms |
29 | ||||
18.23 |
Development Matters |
29 | ||||
18.24 |
Homeland Security |
29 |
EXHIBIT A |
DEFINITIONS |
|
EXHIBIT B |
FLOOR PLAN |
|
EXHIBIT B-1 |
SITE PLAN |
|
EXHIBIT C |
COMMENCEMENT DATE MEMORANDUM |
|
EXHIBIT D |
BUILDING RULES |
|
EXHIBIT D-1 |
SHOPPING CENTER USE RESTRICTIONS |
|
EXHIBIT E |
CONSTRUCTION PROCEDURES |
iii
OFFICE LEASE AGREEMENT
This Office Lease Agreement (this Lease) is made and entered into as of the Effective Date by and between Station Park CenterCal, LLC, a Delaware limited liability company, as Landlord, and Pluralsight, LLC, a Utah limited liability company, as Tenant.
DEFINITIONS
Capitalized terms used in this Lease have the meanings ascribed to them on the attached EXHIBIT A.
BASIC TERMS
The following Basic Terms are applied under and governed by the particular section(s) in this Lease pertaining to the following information:
1. Premises: |
Suite 200, consisting of approximately 28,970 rentable square feet and located on the 2nd floor of the building located at 180 N. Union Avenue, Farmington, Utah 84025 (the Building). The Premises is depicted on EXHIBIT B. (See Section 1.1) | |
2. Lease Term: |
Commencing on the Commencement Date and ending sixty-six (66) months following the first day of the calendar month immediately following the month containing the Commencement Date (unless the Commencement Date is the first day of a calendar month, in which event the Term shall end sixty-six (66) months following the Commencement Date). (See Section 1.2) | |
Renewal Option: | (See Section 1.2.4) | |
3. Delivery Date: |
The date Landlord delivers the Premises to Tenant. (See Section 1.2) | |
4. Basic Rent: |
Months |
Annual Basic Rent per
Rentable square foot of the Premises |
Monthly Installments | ||||||
1-6* | $ | 22.00 | $ | 53,111.67 | ||||
7-18 | $ | 22.00 | $ | 53,111.67 | ||||
19-30 | $ | 22.66 | $ | 54,705.02 | ||||
31-42 | $ | 23.34 | $ | 56,346.65 | ||||
43-54 | $ | 24.04 | $ | 58,036.57 | ||||
55-66 | $ | 24.76 | $ | 59,774.77 |
* | Months 1-6 subject to abatement as provided in Section 2.1.1. |
Renewal Term: |
Rent determined in accordance with Section 1.2.4 | |
5. Base Year: |
Calendar year 2014. |
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ARTICLE 1
L EASE OF PREMISES AND LEASE TERM
1.1 Premises.
In consideration of the mutual covenants this Lease describes and other good and valuable consideration, Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord, upon and subject to the terms, covenants and conditions set forth in this Lease. The rentable area of the Premises is the rentable area specified in the Basic Terms. Landlord shall determine the rentable area of all Office Space, including, without limitation, the Premises, substantially in accordance with BOMA Standards. Landlord shall determine the floor area of the retail portion of the Shopping Center by measuring from the exterior faces of all exterior walls, service corridor and fire walls, and from the center line of the common demising walls separating the Premises from other spaces, exclusive of common areas, mezzanine areas and areas, if any, used as a community room or for management and promotion offices. No reduction shall be made for columns or interior construction or equipment. Following the Delivery Date, Landlord shall have the right to have the actual rentable area of the Premises determined, and if the actual rentable area of the Premises, as determined by Landlord, differs from the rentable area specified in the Basic Terms, Landlord and Tenant will amend this Lease accordingly.
1.2 Term, Delivery and Commencement.
1.2.1 Commencement and Expiration of Term.
The Term of this Lease is the period stated in the Basic Terms. The Term commences on the Commencement Date and, unless earlier terminated in accordance with the terms and conditions of this Lease, expires on the last day of the last calendar month of the Term. Notwithstanding the foregoing, from and after the date of full execution and delivery of this Lease, this Lease shall be in full force and effect, and Tenant shall keep, perform and observe all the terms, covenants, conditions, agreements, indemnities and other promises to be kept, performed and observed by Tenant with respect to the Premises (other than payment of Rent) prior to the Commencement Date.
1.2.2 Tender of Possession.
Landlord will use commercially reasonable efforts to ensure that the Delivery Date occurs on or before the date five (5) days following the Effective Date, subject to any extension of such date under Section 18.17; provided, however, failure of the Delivery Date to occur by such date shall in no way affect the validity of this Lease or the obligations of Tenant hereunder. If the Delivery Date has not occurred by the fifth (5th) day following the Effective Date, then Landlord shall not be subject to any claims, damages or liabilities for the failure to give possession on such date; provided, however, if the Delivery Date has not occurred by the tenth (10) business day following the Effective Date (the Termination Date), then Tenant shall have the option, as its sole and exclusive remedy, to terminate this Lease upon written notice to Landlord given subsequent to the Termination Date and prior to the Delivery Date; provided, however, the Termination Date shall be extended for the period that that the Delivery Date has not occurred by reason of Force Majeure which occurs after the date of this Lease hereof; and further provided, Tenant shall not have the option to terminate this Lease pursuant to this Section 1.2.2 if Tenant has taken possession of any part of the Premises, or has commenced to install its equipment, trade fixtures or furniture therein. Failure by Tenant to notify Landlord within the time period prescribed herein shall constitute a waiver of the termination right provided in this Section 1.2.2.
1.2.3 Commencement Date Memorandum.
Within a reasonable time after the Delivery Date, Landlord will deliver to Tenant the Commencement Date Memorandum with all blanks relating to dates completed with dates Landlord derives in accordance with this Lease. Tenant, within 10 days after receipt from Landlord, will either acknowledge the Commencement Date and the scheduled date of the expiration of the Term by executing and delivering to Landlord the Commencement Date Memorandum or inform Landlord in writing of Tenants disagreement with the Commencement Date Memorandum and the basis of such disagreement. Tenants failure to execute and deliver to Landlord the Commencement Date Memorandum or inform Landlord of that Tenant disagrees with the Commencement Date Memorandum, does not affect
3
any obligation of Tenant under this Lease. If Tenant does not timely execute and deliver to Landlord the Commencement Date Memorandum, Landlord and any prospective purchaser or encumbrances may conclusively rely on the information contained in the unexecuted Commencement Date Memorandum Landlord delivered to Tenant.
1.2.4 Renewal Term
Tenant shall have the right, subject to the provisions hereinafter provided, to renew the Term for two (2) periods of five (5) years each (each such 5-year period is herein referred to as a Renewal Term), on the terms and provisions of this Article provided:
A. This Lease is in full force and effect and Tenant is not in default in the performance of any of the terms, covenants and conditions herein contained, in respect to which notice of default has been given hereunder which has not been or is not being remedied in the time limited in this Lease, at the time of exercise of the right of renewal and at the time set for commencement of any Renewal Term, but Landlord shall have the right at its sole discretion to waive this condition;
B. That such Renewal Terms shall be upon the same terms, covenants and conditions as provided in this Lease; provided, however, the annual Basic Rent for the Renewal Terms shall be an amount equal to ninety-five percent (95%) of the then current annual Basic Rent rate for new leases for similar space in the Buildings according to Landlords then current rental rate schedule for new leases for prospective tenants as in effect six (6) months prior to commencement of the applicable Renewal Term; provided, however, the Basic Rent rate for such Renewal Term shall in no event be less than the Basic Rent rate payable by Tenant immediately prior to commencement of the applicable Renewal Term. Upon determination of the Basic Rent rate for the Renewal Terms, the parties shall execute an amendment to this Lease to establish and evidence such Basic Rent rate; and
C. That Tenant shall exercise its right to the Renewal Terms provided herein by notifying Landlord in writing of its election to renew the Term for an additional 5-year period on or before the date that is: (i) six (6) months prior to the expiration of the then current Term; or (ii) within twenty (20) days after receipt of notice from Landlord to Tenant that Tenant has failed to exercise its option of extension within the period provided in (i) above, and the option(s) of extension shall not lapse until after the expiration of said twenty (20) day period following receipt of Landlords notice.
D. Time is of the essence with respect to the rights granted by this Section 1.2.4.
ARTICLE 2
RENTAL AND OTHER PAYMENTS
2.1 Basic Rent.
Tenant will pay Basic Rent in monthly installments to Landlord, in advance, without offset, demand or deduction, commencing on the Commencement Date and continuing on the first day of each and every calendar month after the Commencement Date during the Term. Tenant will make all Basic Rent payments to Landlord in care of Property Manager at the address specified in the Basic Terms or at such other place or in such other manner as Landlord may from time to time designate in writing. Tenant will make all Basic Rent payments without Landlords previous demand, invoice or notice for payment. Landlord and Tenant will prorate, on a per diem basis, Basic Rent for any partial month within the Term.
2.1.1 Anything in this Lease to the contrary notwithstanding, Tenant shall have no liability for Basic Rent for the first (1st) full one hundred eighty (180) days of the Term.
4
2.2 Additional Rent.
Anything herein to the contrary notwithstanding, this Lease is a so-called gross lease and Additional Rent reserved hereunder includes only those certain charges, fees or expenses expressly payable as Additional Rent by Tenant under the Lease in addition to Basic Rent, but specifically does not include payment of real estate taxes, Landlords insurance premiums or operating expenses. Except as specifically set forth in this Lease, Tenant will pay all Additional Rent described in this Lease within ten (10) days after receiving Landlords invoice for such Additional Rent. Tenant will make all Additional Rent payments to the same location and, except as described in the previous sentence, in the same manner as Tenants Basic Rent payments.
2.3 Delinquent Rental Payments.
If Tenant does not pay any installment of Basic Rent, Additional Rent or any other payment due under this Lease within three Business Days after the date the payment is due, Tenant will pay Landlord an additional amount equal to the sum of (a) interest on the delinquent payment calculated at the Maximum Rate from the date when the payment is due through the date the payment is made, and (b) a late payment charge equal to 3% of the amount of the delinquent payment. Landlords right to such compensation for the delinquency is in addition to all of Landlords rights and remedies under this Lease, at law or in equity.
2.4 Independent Obligations.
Notwithstanding any contrary term or provision of this Lease, Tenants covenant and obligation to pay Rent is independent from any of Landlords covenants, obligations, warranties or representations in this Lease. Tenant will pay Rent without any right of offset or deduction.
2.5 Security Deposit.
At the time of execution hereof, Tenant shall deposit with Landlord the sum of Sixty Thousand and 00/100 Dollars ($60,000.00) in cash, as and for a security deposit for the full and faithful performance by Tenant of each and every term, provision, covenant and condition of this Lease. In the event that Tenant defaults with respect to any of the terms, provisions, covenants and conditions of this Lease, including, but not limited to, the payment of any rentals or other charges or items to be paid or provided for by Tenant, Landlord may use, apply or retain the whole or any part of the security so deposited for the payment of any such rentals in default or for any other sum which Landlord may expend or be required to expend by reason of Tenants default, including, but not limited to, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency may accrue before or after re-entry by Landlord. Tenant shall not be entitled to any interest on the security deposit. It is expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Landlords damages in case of Tenants default and shall not be considered to be held in trust by Landlord for the benefit of Tenant. Upon application of any part of the deposit by Landlord as provided herein, Tenant shall pay to Landlord on demand the amount so applied in order to restore the security deposit to its original amount. Any application of the deposit by Landlord shall not be deemed to have cured Tenants default by reason of which the application is made. In the event of a bona fide sale of the Building, Landlord shall have the right to transfer the security deposit to its vendee for the benefit of Tenant, and thereafter Landlord shall be released of all liability for the return of such deposit and Tenant agrees to look to said vendee for the return of its security deposit. It is agreed that this provision shall apply to every transfer or assignment made of the security deposit to any new landlord. This security deposit shall not be assigned or encumbered by Tenant. It is expressly understood that the re-entry of the Premises by Landlord for any default on the part of Tenant prior to the expiration of the term of this Lease shall not be deemed a termination of this Lease so as to entitle Tenant to recover the security deposit, and the security deposit shall be retained and remain in the possession of Landlord until the termination of this Lease. Actions by Landlord against Tenant for breach of this Lease shall in no way be limited or restricted by the amount of this security deposit and resort to such security deposit shall not waive any other rights or constitute an election of remedies which Landlord may have. If Tenant shall fully and faithfully comply with all the terms, provisions, covenants and conditions of this Lease, the security deposit, or any balance thereof, shall be returned to Tenant within thirty (30) days after the termination of this Lease and after the removal of Tenant and surrender of possession of the Premises to Landlord.
5
ARTICLE 3
PERSONAL PROPERTY TAXES
3.1 Personal Property Taxes.
Tenant, prior to delinquency, will pay all taxes charged against Tenants trade fixtures and other personal property. Tenant will use all reasonable efforts to have such trade fixtures and other personal property taxed separately from the Buildings and Shopping Center. If any of Tenants trade fixtures and other personal property is taxed with the Buildings or Shopping Center, Tenant will pay the taxes attributable to Tenants trade fixtures and other personal property to Landlord as Additional Rent.
ARTICLE 4
USE
4.1 Permitted Use.
Tenant will use the Premises only for general office purposes and for no other purpose (the Permitted Use), and Tenant shall not use the Premises outside of Business Hours unless otherwise reasonably approved in writing by Landlord. If Tenant intends to discontinue the conduct of the Permitted Use, except as otherwise provided herein, Tenant shall first give Landlord at least ninety (90) days prior written notice of such intent to discontinue the conduct of the Permitted Use. At any time following receipt of such notice (i) Landlord shall have the right to terminate this Lease upon written notice thereof to Tenant; provided that Landlord shall not have the right to terminate this Lease until the earlier to occur of the date given in Tenants notice as the date Tenant will vacate the Premises and the actual date Tenant vacates the Premises, and (ii) Landlord shall be entitled to enter the Premises and exhibit the same to any prospective tenant, purchaser or lender. If Tenant discontinues the conduct of the Permitted Use, upon and subject to the conditions and limitations contained herein, Tenant shall continue to comply with the payment, performance and observance of all other obligations of this Lease on the part of Tenant to be paid, performed or observed, including, without limitation, payment of Basic Rent and Additional Rent. Tenant will not use the Premises or knowingly permit the Premises to be used in violation of any Laws or in any manner that would (a) violate any certificate of occupancy affecting the Premises; (b) make void or voidable any insurance now or after the Effective Date in force with respect to the Premises; (c) cause injury or damage to the Premises or to the person or property of any other tenant of the Shopping Center; (d) cause substantial diminution in the value or usefulness of all or any part of the Premises or Shopping Center (reasonable wear and tear excepted); (e) constitute a public or private nuisance or waste; or (f) violate any exclusive use agreements or use restrictions granted by Landlord as of the Effective Date, all such exclusive uses or restricted uses being identified on Exhibit D-1 attached hereto and made a part hereof, with respect to the Shopping Center. Tenant will obtain and maintain, at Tenants sole cost and expense, all permits and approvals required under the Laws for Tenants use of the Premises. In addition to other restrictions on the use of the Premises, the Premises are expressly prohibited from all uses set forth on EXHIBIT D-1 attached hereto and made a part hereof.
4.2 Acceptance of Premises.
Tenant acknowledges that, except as expressly set forth in this Lease, neither Landlord nor any agent, contractor or employee of Landlord has made any representation or warranty of any kind with respect to the Premises, the Building or the Shopping Center, specifically including, but not limited to, any representation or warranty of suitability or fitness of the Premises, the Building or the Shopping Center for any particular purpose. Tenants occupancy of the Premises establishes Tenants acceptance of the Premises, the Building and the Shopping Center in an AS ISWHERE IS condition.
4.3 Increased Insurance.
Tenant will not do, or permit to be done, in the Premises, the Building or the Shopping Center anything that will (a) increase the premium of any insurance policy Landlord carries covering the Premises, the Building or the Shopping Center; (b) cause a cancellation of or be in conflict with any such insurance policy; (c) result in any insurance companys refusal to issue or continue any such insurance in amounts satisfactory to Landlord; or (d) subject Landlord to any
6
liability or responsibility for injury to any person or property by reason of Tenants operations in, or use of, the Premises, the Building or Shopping Center. Tenant, at Tenants sole cost and expense, will comply with all rules, orders, regulations and requirements of insurers and of the American Insurance Association or any other organization performing a similar function. Tenant will reimburse Landlord, as Additional Rent, for any additional premium charges for such policy or policies resulting from Tenants failure to comply with the provisions of this section.
4.4 Laws/Building Rules.
This Lease is subject and subordinate to all Laws. A copy of the current Building Rules is attached to this Lease as EXHIBIT D. Landlord may amend the Building Rules from time to time in Landlords reasonable discretion.
4.5 Common Area.
Landlord shall maintain the Common Area in good order, condition and repair, in a manner deemed by Landlord reasonable, appropriate and in the best interests of the occupants of the Shopping Center, subject to all other terms and conditions of this Lease relating to the Common Area. Landlord reserves the right to change from time to time the dimensions and location of the Common Area and the location, dimensions, identity and type of any parking area or building in the Shopping Center and to construct additional buildings, additions to existing buildings, and other improvements in the Shopping Center, to eliminate buildings from the Shopping Center, to increase the land size of the Shopping Center, and to change the name, address, number or designation by which the Shopping Center is commonly known. Tenant shall have the nonexclusive right to use the portions of the Common Area designated for such use from time to lime, such use to be in common with Landlord, other occupants of the Shopping Center and other persons entitled to use the same, and subject to such reasonable rules and regulations as Landlord may from time to time prescribe. Tenant will furnish to Landlord upon request a complete list of license numbers of all automobiles operated by Tenant, its employees, subtenants, licensees or concessionaires. If Tenant fails to abide by any parking designations established by Landlord, then Tenant will pay a fine of $10 for each day any such car is parked in areas other than those designated by Landlord and, in addition to any other remedies available to Landlord, Landlord may tow any automobiles that are parked in areas other than those designated by Landlord. Tenant shall not solicit business or display merchandise within the Common Area, or distribute handbills therein, or take any action which would interfere with the rights of other persons to use the Common Area without the prior written consent of the Landlord, Landlord may close any part of the Common Area for such periods of time as may be necessary to prevent the public from obtaining prescriptive rights or to make repairs or alterations. No implied easements are granted by this Lease.
Landlord hereby grants Tenant the right to use and designate with signage approved by Landlord, two (2) parking spaces designated solely for electrical vehicle parking for the non-exclusive use of Tenant, in the locations set forth on the Site Plan. Any signage installed by Tenant designating such parking spaces as electrical vehicle parking shall be subject to Landlords prior approval (not to be unreasonably withheld, conditioned or delayed) as to design and wording; provided, however, that signage wording shall be similar to the following: Parking For Electric Vehicles Only. All Other Vehicles Will Be Towed At Owners Expense. Electricity Provided By Pluralsight.
4.6 Signs.
Landlord will provide to Tenant (a) one building standard tenant identification sign adjacent to the entry door of the Premises, and (b) one standard building directory listing. The signs will conform to Landlords sign criteria. Landlord will install and maintain the signs in good condition and repair during the Term at Tenants sole cost and expense. Subject to applicable laws and regulations and Landlords sign criteria, Landlord shall permit Tenant to install two (2) exterior building signs on the Building, the location of which shall be as shown on Exhibit F attached hereto. Tenant agrees to have such exterior signs erected and/or installed and fully operative on or before the Commencement Date in accordance with Landlords sign criteria and all applicable laws and regulations. Tenant will not install or permit to be installed in the Premises any other sign, decoration or advertising material of any kind that is visible from the exterior of the Premises. Landlord may immediately remove, at Tenants sole cost and expense, any sign, decoration or advertising material that violates this section.
7
ARTICLE 5
HAZARDOUS MATERIALS
5.1 Compliance with Hazardous Materials Laws.
Landlord covenants that on the Delivery Date, the Building and the Premises shall be free of all Hazardous Materials in reportable quantities in violation of applicable environmental laws. Tenant will not cause any Hazardous Material to be brought upon, kept or used on the Premises, the Buildings or the Shopping Center in a manner or for a purpose prohibited by or that could result in liability under any Hazardous Materials Law. Tenant, at its sole cost and expense, will comply with all Hazardous Materials Laws and prudent industry practice relating to the presence, treatment, storage, transportation, disposal, release or management of Hazardous Materials in, on, under or about the Premises, the Buildings or the Shopping Center that Tenant brings upon, keeps or uses on the Premises, the Buildings or the Shopping Center and will notify Landlord of any and all Hazardous Materials Tenant brings upon, keeps or uses on the Premises, the Buildings or the Shopping Center (other than small quantities of office cleaning or other office supplies as are customarily used by a tenant in the ordinary course in a general office facility). On or before the expiration or earlier termination of this Lease, Tenant, at its sole cost and expense, will completely remove from the Premises, the Buildings or the Shopping Center (regardless whether any Hazardous Materials Law requires removal), in compliance with all Hazardous Materials Laws, all Hazardous Materials Tenant causes to be present in, on, under or about the Premises, the Buildings or the Shopping Center. Tenant will not take any remedial action in response to the presence of any Hazardous Materials in on, under or about the Premises, the Buildings or the Shopping Center, nor enter into any settlement agreement, consent decree or other compromise with respect to any Claims relating to or in any way connected with Hazardous Materials in, on, under or about the Premises, the Buildings or the Shopping Center, without first notifying Landlord of Tenants intention to do so and affording Landlord reasonable opportunity to investigate, appear, intervene and .otherwise assert and protect Landlords interest in the Premises, the Buildings or the Shopping Center. Tenant shall cooperate with Landlord and permit Landlord and all governmental authorities having jurisdiction reasonable access to the Premises for purposes of conducting any environmental monitoring required by applicable Hazardous Materials Laws.
5.2 Notice Actions.
Tenant will notify Landlord of any of the following actions affecting Landlord, Tenant or the Premises, the Buildings or the Shopping Center that result from or in any way relate to Tenants use of the Premises, the Buildings or the Shopping Center immediately after receiving notice of the same: (a) any enforcement, clean-up, removal or other governmental or regulatory action instituted, completed or threatened under any Hazardous Materials Law; (b) any Claim made or threatened by any person relating to damage, contribution, liability, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Material; and (c) any reports made by any person, including Tenant, to any environmental agency relating to any Hazardous Material, including any complaints, notices, warnings or asserted violations. Tenant will also deliver to Landlord, as promptly as possible and in any event within five Business Days after Tenant first receives or sends the same, copies of all Claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, the Buildings or the Shopping Center or Tenants use thereof Upon Landlords written request, Tenant will promptly deliver to Landlord documentation acceptable to Landlord reflecting the legal and proper disposal of all Hazardous Materials removed or to be removed by Tenant from the Premises, the Buildings or the Shopping Center. All such documentation will list Tenant or its agent as a responsible party and will not attribute responsibility for any such Hazardous Materials to Landlord or Property Manager.
5.3 Disclosure and Warning Obligations.
Tenant acknowledges and agrees that all reporting and warning obligations required under Hazardous Materials Laws resulting from Tenants use of the Premises, the Buildings or the Shopping Center are Tenants sole responsibility, regardless whether the Hazardous Materials Laws permit or require Landlord to report or warn.
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5.4 Indemnification by Tenant.
Tenant will indemnify, defend (with counsel reasonably acceptable to Landlord), protect and hold harmless the Landlord Parties and the Landlord Affiliated Entities from and against any and all Claims whatsoever arising or resulting, in whole or in part, directly or indirectly, from the presence, treatment, storage, transportation, disposal, release or management of Hazardous Materials in, on, under, upon or from the Premises, the Building or the Shopping Center (including water tables and atmosphere) introduced by Tenant, its agents, employees, or invitees. Tenants obligations under this section include, without limitation and whether foreseeable or unforeseeable, the costs of (a) any required or necessary repair, clean-up, detoxification or decontamination of the Premises, the Building or the Shopping Center, and (b) implementing any closure, remediation or other required action in connection therewith as stated above. The obligations of Tenant under this section survive the expiration or earlier termination of this Lease.
5.5 Indemnification by Landlord.
Landlord will indemnify, defend and hold harmless Tenant and Tenants Affiliates from and against all damages (excluding consequential, punitive or similar type damages), costs, losses, expenses (including, but not limited to, reasonable attorneys fees and engineering fees) to the extent caused by (i) the existence of any Hazardous Materials at the Building in violation of applicable environmental laws as a result of Landlords construction of the Improvements or Landlords operation of the Common Areas (excluding any matters caused solely by an unrelated third party), as the case may be, and (ii) any breach by Landlord of any of its covenants in this Article 5; provided, however, in case any claim, action, suit or proceeding shall be brought against Tenant and such matter is subject to Landlords indemnification as provided above, Tenant shall promptly notify Landlord of the same in sufficient time to avoid any prejudice to Landlord and Tenant shall tender defense of any such claim to Landlord, who shall have the right to assume and control the defense thereof with counsel of its own selection, and Landlord shall have the right to control any resulting remediation.
ARTICLE 6
SERVICES
6.1 Landlord s Obligations.
Landlord will provide the following services, during Business Hours, it being understood that Landlord will provide the following services after Business Hours, subject to reimbursement by Tenant:
6.1.1 Janitorial Service.
Janitorial service in the Premises, five times per week, including cleaning, trash removal, necessary dusting and vacuuming, maintaining towels, tissue and other restroom supplies and such other work as is customarily performed in connection with nightly janitorial services in office complexes similar in construction, location, use and occupancy to the Building. Landlord will also provide periodic interior and exterior window washing and cleaning and waxing of uncarpeted floors in accordance with Landlords schedule for the Building.
6.1.2 Water.
Hot and cold water from standard building outlets for lavatory, restroom and drinking purposes.
6.1.3 Elevator Service.
Elevator service to be used by Tenant in common with other tenants. Landlord may restrict Tenants use of elevators for freight purposes to the freight elevator and to hours Landlord reasonably determines. Landlord may limit the number of elevators in operation at times other than Business Hours.
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6.1.4 Heating, Ventilation and Air Conditioning.
During Business Hours, heating, ventilation and air conditioning to the Premises sufficient to maintain temperatures in the Premises consistent with other Class A office space in the Davis County area. During other times, Landlord will provide heat and air conditioning upon Tenants reasonable advance notice (not less than 24 hours). Tenant will pay Landlord, as Additional Rent, for such extended service on an hourly basis at the prevailing rates Landlord reasonably establishes and that are consistent with other Class A office space in the Davis County area. If extended service is not a continuation of the service Landlord furnished during Business Hours, Landlord may require Tenant to pay for a minimum of 4 hours of such service. Landlord will provide air conditioning to the Premises based on standard lighting and general office use only.
6.2 Tenant s Obligations.
Tenant is solely responsible for paying directly to the applicable utility companies, prior to delinquency, all separately metered or separately charged utilities, if any, to the Premises or to Tenant. Except as provided in Sections 6.1 and 17.1, Tenant will also obtain and pay for all other utilities and services Tenant requires with respect to the Premises (including, but not limited to, hook-up and connection charges).
6.3 Other Provisions Relating to Services.
Except as otherwise provided in Section 6.5, no interruption in, or temporary stoppage of, any of the services this Article 6 describes is to be deemed an eviction or disturbance of Tenants use and possession of the Premises, nor does any interruption or stoppage relieve Tenant from any obligation this Lease describes, render Landlord liable for damages or entitle Tenant to any Rent abatement. Landlord is not required to provide any heat, air conditioning, electricity or other service in excess of that permitted by any Laws. Landlord has the exclusive right and discretion to select the provider of any utility or service to the Shopping Center and to determine whether the Premises or any other portion of the Buildings or Shopping Center may or will be separately metered or separately supplied. Notwithstanding any contrary language in this Lease, Tenant may not obtain utility services directly from any supplier other than the supplier Landlord selects. Landlord reserves the right, from time to time, to make reasonable and non-discriminatory modifications to the above standards for utilities and services.
6.4 Tenant Devices.
Tenant will not, without Landlords prior written consent, use any apparatus or device in or about the Premises that causes substantial noise, odor or vibration. Tenant will not connect any apparatus or device to electrical current or water except through the electrical and water outlets Landlord installs in the Premises.
6.5 Interruption of Services.
Notwithstanding the foregoing, if Landlord elects to furnish one or more utility services to Tenant and if Landlord is unable (by reason of causes other than casualty or condemnation) to provide any of such services or if any interruption, reduction, curtailment or impairment to any utility service to the Premises is caused by Landlord, and, in either such event, if such inability or interruption, reduction, curtailment or impairment renders the whole or a material portion of the Premises untenantable or unsuitable for the conduct of the Permitted Use, subject to and in accordance with the conditions and limitations contained herein, for a period of three (3) consecutive business days after receipt by Landlord of written notice of untenantability or unsuitability from Tenant, then, as Tenants sole and exclusive remedy, Base Rent and Additional Rent for the portion of the Premises rendered untenantable or unsuitable for the conduct of the Permitted Use, subject to the conditions and limitations contained herein, shall abate pro rata from and after said third (3rd) consecutive business day until the services or Premises are restored to such a condition that the portion of the Premises affected is again rendered tenantable or suitable. Notwithstanding the foregoing, if the interruption, reduction, curtailment or impairment to any utility service to the Premises is caused by the gross negligence or willful misconduct of Landlord or its employees or agents, then all Rent and other charges shall abate immediately until such interruption, reduction, curtailment or impairment is cured. Anything herein to the contrary notwithstanding, there shall be no such abatement of rent if Landlords inability to provide such services is caused by misuse or neglect of Tenant or Tenants agents, employees or invitees or is caused by shortage of fuel or other energy supplies to be provided by public or private utilities or suppliers or by other causes beyond Landlords control.
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ARTICLE 7
MAINTENANCE AND REPAIR
7.1 Landlord s Obligations.
Except as otherwise provided in this Lease, Landlord will repair and maintain the following in good order, condition and repair: (a) the foundations, exterior walls, structural systems and roof of the Building; (b) the electrical, mechanical, EIVAC, and plumbing facilities and components located in the Building; (c) Common Area (subject to all other terms and conditions of this Lease relating to Common Area); and (d) those windows, doors, plate glass and exterior wall surfaces adjacent to Common Area.
7.2 Tenant s Obligations.
7.2.1 Maintenance of Premises.
Except as otherwise specifically provided in this Lease, Landlord is not required to furnish any services or facilities, or to make any repairs or Alterations, in, about or to the Premises, the Building, the heating and air conditioning systems serving the Building, or the Shopping Center. Except as specifically described in Section 7.1 and Articles 11 and 12, Tenant assumes the full and sole responsibility for the condition, operation, repair, replacement, maintenance and management of the Premises, Except as specifically described in Section 7.1 and Articles 11 and 12, Tenant, at Tenants sole cost and expense, will keep and maintain the Premises (including, but not limited to, all non-structural interior portions, systems and equipment; interior surfaces of exterior walls; interior moldings, partitions and ceilings; and interior electrical, lighting and plumbing fixtures) in good order, condition and repair, reasonable wear and tear and damage from insured casualties excepted. Tenant will keep the Premises in a neat and sanitary condition and will not commit any nuisance or waste in, on or about the Premises, the Building or the Shopping Center. If Tenant damages or injures the Common Area or any part of the Buildings or Shopping Center other than the Premises, Landlord will repair the damage and Tenant will pay Landlord for all uninsured costs and expenses of Landlord in connection with the repair as Additional Rent. Tenant is solely responsible for and, to the fullest extent allowable under the Laws, releases and will indemnify, protect and defend Landlord and the Landlord Affiliated Entities against (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from, the cost of repairing, and any Claims resulting from, any penetrations or perforations of the roof or exterior walls of the Building Tenant causes. Tenant will maintain the Premises in a first-class and fully operative condition. Tenants repairs will be at least equal in quality and workmanship to the original work and Tenant will make the repairs and perform maintenance in accordance with all Laws. Landlord will maintain the Building and the Shopping Center in a first-class condition.
7.2.2 Alterations Required by Laws.
If any governmental authority requires any Alteration to the Building or the Premises as a result of Tenants particular use of the Premises or as a result of any Alteration to the Premises made by or on behalf of Tenant, or if Tenants particular use of the Premises subjects Landlord or the Building or the Shopping Center to any obligation under any Laws, Tenant will pay the cost of all such Alterations or the cost of compliance, as the case may be. If any such Alterations are Structural Alterations, Landlord, at Tenants sole cost and expense, will make the Structural Alterations; provided, however, that Landlord may require Tenant to deposit with Landlord an amount sufficient to pay the cost of the Structural Alterations (including, without limitation, reasonable overhead and administrative costs). If the Alterations are not Structural Alterations, Tenant will make the Alterations at Tenants sole cost and expense in accordance with Article 8.
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ARTICLE 8
CHANGES AND ALTERATIONS
8.1 Landlord Approval.
Tenant will not make any Structural Alterations to the Premises or any Alterations to the Common Area. Tenant will not make any other Alterations without Landlords prior written consent, which consent Landlord will not unreasonably withhold or delay; provided, however, that Landlord may require, as a condition of its consent, that Tenant remove the Alterations at the end of the Term and repair all damage caused by such removal. Landlord may also otherwise condition its consent in its reasonable discretion. Along with any request for Landlords consent, Tenant will deliver to Landlord plans and specifications for the Alterations and names and addresses of all prospective contractors for the Alterations. If Landlord approves the proposed Alterations, Tenant, before commencing the Alterations or delivering (or accepting delivery of) any materials to be used in connection with the Alterations, will deliver to Landlord for Landlords reasonable approval copies of all contracts, proof of insurance required by Section 8.2, copies of any contractor safety programs, copies of all necessary permits and licenses and such other information relating to the Alterations as Landlord reasonably requests. Tenant will not commence the Alterations before Landlord, in Landlords reasonable discretion, approves the foregoing deliveries. Tenant will construct all approved Alterations or cause all approved Alterations to be constructed (a) promptly by an experienced and bondable duly licensed contractor, (b) in a good and workmanlike manner, (c) in compliance with all Laws, (d) in accordance with all orders, rules and regulations of the Board of Fire Underwriters having jurisdiction over the Premises and any other body exercising similar functions, (e) during times that Landlord reasonably determines in order to minimize interference with other tenants use and enjoyment of the Building or the Shopping Center, and (f) in full compliance with all of Landlords rules and regulations applicable to third party contractors, subcontractors and suppliers performing work at the Buildings or the Shopping Center.
8.2 Tenant s Responsibility for Cost and Insurance.
Tenant will pay the cost and expense of all Alterations and for any painting, restoring or repairing of the Premises, the Buildings or the Shopping Center the Alterations occasion. Prior to commencing the Alterations, Tenant will deliver the following to Landlord in form and amount reasonably satisfactory to Landlord: (a) demolition (if applicable) and payment and performance bonds, (b) builders all risk insurance in an amount at least equal to the value of the Alteration; (c) evidence that Tenant has in force commercial general liability insurance insuring against construction related risks, in at least the form, amounts and coverages required of Tenant under Article 10 and (d) copies of all applicable contracts and of all necessary permits and licenses. The insurance policies described in clauses (b) and (c) of this section may be held by Tenants general contractor and must name Landlord, Landlords lender (if any) and Property Manager as additional insureds.
8.3 Construction Obligations and Ownership.
Landlord may inspect construction of the Alterations. Immediately after completing the Alterations, Tenant will furnish Landlord with contractor affidavits, full and final lien waivers and receipted bills covering all labor and materials expended and used in connection with the Alterations. Tenant will remove any Alterations Tenant constructs in violation of this Article 8 within 10 days after Landlords written request and in any event prior to the expiration or earlier termination of this Lease. All Alterations Tenant makes or installs (including all telephone, computer and other wiring and cabling located within the walls of and outside the Premises, but excluding Tenants movable trade fixtures, furniture and equipment) become the property of Landlord and a part of the Building immediately upon installation and, unless Landlord requires Tenant to remove the Alterations and repair any damage caused by such removal by notifying Tenant at the time Landlord consents to the Alterations, Tenant will surrender the Alterations to Landlord upon the expiration or earlier termination of this Lease at no cost to Landlord.
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8.4 Liens.
Tenant will keep the Premises, the Buildings and the Shopping Center free from any mechanics, materialmens, designers or other liens arising out of any work performed, materials furnished or obligations incurred by or for Tenant or any person or entity claiming by, through or under Tenant. Tenant will notify Landlord in writing 30 days prior to commencing any Alterations in order to provide Landlord the opportunity to record and post notices of non-responsibility or such other protective notices available to Landlord under the Laws. If any such liens are filed and Tenant, within 10 days after such filing, does not release the same of record or provide Landlord with a bond or other security satisfactory to Landlord protecting Landlord and the Premises, the Buildings and the Shopping Center against such liens, Landlord, without waiving its rights and remedies based upon such breach by Tenant and without releasing Tenant from any obligation under this Lease, may cause such liens to be released by any means Landlord deems proper, including, but not limited to, paying the claim giving rise to the lien or posting security to cause the discharge of the lien. In such event, Tenant will reimburse Landlord, as Additional Rent, for all amounts Landlord pays (including, without limitation, reasonable attorneys fees and costs).
8.5 Indemnification.
To the fullest extent allowable under the Laws, Tenant releases and will indemnify, protect, defend (with counsel reasonably acceptable to Landlord) and hold harmless the Landlord Parties, the Landlord Affiliated Entities, the Buildings and the Shopping Center from and against any Claims in any manner relating to or arising out of any Alterations or any other work performed, materials furnished or obligations incurred by or for Tenant or any person or entity claiming by, through or under Tenant.
ARTICLE 9
RIGHTS RESERVED BY LANDLORD
9.1 Landlord s Entry.
Landlord and its authorized representatives may during Tenants business hours and not less than forty-eight (48) hours prior written notice (except in the event of an emergency, in which event no notice shall be required) enter the Premises to: (a) inspect the Premises; (b) show the Premises to prospective purchasers and mortgagees; (c) show the Premises to prospective tenants (but only during the last 12 months of the Term or at any time following an Event of Default); (d) post notices of non-responsibility or other protective notices available under the Laws; or (e) exercise and perform Landlords rights and obligations under this Lease. Landlord, in the event of any emergency, may enter the Premises without notice to Tenant. Landlords entry into the Premises pursuant to this Section is not to be construed as a forcible or unlawful entry into, or detainer, of, the Premises or as an eviction of Tenant from all or any part of the Premises. Tenant will also permit Landlord (or its designees) to erect, install, use, maintain, replace and repair pipes, cables, conduits, plumbing and vents, and telephone, electric and other wires or other items, in, to and through the Premises if Landlord determines that such activities are necessary or appropriate for properly operating and maintaining the Building. Notwithstanding the foregoing, Landlord shall not have the right to enter Tenants IT room, records room or executive offices within the Premises, unless accompanied by a representative of Tenant, which Tenant agrees to make available.
9.2 Control of Shopping Center.
Landlord reserves all rights respecting the Shopping Center and Premises not specifically granted to Tenant under this Lease, including, without limitation, the right to: (a) change the name of the Shopping Center; (b) designate and approve all types of signs, window coverings, internal lighting and other aspects of the Premises and its contents that may be visible from the exterior of the Premises; (c) prohibit Tenant from installing vending or dispensing machines of any kind in or about the Premises other than those Tenant installs in the Premises solely for use by Tenants employees; (d) close the Building or the Shopping Center after Business Hours, except that Tenant and its employees and invitees may access the Premises after Business Hours in accordance with such rules and regulations as Landlord may prescribe from time to time for security purposes; (e) install, operate and maintain security systems that monitor, by closed circuit television or otherwise, all persons entering or leaving the Building or the Shopping Center; (f) install and maintain pipes, ducts, conduits, wires and structural elements in the Premises that serve other parts or other tenants of the Building; and (g) retain and receive master keys or pass keys to the Premises and all doors in the Premises except Tenants IT room, records room or executive offices within the Premises. Notwithstanding the foregoing, or the provision of any security-related services by Landlord, Landlord is not responsible for the security of persons or property
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in the Shopping Center and Landlord is not and will not be liable in any way whatsoever for any breach of security not solely and directly caused by the willful misconduct of Landlord, its agents or employees. Further, Tenant shall not (i) conduct within the Premises any fun, auction or bankruptcy sales, (ii) advertise that Tenant is going out of business, (Hi) permit any objectionable or unpleasant odors or noises to emanate from the Premises, (iv) place or permit any radio, television, loud-speaker or amplifier on the roof or outside the Premises or where the same can be seen or heard from outside the building or in the Common Area, (v) place an antenna, awning fix spring or other projection on the exterior of the Premises, (vi) solicit business or distribute leaflets or other advertising material in the Common Area, (vii) operate or permit the operation of any amusement or arcade type games in the Premises, (viii) use, or permit to be used, the sidewalks adjacent to the Premises, or any other premises outside such space for the sale or display of any merchandise or for any other business, occupation or undertaking, (ix) use or permit to be used within the Common Area any automobiles, trailers, vans or other vehicles advertising the business of Tenant or any good or service provided by Tenant (provided that the foregoing shall not prohibit the parking of such vehicles in the parking areas located in the Common Area and such ingress and egress through the Common Area as is reasonably required to park such vehicles), or (x) take any other action which would constitute a nuisance or would disturb or endanger other tenants of the Shopping Center or interfere with their use of their respective premises would tend to injure the reputation of the Shopping Center.
9.3 Lock Box Agent/Rent Collection Agent.
Landlord, from time to time, may designate a lock box collection agent or other person to collect Rent. In such event, Tenants payment of Rent to the lock box collection agent or other person is deemed to have been made (a) as of the date the lock box collection agent or other person receives Tenants payment (if the payment is not dishonored for any reason); or (b) if Tenants payment is dishonored for any reason, the date Landlord or Landlords agent collects the payment. Neither Tenants payment of any amount of Rent to the lock box collection agent or other person nor Landlords or Landlords agents collection of such amount if the payment is dishonored constitutes Landlords waiver of any default by Tenant in the performance of Tenants obligations under this Lease or Landlords waiver of any of Landlords rights or remedies under this Lease. If Tenant pays any amount to the lock box collection agent or other person other than the actual amount due Landlord, then Landlords or Landlords agents receipt or collection of such amount does not constitute an accord and satisfaction, Landlord is not prejudiced in collecting the proper amount due Landlord (or in pursuing any rights or remedies available under this Lease, at law or in equity as a result of Tenants failure to pay the full amount when due) and Landlord may retain the proceeds of any such payment, whether restrictively endorsed or otherwise, and apply the same toward amounts due and payable by Tenant under this Lease.
ARTICLE 10
INSURANCE AND CERTAIN WAIVERS AND INDEMNIFICATIONS
10.1 Tenant s Insurance Obligations.
10.1.1 Tenants Insurance.
From and after the Delivery Date (or such earlier date on which Tenant first accesses the Premises) through and including the earlier of the Commencement Date and the date of completion of Tenants Work, Tenant shall, at its sole cost and expense, procure and maintain the insurance coverages required under Article 7.00 of Exhibit E. From and after the earlier of the Commencement Date and the date of completion of Tenants Work, Tenant shall procure and maintain throughout the Term, at its sole cost and expense, the insurance coverages set forth in this Section 10.1.1.
(a) Tenant shall keep all of its machinery, equipment, furniture, fixtures, plate glass, inventory, goods, personal property (including also property under the care, custody or control of Tenant) and business interests which may be located in, upon or about the Premises insured, at Tenants sole cost and expense, for the benefit of Tenant in an amount equivalent to the full replacement value or insurable value thereof against loss or damage by fire and such other risk or risks of a similar or dissimilar nature as are now, or may in the future be, customarily covered with respect to a tenants machinery, equipment, furniture, fixtures, inventory, goods, personal property and business located in a building similar in construction, general location, use, occupancy and design to the Shopping Center, including, but without limiting the generality of the foregoing, windstorms, hail, explosions, vandalism, theft, malicious mischief, civil
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commotion and such other coverage as Tenant may deem appropriate or necessary. Tenant agrees that such policy or policies of insurance shall contain a waiver of subrogation clause as to Landlord, and, anything in this Lease to the contrary notwithstanding, Tenant waives, releases and discharges Landlord and the Landlord Affiliated Entities from all claims or demands whatsoever which Tenant may have or acquire arising out of damage to or destruction of the machinery, equipment, furniture, fixtures, inventory, goods, personal property and business of Tenant occasioned by fire or other cause, whether such claim or demand may arise because of the negligence or fault of Landlord and its agents, contractors, servants, employees, licensees or otherwise, and Tenant agrees to look to the insurance coverage only in the event of such loss.
(b) Tenant shall procure and maintain throughout the Term, at its sole cost and expense, a policy of commercial general liability insurance, insuring Landlord, the Landlord Affiliated Entities and Tenant, against all claims, demands or actions arising out of or in connection with Tenants use or occupancy of the Premises, or the condition of the Premises, with a combined single limit of not less than Three Million and 00/100 Dollars ($3,000,000.00) for bodily injury including death of any one person or any one accident and in respect to property damaged or destroyed. Tenant agrees to include in such policy contractual liability coverage insuring Tenants indemnification obligations herein. Any such coverage shall be deemed primary and non-contributing to any liability coverage secured by Landlord.
(c) Tenant shall procure and maintain throughout the Term, at its sole cost and expense, Employers Liability Coverage with an aggregate total of One Million Dollars ($1,000,000).
(d) Tenant shall procure and maintain throughout the Term, at s sole cost and expense, Workers Compensation insurance in accordance with State law.
The insurance policy(ies) required under this Section 10.1.1 shall be written by insurance companies reasonably satisfactory to Landlord with an A.M. Best Company rating of at least A-/VIII or better. The minimum limits of the insurance policy(ies) required under this Section 10.1.1 shall in no way limit or diminish Tenants liability under Section 10.4. Tenant shall obtain a written obligation on the part of its insurance company to notify Landlord at least thirty (30) days prior to cancellation of any insurance maintained by Tenant under this Section 10.1. Such policies or duly executed binders of insurance or a certificate evidencing such policies shall be delivered to Landlord at least thirty (30) days prior to the expiration of the policy term. At such time as insurance limits required of tenants in shopping centers in the area in which the Shopping Center is located are generally increased to greater amounts, Landlord shall have the right to require such greater limits as may then be customary.
10.1.2 Tenants Failure to Insure.
Notwithstanding any contrary language in this Lease and any notice and cure rights this Lease provides Tenant, if Tenant fails to provide Landlord with evidence of insurance as required under Section 10.1.4, Landlord may assume that Tenant is not maintaining the insurance Section 10.1 requires Tenant to maintain and Landlord may, but is not obligated to, without further demand upon Tenant or notice to Tenant and without giving Tenant any cure right or waiving or releasing Tenant from any obligation contained in this Lease, obtain such insurance for Landlords benefit. In such event, Tenant will pay to Landlord, as Additional Rent, all costs and expenses Landlord incurs obtaining such insurance. Landlords exercise of its rights under this section does not relieve Tenant from any default under this Lease.
10.1.3 No Limitation.
Landlords establishment of minimum insurance requirements is not a representation by Landlord that such limits are sufficient and does not limit Tenants liability under this Lease in any manner.
10.2 Landlord s Insurance Obligations.
Landlord will (except for the optional coverages and endorsements Section 10.2.1 describes) at all times during the Term maintain the insurance this Section 10.2 describes.
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10.2.1 Property Insurance.
Property insurance on the Shopping Center in an amount not less than the full insurable replacement cost of the Shopping Center insuring against loss or damage by fire and such other risks as are covered by the current ISO Special Form policy. Landlord, at its option, may obtain such additional coverages or endorsements as Landlord deems appropriate or necessary, including, without limitation, insurance covering foundation, grading, excavation and debris removal costs; business income and rent loss insurance; boiler and machinery insurance; ordinance or laws coverage; earthquake insurance; flood insurance; and other coverages. Landlord may maintain such insurance in whole or in part under blanket policies. Such insurance will not cover or be applicable to any personal property or trade fixtures of Tenant within the Premises or otherwise located at the Shopping Center or any other such property (including that of third parties) in Tenants care, custody or control at the Shopping Center.
10.2.2 Liability Insurance.
Commercial general liability insurance against claims for bodily injury, personal injury, and property damage occurring at the Shopping Center with a combined single limit of not less than Five Million and 00/100 Dollars ($5,000,000.00) or such higher amounts as Landlord deems necessary or appropriate for bodily injury including death of any one person or any one accident and in respect to property damaged or destroyed. Landlord agrees to include in such policy contractual liability coverage insuring Landlords indemnification obligations herein.
The insurance policy(ies) required under this Section 10.1.2 shall be written by insurance companies with an A.M. Best Company rating of at least A-/VIII or better. The policies of such insurance shall name Landlord and Tenant as additional insureds and loss payees as their interests may appear. Such policies of insurance shall provide that no act or omission of any person named as insured thereunder shall invalidate the interest of, or be a defense against, any other person named as insured thereunder. A certificate of insurance evidencing such policies shall be delivered by Landlord to Tenant from time to time upon written request from Tenant, no more than once per calendar year.
10.3 Waivers and Releases of Claims and Subrogation.
10.3.1 By Tenant.
To the extent not prohibited by the Laws, Tenant, on behalf of Tenant and its insurers, waives, releases and discharges the Landlord Parties and the Landlord Affiliated Entities from all Claims arising out of damage to or destruction of the Premises, the Buildings and Shopping Center or Tenants trade fixtures, other personal property or business, and any loss of use or business interruption except to the extent that any such Claim results from the gross negligence or willful misconduct of any Landlord Party, occasioned by any fire or other casualty or occurrence whatsoever (whether similar or dissimilar), including, without limitation, (a) any existing or future condition, defect, matter or thing in the Premises, the Buildings or Shopping Center, (b) any equipment or appurtenance becoming out of repair, (c) any occurrence, act or omission of any Landlord Party, any other tenant or occupant of the Buildings or any other person (d) damage caused by the flooding of basements or other subsurface areas and (e) damage caused by refrigerators, sprinkling devices, air conditioning apparatus, water, snow, frost, steam, excessive heat or cold, falling plaster, broken glass, sewage, gas, odors, noise or the bursting or leaking of pipes or plumbing fixtures. The waiver this section describes applies regardless whether any such damage results from an act of God, an act or omission of other tenants or occupants of the Shopping Center or an act or omission of any other person and regardless whether insurance coverage against any such risks is obtainable. Tenant will look only to Tenants insurance coverage (regardless whether Tenant maintains any such coverage) in the event of any such Claim. Tenants trade fixtures, other personal property and all other property (including that of third parties) in Tenants care, custody or control, is located at the Shopping Center at Tenants sole risk. Landlord is not liable for any damage to such property or for any theft, misappropriation or loss of such property. Except as specifically provided in Section 10.2, Tenant is solely responsible for providing such insurance as may be required to protect Tenant, its employees and invitees against any injury, loss, or damage to persons or property occurring in the Premises, the Buildings or the Shopping Center, including, without limitation, any loss of business or profits from any casualty or other occurrence at the Shopping Center.
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10.3.2 By Landlord.
To the extent not expressly prohibited by the Laws, and except for any claims, demands or damages suffered by Landlord because Tenant willfully or negligently causes a release of Hazardous Materials at the Shopping Center, Landlord, on behalf of Landlord and its insurers, waives, releases and discharges Tenant from all claims or demands whatsoever arising out of damage to or destruction of the Shopping Center, or loss of use of the Shopping Center, occasioned by fire or other casualty, regardless whether any such claim or demand results from the negligence or fault of Tenant, or otherwise, and Landlord will look only to Landlords insurance coverage (regardless whether Landlord maintains any such coverage) in the event of any such claim. Landlords policy or policies of property insurance will permit waiver of subrogation as provided in this section.
10.4 Tenant s Indemnification of Landlord.
In addition to Tenants other indemnification obligations in this Lease but subject to Landlords agreements in Section 10.2, Tenant, to the fullest extent allowable under the Laws, releases and will indemnify, protect, defend (with counsel reasonably acceptable to Landlord) and hold harmless Landlord and the Landlord Affiliated Entities from and against all losses, damages (excluding consequential, punitive, incidental, special or similar type damages, except to the extent claimed by third parties), costs and expenses (including, without limitation, reasonable attorneys fees and costs) for any injury to person, death or damage to or loss of property in, about or to the Premises or the Shopping Center made by third parties to the extent caused by the negligence or willful misconduct of Tenant or Tenant s agents, contractors, or employees, provided Landlord or the Landlord Affiliated Entities tender defense to Tenant of any claim made against Landlord or Landlords Affiliated Entities which is subject to Tenants indemnity in sufficient time to avoid prejudice to Tenant for handling by counsel of Tenants selection and reasonably acceptable to Landlord.
10.5 Landlord s Indemnification of Tenant.
In addition to Landlords other indemnification obligations in this Lease but subject to Tenants agreements in Section 10.1, Landlord, to the fullest extent allowable under the Laws, releases and will indemnify, protect, defend (with counsel reasonably acceptable to Tenant) and hold harmless Tenant and Tenants Affiliates from and against all losses, damages (excluding consequential, punitive, incidental, special or similar type damages, except to the extent claimed by third parties), costs and expenses (including, without limitation, reasonable attorneys fees and costs) for any injury to person, death or damage to or loss of property on or about the Common Area made by third parties to the extent caused by the negligence or willful misconduct of Landlord or Landlords agents, contractors, or employees, provided Tenant or Tenants Affiliates tender defense to Landlord of any claim made against Tenant or Tenants Affiliates which is subject to Landlords indemnity in sufficient time to avoid prejudice to Landlord for handling by counsel of Landlords selection and reasonably acceptable to Tenant.
ARTICLE 11
DAMAGE OR DESTRUCTION
11.1 Tenantable Within 270 Days.
Except as provided in Section 11.3, if fire or other casualty renders the whole or any material part of the Premises untenantable and Landlord determines (in Landlords reasonable discretion) that it can make the Premises tenantable within 270 days after the date of the casualty, then Landlord will notify Tenant that Landlord will within the 270 day period (subject to the extension of such time period under Section 18.17) repair and restore the Building and the Premises to as near their condition prior to the casualty as is reasonably possible. Landlord will provide the notice within 30 days after the date of the casualty. In such case, this Lease remains in full force and effect, Basic Rent for the period during which the Premises are untenantable abate pro rata (based upon the rentable area of the untenantable portion of the Premises as compared with the rentable area of the entire Premises).
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11.2 Not Tenantable Within 270 Days.
If fire or other casualty renders the whole or any material part of the Premises untenantable and Landlord determines (in Landlords reasonable discretion) that it cannot make the Premises tenantable within 270 days after the date of the casualty, then Landlord will so notify Tenant within 30 days after the date of the casualty and may, in such notice, terminate this Lease effective on the date of Landlords notice. If Landlord does not terminate this Lease as provided in this section, Tenant may terminate this Lease by notifying Landlord within 30 days after the date of Landlords notice, which termination will be effective 30 days after the date of Tenants notice.
11.3 Building Substantially Damaged.
Notwithstanding the terms and conditions of Section 11.1, if the Building or Shopping Center is damaged or destroyed by fire or other casualty (regardless whether the Premises is affected) and either (a) fewer than 15 months remain in the Term, or (b) the damage reduces the value of the Building or the Shopping Center by more than 50% (as Landlord reasonably determines value before and after the casualty), then, regardless whether Landlord determines (in Landlords reasonable discretion) that it can make the Building or the Shopping Center tenantable within 270 days after the date of the casualty, Landlord, at Landlords option, by notifying Tenant within 30 days after the casualty, may terminate this Lease effective on the date of Landlords notice.
11.4 Insufficient Proceeds.
Notwithstanding any contrary language in this Article 11, if this Article 11 obligates Landlord to repair damage to the Premises, the Building or the Shopping Center caused by fire or other casualty and Landlord does not receive sufficient insurance proceeds (excluding any deficiency caused by the amount of any policy deductible) to repair all of the damage, or if Landlords lender does not allow Landlord to use sufficient proceeds to repair all of the damage, then Landlord, of Landlords option, by notifying Tenant within 30 days after the casualty, may terminate this Lease effective on the date of Landlords notice.
11.5 Landlord s Repair Obligations.
If this Lease is not terminated under Sections 11.2 through 11.4 following a fire or other casualty, then Landlord will repair and restore the Premises, the Building and the Shopping Center to as near their condition prior to the fire or other casualty as is reasonably possible with all commercially reasonable diligence and speed (subject to delays caused by Tenant Delay or Force Majeure) and Basic Rent for the period during which the Premises are untenantable will abate pro rata (based upon the rentable area of the untenantable portion of the Premises as compared with the rentable area of the entire Premises). In no event is Landlord obligated to repair or restore any special equipment or improvements installed by Tenant, or any personal or other property of Tenant.
11.6 Rent Apportionment Upon Termination.
If either Landlord or Tenant terminates this Lease under this Article 11, Landlord will apportion Basic Rent on a per diem basis and Tenant will pay the Basic Rent to (a) the date of the fire or other casualty if the event renders the Premises completely untenantable or (b) if the event does not render the Premises completely untenantable, the effective date of such termination (provided that if a portion of the Premises is rendered untenantable, but the remaining portion is tenantable, then Tenants obligation to pay Basic Rent abates pro rata [based upon the rentable area of the untenantable portion of the Premises divided by the rentable area of the entire Premises] from the date of the casualty and Tenant will pay the unabated portion of the Rent to the date of such termination).
11.7 Exclusive Casualty Remedy.
The provisions of this Article 11 are Tenants sole and exclusive rights and remedies in the event of a casualty. To the extent permitted by the Laws, Tenant waives the benefits of any Law that provides Tenant any abatement or termination rights (by virtue of a casualty) not specifically described in this Article 11.
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ARTICLE 12
EMINENT DOMAIN
12.1 Termination of Lease.
If a Condemning Authority desires to effect a Taking of all or any material part of the Shopping Center, Landlord will notify Tenant and Landlord and Tenant will reasonably determine whether the Taking will render the Premises unsuitable for Tenants intended purposes. If Landlord and Tenant conclude that the Taking will render the Premises unsuitable for Tenants intended purposes, Landlord and Tenant will document such determination and this Lease will terminate as of the date the Condemning Authority takes possession of the portion of the Shopping Center taken. Tenant will pay Rent to the date of termination. If a Condemning Authority takes all or any material part of the Building or if a Taking reduces the value of the Building or the Shopping Center by 50% or more (as reasonably determined by Landlord), regardless whether the Premises is affected, then Landlord, at Landlords option, by notifying Tenant prior to the date the Condemning Authority takes possession of the portion of the Building or the Shopping Center taken, may terminate this Lease effective on the date the Condemning Authority takes possession of the portion of the Building or Shopping Center taken.
12.2 Landlord s Repair Obligations.
If this Lease does not terminate with respect to the entire Premises under Section 12.1 and the Taking includes a portion of the Premises, this Lease automatically terminates as to the portion of the Premises taken as of the date the Condemning Authority takes possession of the portion taken and Landlord will, at its sole cost and expense, restore the remaining portion of the Premises to a complete architectural unit with all commercially reasonable diligence and speed and will reduce the Basic Rent for the period after the date the Condemning Authority takes possession of the portion of the Premises taken to a sum equal to the product of the Basic Rent provided for in this Lease multiplied by a fraction, the numerator of which is the rentable area of the Premises after the Taking and after Landlord restores the Premises to a complete architectural unit, and the denominator of which is the rentable area of the Premises prior to the Taking. Tenants obligation to pay Basic Rent will abate on a proportionate basis with respect to that portion of the Premises remaining after the Taking that Tenant is unable to use during Landlords restoration for the period of time that Tenant is unable to use such portion of the Premises.
12.3 Tenant s Participation.
Landlord is entitled to receive and keep all damages, awards or payments resulting from or paid on account of a Taking. Accordingly, Tenant waives and assigns to Landlord any interest of Tenant in any such damages, awards or payments. Tenant may prove in any condemnation proceedings and may receive any separate award for damages to or condemnation of Tenants movable trade fixtures and equipment and for moving expenses; provided however, that Tenant has no right to receive any award for its interest in this Lease or for loss of leasehold. Notwithstanding anything to the contrary contained in this Section 12.3, if the whole or any substantial part of the Building or the Premises is taken under the power of eminent domain after Tenant, at its sole cost and expense, shall have made any improvements or alterations to the Premises pursuant to Articles 8 or 17 hereof which have increased the value of the Building in excess of $25,000.00 (as measured by the condemning authority), Landlord then shall compensate Tenant for such taking out of any proceeds payable to Landlord under any condemnation award in an amount equal to the unamortized portion of any such increase in valuation of the Building attributable to expenditures incurred by Tenant for improvements or alterations which it shall have made to the Premises, as aforesaid; provided, however, in no event shall Tenants share of the condemnation award exceed the lesser of (i) that portion of the award reasonably attributable to improvements or alterations to the Premises made by Tenant and (ii) the actual expenditures incurred by Tenant with respect to any such alterations or improvements. The unamortized portion of any increase in the valuation in excess of $25,000.00 of the Building attributable to expenditures incurred by Tenant for improving or altering the Premises shall be determined by multiplying the amount of such increase in valuation by a fraction, the numerator of which shall be the number of months of the remaining term of the Lease at the time of the taking, and the denominator of which shall be the number of months constituting the useful life of said improvements or alterations to the Premises measured at the time of the completion of the improvements or alterations to the Premises made by Tenant.
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12.4 Exclusive Taking Remedy.
The provisions of this Article 12 are Tenants sole and exclusive rights and remedies in the event of a Taking. To the extent permitted by the Laws, Tenant waives the benefits of any Law that provides Tenant any abatement or termination rights or any right to receive any payment or award (by virtue of a Taking) not specifically described in this Article 12.
ARTICLE 13
TRANSFERS
13.1 Restriction on Transfers.
13.1.1 General Prohibition.
Except as set forth in Section 13.1.2, Tenant will not cause or suffer a Transfer without obtaining Landlords prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed with respect to any assignment of this Lease or sublease of the Premises, but which consent, with respect to any other Transfer may be granted or withheld in Landlords sole and absolute discretion. Landlord may also, at Landlords option by notifying Tenant, terminate this Lease with respect to any portion of the Premises that would be affected by such Transfer. Tenants request for consent to a Transfer must describe in detail the parties, terms and portion of the Premises affected. Landlord will notify Tenant of Landlords election to consent, withhold consent and/or terminate within 30 days after receiving Tenants written request for consent to the Transfer. Tenant will, in connection with requesting Landlords consent, provide Landlord with a copy of any and all documents and information regarding the proposed Transfer and the proposed transferee as Landlord reasonably requests. No Transfer, including, without limitation, a Transfer under Section 13.1.2, releases Tenant from any liability or obligation under this Lease and Tenant remains liable to Landlord after such a Transfer as a principal and not as a surety. If Landlord consents to any Transfer, Tenant will pay to Landlord, as Additional Rent, 50% of any amount Tenant receives on account of the Transfer (excluding reasonable commissions, attorneys fees, marketing costs and other similar costs and expenses Tenant incurs in connection with the Transfer and certifies to Landlord in writing) in excess of the amounts this Lease otherwise requires Tenant to pay. In no event may Tenant cause or suffer a Transfer to another tenant of the Buildings. Any attempted Transfer in violation of this Lease is null and void and constitutes an Event of Default under this Lease.
13.1.2 Assignment and Sublease to Affiliates.
Tenant, without Landlords consent (provided that Tenant is not in default in the performance of its obligations under this Lease), may assign this Lease or sublet the Premises to an Affiliate or to a third party in connection with the sale of all or substantially all of the assets or ownership interests of Tenant to such third party if (a) Tenant notifies Landlord at least 30 days prior to such Transfer; (b) Tenant delivers to Landlord, at the time of Tenants notice, current financial statements of Tenant and the proposed transferee that are reasonably acceptable to Landlord; (c) the transferee assumes and agrees in a writing delivered to and reasonably acceptable to Landlord to perform Tenants obligations under this Lease arising after such Transfer and to observe all terms and conditions of this Lease; and (d) Guarantor, if any, ratifies such assignment or sublease in writing and agrees to continue to be bound by the terms of the Guaranty. Landlords right described in Section 13.1.1 to share in any profit Tenant receives from an assignment or sublease permitted under this Section 13.1.2 and Landlords termination right under Section 13.1.1 does not apply to any assignment or sublease this Section 13.1.2 permits.
13.2 Costs.
Tenant will pay to Landlord, as Additional Rent, up to $1,500.00 in costs and expenses Landlord incurs in connection with any Transfer, including, without limitation, reasonable attorneys fees and costs, regardless whether Landlord consents to the Transfer.
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ARTICLE 14
DEFAULTS; REMEDIES
14.1 Events of Default.
The occurrence of any of the following constitutes an Event of Default by Tenant under this Lease:
14.1.1 Failure to Pay Rent.
Tenant fails to pay Basic Rent or any other Additional Rent amount as and when due and such failure continues for five days after Landlord notifies Tenant of Tenants failure to pay Rent when due.
14.1.2 Failure to Perform.
Tenant breaches or fails to perform any of Tenants nonmonetary obligations under this Lease and the breach or failure continues for a period of 30 days after Landlord notifies Tenant of Tenants breach or failure; provided that if Tenant cannot reasonably cure its breach or failure within a 30 day period, Tenants breach or failure is not an Event of Default if Tenant commences to cure its breach or failure within the 30 day period and thereafter diligently pursues the cure. Notwithstanding any contrary language contained in this Section 14.1.2, Tenant is not entitled to any notice or cure period before an uncurable breach of this Lease (or failure) becomes an Event of Default.
14.1.3 Misrepresentation.
The existence of any material misrepresentation or omission in any financial statements, correspondence or other information provided to Landlord by or on behalf of Tenant or any Guarantor in connection with (a) Tenants negotiation or execution of this Lease; (b) Landlords evaluation of Tenant as a prospective tenant at the Shopping Center; (c) any proposed or attempted Transfer; or (d) any consent or approval Tenant requests under this Lease.
14.1.4 Guaranty Default.
Guarantors default (beyond any applicable notice and grace periods) under any guaranty now or after the Effective Date securing all or any part of Tenants obligations under this Lease.
14.1.5 Other Defaults.
(a) Tenant makes a general assignment or general arrangement for the benefit of creditors; (b) a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by Tenant; (c) a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed against Tenant and is not dismissed within 90 days; (d) a trustee or receiver is appointed to take possession of substantially all of Tenants assets located at the Premises or of Tenants interest in this Lease and possession is not restored to Tenant within 60 days; or (e) substantially all of Tenants assets, substantially all of Tenants assets located at the Premises or Tenants interest in this Lease is subjected to attachment, execution or other judicial seizure not discharged within 30 days.
14.2 Remedies.
Upon the occurrence of any Event of Default, Landlord, at any time and from time to time, and without preventing Landlord from exercising any other right or remedy, may exercise any one or more of the following remedies:
14.2.1 Termination of Tenants Possession; Re-entry and Reletting Right.
Terminate Tenants right to possess the Premises by any lawful means with or without terminating this Lease, in which event Tenant will immediately surrender possession of the Premises to Landlord. Unless Landlord specifically states that it is terminating this Lease, Landlords termination of Tenants right to possess the Premises is not
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to be construed as an election by Landlord to terminate this Lease or Tenants obligations and liabilities under this Lease. In such event, this Lease continues in full force and effect (except for Tenants right to possess the Premises) and Tenant continues to be obligated for and must pay all Rent as and when due under this Lease. If Landlord terminates Tenants right to possess the Premises, Landlord is not obligated to but may re-enter the Premises and remove all persons and property from the Premises. Landlord may store any property Landlord removes from the Premises in a public warehouse or elsewhere at the cost and for the account of Tenant. Upon such re-entry, Landlord is not obligated to but may relet all or any part of the Premises to a third party or parties for Tenants account. Tenant is immediately liable to Landlord for all Re-entry Costs and must pay Landlord the same within five days after Landlords notice to Tenant. Landlord may relet the Premises for a period shorter or longer than the remaining Term. If Landlord relets all or any part of the Premises, Tenant will continue to pay Rent when due under this Lease and Landlord will refund to Tenant the Net Rent Landlord actually receives from the reletting up to a maximum amount equal to the Rent Tenant paid that came due after Landlords reletting. If the Net Rent Landlord actually receives from reletting exceeds such Rent, Landlord will apply the excess sum to future Rent due under this Lease. Landlord may retain any surplus Net Rent remaining at the expiration of the Term.
14.2.2 Termination of Lease.
If this Lease is so terminated, Tenant shall be liable for and shall pay to Landlord the sum of all rental and other indebtedness accrued to date of such termination, phis, as damages, an amount equal to the present value of the excess, .if any, of (1) the Basic Rent for the remaining portion of the Term (had the Term not been terminated prior to the date of expiration stated in the Basic Terms) plus the unamortized balance of any rent abatements, brokers fees and commissions, attorneys fees and costs, and all reimbursements, construction allowances and other costs incurred by Landlord to improve the Premises, over (2) the fair rental value of the Premises for such period, after deductions of all estimated costs of reletting for said period, discounted at a rate of six percent (6%) per annum. It is agreed by the parties that the actual damages which might be sustained by Landlord by reason of Tenants default hereunder are uncertain and difficult to ascertain, and that the foregoing measure of damages is fair and reasonable.
14.2.3 Self Help.
Perform the obligation on Tenants behalf without waiving Landlords rights under this Lease, at law or in equity and without releasing Tenant from any obligation under this Lease. Tenant will pay to Landlord, as Additional Rent, all sums Landlord pays and obligations Landlord incurs on Tenants behalf under this section.
14.2.4 Other Remedies.
Any other right or remedy available to Landlord under this Lease, at law or in equity; provided, however, that in no event is Tenant liable to Landlord or any other person for consequential, special or punitive damages, including, without limitation, lost profits.
14.3 Costs.
Tenant will reimburse and compensate Landlord on demand and as Additional Rent for any actual loss Landlord incurs in connection with, resulting from or related to an Event of Default, regardless whether suit is commenced or judgment is entered. Such loss includes all reasonable legal fees, costs and expenses (including paralegal fees and other professional fees and expenses) Landlord incurs investigating, negotiating, settling or enforcing any of Landlords rights or remedies or otherwise protecting Landlords interests under this Lease. In addition to the foregoing, Landlord is entitled to reimbursement of all of Landlords fees, expenses and damages, including, but not limited to, reasonable attorneys fees and paralegal and other professional fees and expenses, Landlord incurs in connection with protecting its interests in any bankruptcy or insolvency proceeding involving Tenant, including, without limitation, any proceeding under any chapter of the Bankruptcy Code; by exercising and advocating rights under Section 365 of the Bankruptcy Code; by proposing a plan of reorganization and objecting to competing plans; and by filing motions for relief from stay. Such fees and expenses are payable on demand, or, in any event, upon assumption or rejection of this Lease in bankruptcy.
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14.4 Waiver and Release by Tenant.
Tenant waives and releases all Claims Tenant may have resulting from Landlords re-entry and taking possession of the Premises by any lawful means and removing and storing Tenants property as permitted under this Lease, regardless whether this Lease is terminated, and, to the fullest extent allowable under the Laws, Tenant releases and will indemnify, defend (with counsel reasonably acceptable to Landlord), protect and hold harmless the Landlord Parties and the Landlord Affiliated Entities from and against any and all Claims occasioned by Landlords lawful re-entry of the Premises and disposition of Tenants property. No such reentry is to be considered or construed as a forcible entry by Landlord.
14.5 Landlord s Default.
If Landlord defaults in the performance of any of its obligations under this Lease, Tenant will notify Landlord of the default and Landlord will have 30 days after receiving such notice to cure the default. If Landlord is not reasonably able to cure the default within a 30 day period, Landlord will have an additional reasonable period of time to cure the default as long as Landlord commences the cure within the 30 day period and thereafter diligently pursues the cure. In no event is Landlord liable to Tenant or any other person for consequential, special or punitive damages, including, without limitation, lost profits.
14.6 No Waiver.
Except as specifically set forth in this Lease, no failure by Landlord or Tenant to insist upon the other partys performance of any of the terms of this Lease or to exercise any right or remedy upon a breach thereof, constitutes a waiver of any such breach or of any breach or default by the other party in its performance of its obligations under this Lease. No acceptance by Landlord of full or partial Rent from Tenant or any third party during the continuance of any breach or default by Tenant of Tenants performance of its obligations under this Lease constitutes Landlords waiver of any such breach or default. Except as specifically set forth in this Lease, none of the terms of this Lease to be kept, observed or performed by a party to this Lease, and no breach thereof, are waived, altered or modified except by a written instrument executed by the other party. One or more waivers by a party to this Lease is not to be construed as a waiver of a subsequent breach of the same covenant, term or condition. No statement on a payment check from a party to this Lease or in a letter accompanying a payment check is binding on the other party. The party receiving the check, with or without notice to the other party, may negotiate such check without being bound to the conditions of any such statement.
ARTICLE 15
CREDITORS; ESTOPPEL CERTIFICATES
15.1 SubordinationNon-Disturbance.
This Lease, all rights of Tenant in this Lease, and all interest or estate of Tenant in the Shopping Center, is subject and subordinate to the lien of any Mortgage. Tenant, on Landlords demand, will execute and deliver to Landlord or to any other person Landlord designates any instruments, releases or other documents reasonably required to confirm the self-effectuating subordination of this Lease as provided in this section to the lien of any Mortgage. The subordination to any future Mortgage provided for in this section is expressly conditioned upon the mortgagees agreement that as long as Tenant is not in default in the payment of Rent or the performance and observance of any covenant, condition, provision, term or agreement to be performed and observed by Tenant under this Lease, beyond any applicable grace or cure period this Lease provides Tenant, the holder of the Mortgage will not disturb Tenants rights under this Lease. The lien of any existing or future Mortgage will not cover Tenants moveable trade fixtures or other personal property of Tenant located in or on the Premises.
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15.2 Attornment.
If any ground lessor, holder of any Mortgage at a foreclosure sale or any other transferee acquires Landlords interest in this Lease, the Premises, the Buildings or the Shopping Center, Tenant will attorn to the transferee of or successor to Landlords interest in this Lease, the Premises, the Buildings or the Shopping Center (as the case may be) and recognize such transferee or successor as landlord under this Lease. Tenant waives the protection of any statute or rule of law that gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Premises upon the transfer of Landlords interest.
15.3 Mortgagee Protection Clause.
Tenant will give the holder of any Mortgage, by certified mail and at the same time as Tenant notifies Landlord, a copy of any notice of default Tenant serves on Landlord, provided that Landlord or the holder of the Mortgage previously notified Tenant (by way of notice of assignment of rents and leases or otherwise) of the address of such holder. Tenant further agrees that if Landlord fails to cure such default within the time provided for in this Lease, then Tenant will provide written notice of such failure to such holder and such holder will have an additional 15 days within which to cure the default. If the default cannot be cured within the additional 15 day period, then the holder will have such additional time as may be necessary to effect the cure if, within the 15 day period, the holder has commenced and is diligently pursuing the cure (including without limitation commencing foreclosure proceedings if necessary to effect the cure).
15.4 Estoppel Certificates.
15.4.1 Contents.
Upon Landlords written request, Tenant will execute, acknowledge and deliver to Landlord a written statement certifying: (a) that this Lease (and all guaranties, if any) is unmodified and in full force and effect (or, if there have been any modifications, that the Lease is in full force and effect, as modified, and stating the modifications); (b) that this Lease has not been canceled or terminated; (c) the last date of payment of Rent and the time period covered by such payment; (d) whether there are then existing any breaches or defaults by Landlord under this Lease known to Tenant, and, if so, specifying the same; and (e) specifying any existing claims or defenses in favor of and known to Tenant against the enforcement of this Lease (or of any guaranties). Tenant will deliver the statement to Landlord within 10 Business Days after Landlords request. Landlord may give any such statement by Tenant to any lender, prospective lender, investor or purchaser of all or any part of the Shopping Center and any such party may conclusively rely upon such statement as true and correct.
15.4.2 Failure to Deliver.
If Tenant does not timely deliver the statement referenced in Section 15.4.1 to Landlord, Landlord may execute and deliver the statement to any third party on behalf of Tenant and Landlord and any lender, prospective lender, investor or purchaser may conclusively presume and rely, except as otherwise represented by Landlord, (a) that the terms and provisions of this Lease have not been changed; (b) that this Lease has not been canceled or terminated; (c) that not more than one months Rent has been paid in advance; and (d) that Landlord is not in default in the performance of any of its obligations under this Lease. In such event, Tenant is estopped from denying the truth of such facts.
ARTICLE 16
TERMINATION OF LEASE
16.1 Surrender of Premises.
Tenant will surrender the Premises to Landlord at the expiration or earlier termination of this Lease in good order, condition and repair, reasonable wear and tear, permitted Alterations and damage by casualty or condemnation excepted, and will surrender all keys to the Premises to Property Manager or to Landlord at the place then fixed for Tenants payment of Basic Rent or as Landlord or Property Manager otherwise direct. Tenant will also inform Landlord of all combinations on locks, safes and vaults, if any, in the Premises, the Buildings or in the Shopping Center. Tenant will at such time remove all of its property from the Premises and, if Landlord so requires, all specified Alterations and improvements Tenant placed on the Premises. Tenant will promptly repair any damage to the Premises caused by such removal. If Tenant does not surrender the Premises in accordance with this section on or before the date which is the
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later of (a) the expiration of the Term, and (b) the date thirty (30) days after the date Landlord notifies Tenant that Landlord has entered into a letter of intent or lease with respect to any portion of the Premises, Tenant releases and will indemnify, defend (with counsel reasonably acceptable to Landlord) protect and hold harmless Landlord and the Landlord Affiliated Entities from and against any Claim resulting from Tenants delay in so surrendering the Premises, including, without limitation, any Claim made by any succeeding occupant founded on such delay. All property of Tenant not removed on or before the last day of the Term is deemed abandoned. Tenant appoints Landlord as Tenants agent to remove, at Tenants sole cost and expense, all of Tenants property from the Premises upon termination of this Lease and to cause its transportation and storage for Tenants benefit, all at the sole cost and risk of Tenant, and Landlord will not be liable for damage, theft, misappropriation or loss thereof or in any manner in respect thereto.
16.2 Holding Over.
If Tenant possesses the Premises after the Term expires or is otherwise terminated without executing a new lease, Tenant is deemed to be occupying the Premises without claim of right (but subject to all terms and conditions of this Lease) and, in addition to Tenants liability for failing to surrender possession of the Premises as provided in Section 16.1, Tenant will pay Landlord a charge for each day of occupancy after expiration of the Term in an amount equal to one hundred twenty-five percent (125%) of Tenants then-existing Rent (on a daily basis).
ARTICLE 17
ADDITIONAL PROVISIONS
17.1 Initial Improvements.
17.1.1 Landlords Improvements.
Landlord shall ensure that the roof structure will have a mechanical zone above the Premises in a location in the structural zone of the roof specified by Landlords architect and approved by Tenant (such approval not to be unreasonably withheld, conditioned or delayed) within which all rooftop HVAC units serving the Premises must be located by Tenant, and Landlord shall install isolation curb adapters to die existing HVAC units serving the Premises, provided that if the actual out-of-pocket cost reasonably incurred by Landlord for such installation exceeds $21,175.00, then Tenant shall reimburse Landlord for such excess cost upon demand and delivery to Tenant of reasonably detailed bills and invoices showing such costs. Landlord shall reimburse Tenant, in an amount not to exceed $251,530.00 (which amount is in addition to, and not included in, the Allowances set forth in Item 6 of the Basic Terms of the Lease), for the out-of-pocket costs actually incurred by Tenant for the purchase, delivery and installation of City-Multi units serving the Premises, which reimbursement shall be subject to satisfaction of the requirements set forth in Section 3.03 of EXHIBIT E. All HVAC work, including all installation of roof top units, curbs, distribution ductwork, registers, grilles, thermostats, electric to roof top equipment, and all other components shall be provided by Tenant in accordance with the approved Tenants Drawings and shall be performed subject to the conditions and limitations set forth in EXHIBIT E. In addition, Landlord shall provide electrical conduit to the existing landscape planter for Tenant to use in connection with the installation of an electric vehicle charging station, it being understood that Tenant shall be responsible for malting all electrical connections for such electric vehicle charging station to Tenants electrical panel. Any other rooftop HVAC units or equipment installed by Landlord directly above the Premises during the Term of this Lease shall be placed in locations within the structural zone of the roof approved by Tenant, such approval not to be unreasonably withheld, conditioned or delayed, and any such HVAC units shall be installed with spring isolators and sound attenuation insulation similar to or better than the HVAC units serving the Premises.
17.1.2 Tenants Improvements.
Tenant shall perform Tenants Work at Tenants sole cost and expense, subject to and in accordance with the conditions and limitations set forth in EXHIBIT E attached hereto and made a part hereof. Tenant agrees to accept possession of the Premises on the Delivery Date and to proceed with due diligence to perform Tenants Work, and to install its fixtures, furniture and equipment subject to all the terms, covenants and conditions of this Lease other than payment of rent.
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ARTICLE 18
MISCELLANEOUS PROVISIONS
18.1 Notices.
All Notices must be in writing and must be sent by personal delivery, United States registered or certified mail (postage prepaid) or by an independent overnight courier service, addressed to the addresses specified in the Basic Terms or at such other place as either party may designate to the other party by written notice given in accordance with this section. Notices given by mail are deemed effective three Business Days after the party sending the Notice deposits the Notice with the United States Post Office. Notices delivered by courier are deemed effective on the next Business Day after the day the party delivering the Notice timely deposits the Notice with the courier for overnight (next day) delivery. Attorneys for Landlord and Tenant are authorized to give notices for and on behalf of such parties, and Landlords property manager and construction coordinator are authorized to give notices for and on behalf of Landlord. Payments to be made hereunder shall be deemed received only upon actual receipt by the payee.
18.2 Transfer of Landlord s Interest.
If Landlord transfers or conveys the Building, the grantor is automatically released from and after the date of such transfer or conveyance from obligation or liability of Landlord under this Lease, provided the transferee shall be deemed to have assumed Landlords obligations under this Lease, subject to and in accordance with the conditions and limitations set forth herein. The grantor will transfer to the grantee at the time of the transfer or conveyance any security deposit grantor holds in which Tenant has an interest to be held or applied by the grantee in accordance with this Lease. Landlords covenants and obligations in this Lease bind each successive Landlord only during and with respect to its respective period of ownership. However, notwithstanding any such Transfer, the transferor remains entitled to the benefits of Tenants indemnity and insurance obligations (and similar obligations) under this Lease with respect to matters arising or accruing during the transferors period of ownership.
18.3 Successors.
The covenants and agreements contained in this Lease bind and inure to the benefit of Landlord, its successors and assigns, bind Tenant and its successors and assigns and inure to the benefit of Tenant and its permitted successors and assigns.
18.4 Captions and Interpretation.
The captions of the articles and sections of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular includes the plural and the plural includes the singular.
18.5 Relationship of Parties.
This Lease does not create the relationship of principal and agent, or of partnership, joint venture, or of any association or relationship between Landlord and Tenant other than that of landlord and tenant.
18.6 Entire Agreement; Amendment.
The Basic Terms and all exhibits, addenda and schedules attached to this Lease are incorporated into this Lease as though fully set forth in this Lease and together with this Lease contain the entire agreement between the parties with respect to the improvement and leasing of the Premises. All prior and contemporaneous negotiations, including, without limitation, any letters of intent or other proposals and any drafts and related correspondence, are merged into and superseded by this Lease. No subsequent alteration, amendment, change or addition to this Lease (other than to the Building Rules) is binding on Landlord or Tenant unless it is in writing and signed by the party to be charged with performance.
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18.7 Severability.
If any covenant, condition, provision, term or agreement of this Lease is, to any extent, held invalid or unenforceable, the remaining portion thereof and all other covenants, conditions, provisions, terms and agreements of this Lease, will not be affected by such holding, and will remain valid and in force to the fullest extent permitted by law.
18.8 Landlord s Limited Liability.
Tenant will look solely to Landlords interest in the Building for recovering any judgment or collecting any obligation from Landlord or any other Landlord Party. Tenant agrees that neither Landlord nor any other Landlord Party will be personally liable for any judgment or deficiency decree.
18.9 Survival.
All of Tenants obligations under this Lease (together with interest on payment obligations at the Maximum Rate) accruing prior to expiration or other termination of this Lease survive the expiration or other termination of this Lease. Further, all of Tenants release, indemnification, defense and hold harmless obligations under this Lease survive the expiration or other termination of this Lease, without limitation.
18.10 Attorneys Fees.
If either Landlord or Tenant commences any litigation or judicial action to determine or enforce any of the provisions of this Lease, the prevailing party in any such litigation or judicial action is entitled to recover all of its costs and expenses (including, but not limited to, reasonable attorneys fees, costs and expenditures) from the nonprevailing party.
18.11 Brokers.
Landlord and Tenant each represents and warrants to the other that it has not had any dealings with any realtors, brokers, finders or agents in connection with this Lease (except as may be specifically set forth in the Basic Terms) and releases and will indemnify, defend and hold the other harmless from and against any Claim based on the failure or alleged failure to pay any realtors, brokers, finders or agents (other than any brokers specified in the Basic Terms) and from any cost, expense or liability for any compensation, commission or changes claimed by any realtors, brokers, finders or agents (other than any brokers specified in the Basic Terms) claiming by, through or on behalf of it with respect to this Lease or the negotiation of this Lease. Landlord will pay any brokers named in the Basic Terms in accordance with the applicable listing agreement for the Building.
18.12 Governing Law.
This Lease is governed by, and must be interpreted under, the internal laws of the State. Any suit arising from or relating to this Lease must be brought in the County or, if the suit is brought in federal court, in any federal court appropriate for suits arising in the County; Landlord and Tenant waive the right to bring suit elsewhere.
18.13 Time is of the Essence.
Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.
18.14 Joint and Several Liability.
All parties signing this Lease as Tenant and any Guarantor(s) of this Lease are jointly and severally liable for performing all of Tenants obligations under this Lease.
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18.15 Tenant s and Guarantor s Organizational Documents; Authority.
If Tenant or Guarantor, if any, is an entity, Tenant, within 10 days after Landlords written request, will deliver or cause to be delivered to Landlord (a) Certificate(s) of Good Standing from the state of formation of Tenant and Guarantor, if any, and, if different, the State, confirming that Tenant and Guarantor, if any, is in good standing under the laws governing formation and qualification to transact business in such state(s); and (b) a resolution of Tenant and Guarantor, if any, with Secretarys and Incumbency Certificate, authorizing Tenants execution of this Lease or Guaranty, as applicable, and the person signing the Lease and Guaranty on Tenants and Guarantors, if any, behalf to sign the Lease and Guaranty. Tenant and each individual signing this Lease on behalf of Tenant represents and warrants that they are duly authorized to sign on behalf of and to bind Tenant and that this Lease is a duly authorized obligation of Tenant. Landlord and each individual signing this Lease on behalf of Landlord represents and warrants that they are duly authorized to sign on behalf of and to bind Landlord and that this Lease is a duly authorized obligation of Landlord.
18.16 Provisions are Covenants and Conditions.
All provisions of this Lease, whether covenants or conditions, are deemed both covenants and conditions.
18.17 Force Majeure.
If Landlord is delayed or prevented from performing any act required in this Lease (excluding, however, the payment of money) by reason of Tenant Delay or Force Majeure, Landlords performance of such act is excused for the longer of the period of the delay or the period of delay caused by such Tenant Delay or Force Majeure and the period of the performance of any such act will be extended for a period equivalent to such longer period.
18.18 Management.
Property Manager is authorized to manage the Buildings and the Shopping Center, Landlord appointed Property Manager to act as Landlords agent for leasing, managing and operating the Buildings and the Shopping Center. The Property Manager then serving is authorized to accept service of process and to receive and give notices and demands on Landlords behalf.
18.19 Financial Statements.
Tenant will, prior to Tenants execution of this Lease and within 10 days after Landlords request at any time during the Term, deliver to Landlord complete, accurate and up-to-date financial statements with respect to Tenant and any Guarantor(s) or other parties obligated upon this Lease, which financial statements must be (a) prepared according to generally accepted accounting principles consistently applied, and (b) certified by an independent certified public accountant or by Tenants (or Guarantors, as the case may be) chief financial officer that the same are a true, complete and correct statement of Tenants (or Guarantors) financial condition as of the date of such financial statements.
18.20 Quiet Enjoyment.
Landlord covenants that Tenant will quietly hold, occupy and enjoy the Premises during the Term, subject to the terms and conditions of this Lease, free from molestation or hindrance by Landlord or any person claiming by, through or under Landlord, if Tenant pays all Rent as and when due and keeps, observes and fully satisfies all other covenants, obligations and agreements of Tenant under this Lease.
18.21 No Recording.
Tenant will not record this Lease or a Memorandum of this Lease without Landlords prior written consent, which consent Landlord may grant or withhold in its sole and absolute discretion.
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18.22 Construction of Lease and Terms.
The terms and provisions of this Lease represent the results of negotiations between Landlord and Tenant, each of which are sophisticated parties and each of which has been represented or been given the opportunity to be represented by counsel of its own choosing, and neither of which has acted under any duress or compulsion, whether legal, economic or otherwise. Consequently, the terms and provisions of this Lease must be interpreted and construed in accordance with their usual and customary meanings, and Landlord and Tenant each waive the application of any rule of law that ambiguous or conflicting terms or provisions contained in this Lease are to be interpreted or construed against the party who prepared the executed Lease or any earlier draft of the same. Landlords submission of this instrument to Tenant for examination or signature by Tenant does not constitute a reservation of or an option to lease and is not effective as a lease or otherwise until Landlord and Tenant both execute and deliver this Lease. The parties agree that, regardless of which party provided the initial form of this Lease, drafted or modified one or more provisions of this Lease, or compiled, printed or copied this Lease, this Lease is to be construed solely as an offer from Tenant to lease the Premises, executed by Tenant and provided to Landlord for acceptance on the terms set forth in this Lease, which acceptance and the existence of a binding agreement between Tenant and Landlord may then be evidenced only by Landlords execution of this Lease.
18.23 Development Matters.
Tenant hereby agrees and acknowledges that Landlord shall be permitted to improve or cause to be improved or to convey or lease to third parties for improvement (without the necessity of obtaining Tenants consent) the outlots, if any, depicted on EXHIBIT B-1, or any lots contiguous or adjacent to the Shopping Center to which legal or equitable title is acquired by Landlord at any time during the term hereof (individually, an Outlot, collectively, the Outlots), as separate and independent developments from the remainder of the Shopping Center with the understanding that the Outlots and the remainder of the Shopping Center shall nevertheless constitute an integrated shopping center and the same may not, at Landlords election, form part of the Shopping Center. In the event of a sale, transfer or other conveyance of any of the Outlots, Landlord may enter into an agreement with the transferee granting appropriate easement and other rights, and containing such other matters as Landlord and such transferee may agree, to the extent not inconsistent with this Lease. Further, Landlord and Tenant hereby agree and acknowledge that Landlord shall be permitted to sell, transfer or otherwise convey any portion of the Shopping Center as a separate and independent development from the remainder of the Shopping Center with the understanding that any such portion and the remainder of the Shopping Center shall nevertheless constitute an integrated shopping center and the same may not, at Landlords election, form part of the Shopping Center. In the event of a sale, transfer or other conveyance of any portion of the Shopping Center (separate from the balance of the Shopping Center), Landlord may enter into an agreement with the transferee granting appropriate easement and other rights, and containing such other matters as Landlord and such transferee may agree, to the extent not inconsistent with this Lease.
18.24 Homeland Security
Tenant represents, certifies and warrants to Landlord as follows: (i) Tenant is not named by, and is not acting, directly or indirectly, for or on behalf of any person, group, entity or nation named by, any Executive Order, including without limitation Executive Order 13224, or the United States Treasury Department as a terrorist, Specially Designated National and Blocked Person, or other banned or blocked person, entity, nation or transaction pursuant to any law, order, rule or regulation that is enacted, enforced or administered by the Office of Foreign Assets Control; (ii) Tenant is not engaged in this transaction, directly or indirectly, for or on behalf of, or instigating or facilitating this transaction, directly or indirectly on behalf of, any such person, group, entity or nation; and (iii) none of the proceeds used to pay Minimum Rent and Additional Rent have been or will be derived from a specified unlawful activity as defined in, and Tenant is not otherwise in violation of, the Money Laundering Control Act of 1986, as amended, or any other applicable laws regarding money laundering activities. Furthermore, Tenant agrees to immediately notify Landlord if Tenant was, is, or in the future becomes a senior foreign political figure, or an immediate family member or close associate of a senior foreign political figure, within the meaning of Section 312 of the USA PATRIOT Act of 2001. Notwithstanding anything in this Lease to the contrary, Tenant acknowledges and agrees that this Lease is a continuing transaction and that the foregoing representations, certifications and warranties are ongoing and shall be and remain true and in full force and effect on the date hereof and throughout the Term and that any breach thereof shall constitute an
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automatic Event of Default giving rise to Landlords remedies and Tenant agrees to indemnify, defend and hold harmless Landlord, Landlords management agent and the Landlord Affiliated Entities from and against all losses, damages, costs and expenses resulting from or relating to any breach of the foregoing representations, certification and warranties.
[SIGNATURE PAGE FOLLOWS]
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Landlord and Tenant each caused this Lease to be executed and delivered by its duly authorized representative to be effective as of the Effective Date.
LANDLORD: | ||
Station Park CenterCal, LLC, | ||
a Delaware limited liability company | ||
By: CenterCal, LLC, | ||
a Delaware limited liability company | ||
Its: Sole Member | ||
By: CenterCal Associates, LLC, | ||
a Delaware limited liability company | ||
Its: Manager |
By: |
/s/ illegible |
|
Its: |
President |
TENANT: | ||
Pluralsight, LLC, | ||
a Utah limited liability company |
By: |
/s/ Aaron Skonnard |
Name: |
Aaron Skonnard |
Title: |
President/CEO |
1
EXHIBIT A
DEFINITIONS
Additional Rent means any charge, fee or expense (other than Basic Rent) payable by Tenant under this Lease, however denoted.
Affiliate means any person or entity that, directly or indirectly, controls, is controlled by or is under common control with Tenant or any person or entity that acquires all or substantially all of the assets, stock or membership interests of Tenant. For purposes of this definition, contra means possessing the power to direct or cause the direction of the management and policies of the entity by the ownership of a majority of the voting interests of the entity.
Alteration means any change, alteration, addition or improvement to the Premises, the Buildings or Shopping Center.
Bankruptcy Code means the United States Bankruptcy Code as the same now exists and as the same may be amended, including any and all rules and regulations issued pursuant to or in connection with the United States Bankruptcy Code now in force or in effect after the Effective Date.
Basic Rent means the basic rent amounts specified in the Basic Terms.
Basic Terms means the terms of this Lease identified as the Basic Terms before Article I of the Lease.
BOMA Standards means the Office Buildings: Standard Methods of Measurement (ANSI/BOMA Z65.1 2010) approved May 26, 2010, by the American National Standards Institute, Inc., and the Building Owners and Managers Association International.
Building means that certain mixed-use building, depicted on the Site Plan as Building E, to be constructed on the Land and forming part of the Shopping Center.
Buildings means the portions of any buildings within the shopping center containing Office Space.
Building Rules means those certain rules attached to this Lease as EXHIBIT D, as Landlord may amend the same from time to time.
Business Days means any day other than Saturday, Sunday or a legal holiday in the State.
Business Hours means Monday through Friday from 8:00 am. to 6:00 p.m. and on Saturdays from 8:00 a.m. to 12:00 noon, excluding holidays.
City means Farmington, Utah.
Claims means all claims, actions, demands, liabilities, damages, costs, penalties, forfeitures, losses or expenses, including, without limitation, reasonable attorneys fees and the costs and expenses of enforcing any indemnification, defense or hold harmless obligation under the Lease.
Commencement Date means the date that is the earlier of Tenants completion of the Tenant Improvements and Tenants opening for business in the Premises or one hundred twenty (120) days following the Delivery Date.
Commencement Date Memorandum means the form of memorandum attached to the Lease as EXHIBIT C.
Common Area means the part of the Shopping Center designated by Landlord from time to time for the common use or benefit of the occupants of the Shopping Center, including, without limitation, parking areas, deck parking, structures, sidewalks, landscaping, curbs, loading docks, loading areas, private streets and alleys, courts, lanes, corridors, aisles, interior and exterior stairways, decorative fountains, truck service-ways and tunnels, canopies, comfort and first-aid
A-1
stations, parcel pickup stations, drinking fountains, elevators, escalators and moving sidewalks, on-site and offsite detention areas, lighting facilities, hallways and other areas and improvements provided by Landlord for the common use of all occupants, and all other portions of the Shopping Center not designated for the sole use of a single occupant, with facilities appurtenant to each.
Condemning Authority means any person or entity with a statutory or other power of eminent domain.
County means Davis County, Utah.
Effective Date means September 20, 2013.
Event of Default means the occurrence of any of the events specified in Section 14.1 of the Lease.
Floor Plan means the floor plan attached to the Lease as EXHIBIT B.
Force Majeure means acts of God; strikes; lockouts; labor troubles; inability to procure materials; inclement weather; governmental laws or regulations; casualty; orders or directives of any legislative, administrative, or judicial body or any governmental department; inability to obtain any governmental licenses, permissions or authorities (despite commercially reasonable pursuit of such licenses, permissions or authorities); and other similar or dissimilar causes beyond Landlords or Tenants reasonable control.
Guarantor means any person or entity at any time providing a guaranty of all or any part of Tenants obligations under this Lease.
Hazardous Materials means any of the following, in any amount: (a) any petroleum or petroleum product, asbestos in any form, urea formaldehyde and polychlorinated biphenyls; (b) any radioactive substance; (c) any toxic, infectious, reactive, corrosive, ignitable or flammable chemical or chemical compound; and (d) any chemicals, materials or substances, whether solid, liquid or gas, defined as or included in the definitions of hazardous substances, hazardous wastes, hazardous materials, extremely hazardous wastes, restricted hazardous wastes, toxic substances, toxic pollutants, solid waste, or words of similar import in any federal, state or local statute, law, ordinance or regulation now existing or existing on or after the Effective Date as the same may be interpreted by government offices and agencies.
Hazardous Materials Laws means any federal, state or local statutes, laws, ordinances or regulations now existing or existing after the Effective Date that control, classify, regulate, list or define Hazardous Materials or require remediation of Hazardous Materials contamination.
Land means that certain real property depicted on the attached EXHIBIT A. Landlord means only the owner or owners of the Shopping Center at the time in question.
Landlord Affiliated Entities means Station Park CenterCal, LLC, a Delaware limited liability company; CenterCal, LLC, a Delaware limited liability company; California State Teacher Retirement System, a public entity; CenterCal Associates, LLC, a Delaware limited liability company; CenterCal Properties, LLC, a Delaware limited liability company; Principal Real Estate Investors, LLC, a Delaware limited liability company; Wells Fargo Bank, National Association, a national banking association, as Administrative Agent for the benefit of the Lenders; Bruning Family Trust, u/d/t October 30, 2007; Wardy Family Trust, u/d/t December 13, 2007; any holder of any mortgage, deed of trust or similar instrument encumbering the Shopping Center; and such other entities as are named by Landlord from time to time.
Landlord Parties means Landlord and Property Manager and their respective officers, partners, shareholders, members and employees.
A-2
Laws means any law, regulation, rule, order, statute or ordinance of any governmental or private entity in effect on or after the Effective Date and applicable to the Shopping Center or the use or occupancy of the Shopping Center, including, without limitation, Hazardous Materials Laws, and Building Rules.
Lease means this Office Lease Agreement, as the same may be amended or modified after the Effective Date.
Maximum Rate means interest at a rate equal to the lesser of (a) 18% per annum or (b) the maximum interest rate permitted by law.
Mortgage means any mortgage, deed of trust, ground lease, synthetic lease, security interest or other security document of like nature that at any time may encumber all or any part of the Shopping Center and any replacements, renewals, amendments, modifications, extensions or refinancings thereof, and each advance (including future advances) made under any such instrument.
Net Rent means all rental Landlord actually receives from any reletting of all or any part of the Premises, less any indebtedness from Tenant to Landlord other than Rent (which indebtedness is paid first to Landlord) and less the Re-entry Costs (which costs are paid second to Landlord).
Notices means all notices, demands or requests that may be or are required to be given, demanded or requested by either party to the other as provided in the Lease.
Office Space means any area in the Buildings now or hereafter operating, or designated for operation by Landlord, from time to time, primarily for general office purposes. The term Office Space shall not include any area used by any retail tenant for incidental office purposes.
Permitted Encumbrances means all Mortgages, liens, easements, declarations, encumbrances, covenants, conditions, reservations, restrictions and other matters now or after the Effective Date affecting title to the Shopping Center.
Premises means that certain space situated in the Building shown and designated on the Floor Plan and described in the Basic Terms.
Property Manager means the property manager specified in the Basic Terms or any other agent Landlord may appoint from time to time to manage the Shopping Center.
Re-entry Costs means all costs and expenses Landlord incurs re-entering or reletting all or any part of the Premises, including, without limitation, all costs and expenses Landlord incurs (a) maintaining or preserving the Premises after an Event of Default; (b) recovering possession of the Premises, removing persons and property from the Premises (including, without limitation, court costs and reasonable attorneys fees) and storing such property; (c) reletting, renovating or altering the Premises; and (d) real estate commissions, advertising expenses and similar expenses paid or payable in connection with reletting all or any part of the Premises. Re-entry Costs also includes the value of free rent and other concessions Landlord gives in connection with re-entering or reletting all or any part of the Premises.
Rent means, collectively, Basic Rent and Additional Rent.
Shopping Center means the property outlined on EXHIBIT B-1 and all improvements constructed thereon, including, without limitation, the Buildings, together with such additions, deletions and other changes as Landlord may from time to time designate for the Shopping Center, and commonly known as Station Park located in the City, County and State. Tenant acknowledges that EXHIBIT B-1 is intended only to identify the real estate comprising the Shopping Center and the approximate boundary lines of the individual parcels and that EXHIBIT B-1 is not to be considered or construed as a representation or covenant that the shape, size, location, number and extent of building improvements shown thereon shall be constructed.
State means the State of Utah.
A-3
Structural Alterations means any Alterations involving the structural, mechanical, electrical, plumbing, fire/life safety or heating, ventilating and air conditioning systems of the Building.
Taking means the exercise by a Condemning Authority of its power of eminent domain on all or any part of the Shopping Center, either by accepting a deed in lieu of condemnation or by any other manner.
Tenant means the tenant identified in the Lease and such tenants permitted successors and assigns. In any provision relating to the conduct, acts or omissions of Tenant, the term Tenant includes the tenant identified in the Lease and such tenants agents, employees, contractors, invitees, successors, assigns and others using the Premises or on the Shopping Center with Tenants expressed or implied permission.
Tenant Delay means any delay caused or contributed to by Tenant.
Tenants Drawings shall have the meaning set forth in Section 3.01 of EXHIBIT E.
Tenants Improvements means all initial improvements to the Premises as described on the approved Tenants Drawings.
Tenants Work means the construction and installation of Tenants Improvements.
Term means the initial term of this Lease specified in the Basic Terms and, if applicable, any renewal term then in effect.
Transfer means an assignment, mortgage, pledge, transfer, sublease, license, or other encumbrance or conveyance (voluntarily, by operation of law or otherwise) of this Lease or the Premises or any interest in this Lease or the Premises. The term Transfer also includes any assignment, mortgage, pledge, transfer or other encumbering or disposal (voluntarily, by operation of law or otherwise) of any ownership interest in Tenant or any Guarantor that results or could result in a change of control of Tenant or any Guarantor.
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EXHIBIT B
FLOOR PLAN
B-1
EXHIBIT B-1
SITE PLAN
B-2
EXHIBIT C
COMMENCEMENT DATE MEMORANDUM
THIS MEMORANDUM is made and entered into as of , 201 , by and between Station Park CenterCal, LLC, a Delaware limited liability company (Landlord), and Pluralsight, LLC, a Utah limited liability company (Tenant).
RECITALS:
A. By that certain Multi-Tenant Office Lease Agreement dated as of , 201 (Lease), Landlord leased to Tenant, and Tenant leased from Landlord, certain premises (Premises) located in the development commonly known as Station Park in Farmington, Utah (Building).
B. Landlord and Tenant desire to confirm the Commencement Date and the date the Term of the Lease expires.
C. Unless otherwise provided herein, all capitalized terms not otherwise defined in this Memorandum have the meanings ascribed to them in the Lease.
ACKNOWLEDGMENTS:
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. The Commencement Date under the Lease is .
2. The Term of the Lease expires on , unless the Lease is sooner terminated in accordance with the terms and conditions of the Lease.
3. The rentable area of the Premises is square feet.
4. Tenant shall exercise its right to the first Renewal Term, if at all, before subject to the conditions and limitations set forth in Section 1.2.4 of the Lease.
5. This Memorandum may be executed in counterparts, each of which is an original and all of which constitute one instrument.
[Signature page follows.]
C-1
Landlord and Tenant each caused this Memorandum to be executed by its duly authorized representative as of the day and date written above.
LANDLORD: | ||
Station Park CenterCal, LLC, | ||
a Delaware limited liability company | ||
By: CenterCal, LLC, |
||
a Delaware limited liability company |
||
Its: Sole Member |
||
By: CenterCal Associates, LLC, |
||
a Delaware limited liability company |
||
Its: Manager |
By |
/s/ illegible |
Title |
Manager |
TENANT: | ||
Pluralsight, LLC, | ||
a Utah limited liability company |
By: |
/s/ Aaron Skonnard |
Name: |
Aaron Skonnard |
Title: |
CEO/President |
C-2
EXHIBIT D
BUILDING RULES
1. Tenant, its agents, employees, contractors, licensees, customers and invitees must not obstruct sidewalks, entrances, passages, corridors, vestibules, halls, elevators, or stairways in and about the Building which are used in common with other tenants and their agents, employees, contractors, licensees, customers and invitees, and which are not a part of the Premises. Tenant must not place objects against glass partitions or doors or windows which would be unsightly from the Building corridors or from the exterior of the Building, or that would interfere with the operation of any device, equipment, radio, television broadcasting or reception from or within the Building or elsewhere and must not place or install any projections, antennas, aerials or similar devices inside or outside of the Premises or on the Building.
2. Unless expressly permitted by Landlord, Tenant must not attach any lock to any door or window or make or cause to be made any keys for any door other than those provided by Landlord. If Tenant desires more than two keys for one lock, Landlord may provide the same upon payment by Tenant. Upon termination of this Lease or of Tenants right to possess the Premises, Tenant must provide Landlord with all combinations to safes, cabinets and vaults.
3. Tenant must install any carpeting cemented down by Tenant with a releasable adhesive. If Tenant violates the foregoing, Landlord may charge its costs to remove the carpet to Tenant.
4. Tenant must not allow any vehicle, or any dog, other than guide dogs for the visually impaired, or other animal in the offices, halls, corridors, or elsewhere in the Building.
5. Tenant must not throw anything out of the door or windows, or down any passageways or elevator shafts.
6. Canvassing, soliciting, and peddling in the Building is prohibited and each Tenant must cooperate to prevent the same.
7. Vending machines must not be installed without Landlords permission.
8. Smoking and the use of any tobacco product is prohibited in the Building.
9. Tenant, its agents, employees, contractors, licensees, customers and invitees must, when using the common parking facilities, if any, in and around the Building, observe and obey all signs regarding fire lanes and no parking zones, and when parking always park between the designated lines. Landlord reserves the right to tow away, at the expense of the owner, any improperly parked vehicle, All vehicles are parked at the sole risk of the owner, and Landlord assumes no responsibility for any damage to or loss of vehicles. No vehicle may be parked overnight. Tenant, its servants, employees, customers, invitees and guests must not park any trailers, boats or tractors in the common parking facilities.
10. At all times, (a) persons may enter the Building only in accordance with Landlords regulations, (b) persons entering or departing from the Building may be questioned as to their business in the Building, and (c) all entries into and departures from the Building must take place through such one or more entrances as Landlord from time to time designates; provided, however, anything herein to the contrary notwithstanding, Landlord is not liable for any lack of security in respect to the Building whatsoever. Landlord reserves the right to require Tenant to use an identification card or other access device to access the Building and the right to require persons entering the Building to register the hour of entry and departure, nature of visit and other information Landlord determines is necessary for security in the Building. Landlord will normally not enforce clauses (a), (b) and (c) above from 6:00 a.m. to 9:00 p.m., Monday through Friday, and from 7:00 a.m. to 6:00 p.m. on Saturdays and Sundays, but it reserves the right to do so or not to do so at any time at its sole discretion. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building during the continuance of the same by closing the doors or otherwise, for the safety of the tenants or the protection of the Building and the property therein. In no case is Landlord liable for damages for any error or other action taken with regard to the admission to or exclusion from the Building of any person.
D-1
11. Tenant must lock all entrance doors to the Premises when the Premises are not in use
12. Wherever in these Building Rules and Regulations the word Tenant occurs, it is understood and agreed that such term includes Tenants agents, employees, contractors, licensees, customers and invitees. Wherever the word Landlord occurs, it is understood and agreed that such term includes Landlords assigns, agents, employees and contractors.
13. Tenant must observe faithfully and comply strictly with the foregoing rules and regulations and such other and further appropriate rules and regulations as Landlord may from time to time adopt.
D-2
EXHIBIT D-1
SHOPPING CENTER USE RESTRICTIONS
Tenant shall not use the Shopping Center in whole or in part, for any of the following purposes:
(a) Warehouse, or for any assembling (other than the incidental assembly of prefabricated furniture), manufacturing (other than cooking, baking and other preparation of food products for sale and incidental refinishing of furniture, and other than lens grinding, lens finishing, and eye glass fabrication and repair), distilling (other than any retail microbrewery), reining, smelting, agricultural (other than the sale of agricultural products and the preparation thereof for sale) or industrial or mining operations;
(b) Dollar Store; Second-hand thrift store whose principal business is selling discounted and used merchandise (other than an arcade, video, compact disc, novelty, entertainment or similar resale store of a first-class type and nature typically found at first-class shopping centers in major urban markets in the western United States) such as a salvation army type store, goodwill type store, or similar businesses;
(c) Mobile home park, trailer court, labor camp, junk yard, or stock yard (except that this provision shall not prohibit the temporary use of construction trailers during any periods of construction, reconstruction or maintenance);
(d) Dumping, disposing, incinerating, or reducing of garbage (exclusive of dumpsters for the temporary storage of garbage and any garbage compactors, in each case which are regularly emptied so as to minimize offensive odors);
(e) Fire, going out of business, relocation, bankruptcy or similar sales (unless pursuant to court order);
(f) Central laundry, dry cleaning plant, or laundromat; provided, however, this restriction shall not apply to any dry cleaning facility providing on-site services oriented to pickup and delivery by the ultimate customer, including nominal supporting facilities, or to laundry facilities for any tenant or occupant of the Shopping Center for such tenants or occupants own towels, linens, and uniforms used in its premises;
(g) Selling, displaying, leasing or repairing automobiles, trucks, trailers, or recreational vehicles;
(h) Any skating rink, night club, dance hall or gymnasium (other than small fitness centers, such as a Curves for Women or yoga studio);
(i) Funeral home or mortuary;
(j) Adult only store for the sale or rental of pornographic material or other sexually explicit material (provided that this restriction shall not preclude the sale or rental of X rated or NR rated or similar materials as an incidental part of the operation of bookstores or other multi-media or consumer electronics stores);
(k) Flea market;
(l) Car wash; provided however, a car wash shall be permitted as part of a service station/mini-mart operation;
(m) Operation whose principal use is a massage parlor except that Declarant shall be permitted to lease to massage parlors in the Shopping Center such as a Massage Envy or a similar user; and provided this restriction shall not prohibit massages in connection with a beauty salon or health club or athletic facility;
(n) Tattoo parlor;
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(o) Any church, synagogue, mosque or other place or religious worship; provided, however, that the foregoing shall not prohibit usage of any movie theatre which is limited to the rental or licensing of space within the movie theatre to a religious institution for purposes of conducting religious services, and not for any full time use of the movie theatre or any portion thereof as a church, synagogue, mosque or other place of religious worship; school (other than (i) cooking and other home economic classes conducted by any grocery store tenant or occupant of the Shopping Center, (ii) a post-secondary educational facility for office uses and/or an educational facility providing specialized tutoring, testing, assessment and/or supplemental education services, (iii) meetings, training sessions, instructional classes and the like conducted in one or more movie theatre auditoriums); auditorium, meeting hall or other place of public assembly;
(p) Amusement or arcade type games (except as part of an upscale restaurant such as Dave & Busters, and except if located outside the Restricted Area depicted on the Site Plan);
(q) bulk candy store, ice cream or yogurt store, or popcorn store (except if located outside the Restricted Area depicted on the Site Plan);
(r) Sale or rental of video tapes (except this restriction shall not restrict Barnes & Noble from the sale or rental of video tapes, nor the sale or rental of video tapes by other retailers if such activity constitutes less than 10% of the total revenues of such retailer);
(s) Bowling alley within five hundred (500) feet of the Theatre depicted on the Site Plan (excluding upscale bowling alley operators such as Lucky Strike or Dave & Busters, if such upscale bowling alley is located north of the Permitted Bowling Area depicted on the Site Plan), or within five hundred (500) feet of Restricted Area B depicted on the Site Plan;
(t) Bingo parlor,
(u) bar or lounge (except as part of a restaurant which derives at least fifty percent (50%) of its sales from the sale of food), or wine bar which either (a) contains 2,500 square feet or less if located south of the Permitted Bowling Area depicted on the Site Plan, or (b) is located in the Permitted Bowling Area, provided that no wine bar shall be located in the Restricted Area depicted on the Site Plan;
(v) liquor store, a post office operated by the United States Postal Service, or billiard or pool hall (except as part of an upscale restaurant such as Dave & Busters);
(w) Except as otherwise permitted by Landlord, residential purposes (other than a hotel);
(x) Theatre (other than the theatre depicted on the Site Plan);
(y) Veterinary services or pet vaccination clinic or overnight stay pet facilities (except as an incidental use in conjunction with the operation of a national or regional pet store retailer, provided such pet store retailer is not located within one hundred fifty (150) feet of the front and side perimeter walls of the Restricted Area B);
(z) Unless otherwise permitted by Landlord, no tenant or occupant of the Shopping Center shall be permitted to operate in its premises primarily (i.e. fifty-percent (50%) or more of the Leasable Floor Area of such tenant or occupant) for the rental of prerecorded audio or video merchandise or electronic games software and technological evolutions thereof; provided, however, the foregoing restriction shall not apply to: (A) a tenant or occupant of the Shopping Center operating: (i) in fifteen hundred (1,500) square feet of Leasable Floor Area or less, or (ii) in fifteen thousand (15,000) square feet of Leasable Floor Area or more, or (iii) primarily as a bookstore, or (B) as a Game Stop or other similar retailer;
(aa) Unless otherwise permitted by Landlord, no space shall be operated by a nationally branded store with more than five thousand (5,000) stores who sells general merchandise with a price point in which eighty five percent (85%) of the merchandise of variable prices is under Ten and 00/100s Dollars ($10.00), specifically excluding Dollar Tree and Dollar General or any single price point retailer;
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(bb) A library or reading room;
(cc) A meeting hall;
(dd) A day-care facility, indoor childrens recreational facility, or other amusement or entertainment facility;
(ee) A check cashing facility;
(ff) An amusement park or carnival;
(gg) A banquet facility;
(hh) An animal raising or animal storage facility (except where incidental to a retail pet supply operation);
(ii) A pawn shop;
(jj) Drilling for and/or removal of subsurface substances;
(kk) A facility related to the occult sciences, including, without limitation, palm readers, astrologers, fortune tellers, tea leaf readers or prophets;
(ll) A frozen food locker or sales facility;
(mm) A milk distribution center;
(nn) A governmental facility;
(oo) A recruiting center or employment center;
(pp) A so-called off-track betting operation, card room, casino, gambling operation; and
(qq) A store specializing in the sale of drug paraphernalia.
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EXHIBIT E
CONSTRUCTION PROCEDURES
ARTICLE 1.00 GENERAL DESIGN AND CONSTRUCTION CRITERIA
1.01 | Tenant is responsible for letting contracts relating to the construction and installation of the Tenants Improvements, supervision and completion of Tenants Work and payment therefor, procurement of all permits and permissions related to Tenants Work, compliance with the requirements of all authorities having jurisdiction and with conditions contained herein, and payment of all fees and charges incurred in connection therewith, including, without limitation, all so-called system development charges and traffic impact fees with respect to the Premises. Tenant shall furnish Landlord for Landlords prior approval names and addresses of all contractors and subcontractors who shall perform Tenants Work, copies of all contracts and subcontracts, and copies of all necessary permits, licenses and approvals; provided, however, Tenants general contractor shall utilize Landlords base building subcontractors for mechanical, electrical and plumbing work. On the Delivery Date, Landlord shall deliver the Premises in compliance with all applicable laws, with all utilities and systems in good working order. |
1.02 | Landlord reserves the right to withhold authorization for Tenants Work to proceed until famished with reasonable evidence that Tenant has made provision to pay the full cost of the work and to discharge any liens that may arise therefrom. |
1.03 | Tenant shall impose and enforce all terms hereof on any architect, engineer, designer, contractor and workmen engaged by Tenant, its contractors and subcontractors. |
1.04 | Tenant shall comply with that certain Tenant Criteria Manual dated April, 2011 (the Handbook), a copy of which has previously been provided to Tenant and is hereby incorporated by reference. In the event of any conflict between the terms of this Exhibit E and the Handbook, the terms of the Handbook shall govern and control. |
ARTICLE 2.00 OTHER WORK OF LANDLORD
2.01 | Tenant acknowledges that Landlord may be carrying out certain other work in the Premises and the Shopping Center at the time that Tenants Work is being carried on and that such work by Landlord can only be undertaken at the same time as or subsequent to work done by Tenant and that certain work (including correction of deficiencies) may be undertaken or completed subsequent to the Delivery Date. |
ARTICLE 3.00 TENANTS DRAWINGS; CONSTRUCTION ALLOWANCE
3.01 | On or before October 15, 2013, Tenant shall prepare and furnish to Landlord, at Tenants cost and expense, in compliance with applicable laws, statutes, ordinances and codes, a complete set of interior store finish working drawings (Tenants Drawings) which Tenants Drawings shall include, without limitation, floor plans, interior elevations, details of any special installation which will affect the Building or perimeter walls of the Premises, complete plans for all mechanical, plumbing and electrical work including details of underfloor surfaces, specifications for all materials, finishes and other work, and performance characteristics for fixtures and equipment. Where applicable, Tenants Drawings shall include sections and elevations for tenant entries, details of entry signage (which conform to Landlords sign criteria), reflected ceiling plans, and changes in sprinkler head locations, Tenants Drawings shall be full and complete in all respects as may be necessary for construction and determination of the specific scope of Tenants Work. Tenants Drawings shall be certified (sealed) by an architect duly registered in the state where the Premises is located. |
3.02 |
After Tenant submits Tenants Drawings to Landlord, Landlord shall have ten (10) business days to approve or disapprove Tenants Drawings, and in the event Landlord does not approve the same, Landlord shall advise Tenant of Landlords comments to Tenants Drawings. Failure by Landlord to approve or disapprove Tenants |
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Drawings within five (5) business days following Tenants written reminder notice to Landlord that Landlord failed to respond within the time limits prescribed herein shall constitute an approval by Landlord. In the event Landlord disapproves Tenants Drawings, Tenant shall incorporate Landlords comments into Tenants Drawings within ten (10) days from receipt thereof and resubmit the same to Landlord, who shall have ten (10) days to approve or disapprove the revised Tenants Drawings. In the event Landlord does not approve the same, the procedures set forth herein shall be followed until such time as Landlord has approved the revised Tenants Drawings.
Tenants Drawings shall be approved by Landlord and Tenant by affixing thereon the signature or initials of an authorized officer or employee of each of the respective parties hereto and shall be incorporated by reference as Exhibit E-1. The signature of an authorized officer or employee shall be deemed conclusive evidence of the approval indicated by such signature. Landlord and Tenant agree to appoint competent personnel to work with the other party in the preparation of Tenants Drawings.
In the event Tenant desires or is required to modify or change Tenants Drawings after the same have been approved in the manner provided above, Tenant shall submit such modifications or changes to Landlord for review and consideration and the procedures governing approval of Tenants Drawings shall apply to any such modifications or changes.
Any approval by Landlord of any of Tenants Drawings shall not in any way be construed or operate to bind Landlord or to constitute a representation or warranty of Landlord as to the adequacy or sufficiency of Tenants Drawings, or the improvements to which they relate, for any reason, purpose or condition, but such approval shall merely be the consent of Landlord, as may be required hereunder, in connection with performance of Tenants Work in accordance with Tenants Drawings.
3.03 | Notwithstanding anything to the contrary contained in Exhibit C, upon fulfillment of all of the conditions precedent set forth below, Landlord shall contribute: (a) the Construction Allowance (set forth in item 6 of the Basic Terms of the Lease) to apply toward Tenants Improvements, excluding the Restroom Work and the Entryway Work, but specifically including any final ductwork, controls, stand-alone air conditioning for server rooms, etc. for the HVAC system; (b) the Restroom Allowance (set forth in item 6 of the Basic Terms of the Lease) to apply towards the Restroom Work; and (c) the Entryway Allowance (set forth in item 6 of the Basic Terms of the Lease) to apply towards the Entryway Work. Said sums are hereinafter collectively referred to as the Allowances. Said sums for the Allowances shall not in any event apply toward Tenants trade fixtures, personal property, or signs. The Allowances shall be payable within thirty (30) days from the date Tenants Improvements, including the Restroom Work and the Entryway Work, is completed in accordance with the terms of this Lease and Tenant has submitted to Landlord a written statement requesting such payment, provided that at the time of such request and scheduled payment: |
(a) | Tenant shall not be in default of this Lease; |
(b) | The Premises shall be open for business and Tenant shall be operating the same in accordance with the provisions of Article IV of the Lease; |
(c) | No liens shall have been filed and appropriate waivers, affidavits and releases of lien shall have been received by Landlord covering all work for which payment is requested; |
(d) | The certificate of occupancy for the Premises shall have been issued; |
(e) | Tenants architect shall have certified in writing to Landlord that Tenants Work has been completed in accordance with Tenants Drawings and with applicable laws, ordinances, rules, regulations and codes; |
(f) | Landlord has received the written affirmation from Tenants subcontractors as contemplated by Section 4.03, in form and substance acceptable to Landlord; and |
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(g) | Landlord has received a complete set of as-built Tenants Drawings. |
In the event Landlord fails to pay Tenant the Allowance when required, Tenant shall have the right to provide a second written request to Landlord. In the event Landlord fails to pay the Allowances to Tenant within thirty (30) days following Tenants delivery of the second written request, Tenant shall have the right to offset the amount of such Allowances against Basic Rent otherwise due under this Lease until the Allowances have been recovered in full.
ARTICLE 4.00 TENANTS WORK
4.01 | At its own expense, Tenant shall provide all design, engineering, plans, specifications, drawings, permits, fees, work, labor, skill and equipment required to complete the Premises for occupancy, and shall construct the Tenants Improvements in accordance with Tenants Drawings, approved in the manner set forth herein. |
4.02 | The following shall be carried out at Tenants expense and by Landlords contractor: |
(1) | all approved modifications and/or additions to the shell building structural system, roof and life safety systems, including, without limitation, installation of approved modifications and additions for the existing shell building sprinkler system, and |
(2) | any drilling, cutting, coring and patching for conduit, pipe sleeves, chases, duct equipment, or openings in the floors, walls, columns or roofs of the Premises which is approved by Landlord. |
The following may be carried out by Tenants contractor at Tenants expense subject to the requirements of Section 4.03 below:
(1) | all approved modifications to the shell building plumbing, heating, cooling, ventilating, exhaust, control and electrical distribution systems as installed by Landlord, and |
(2) | patching of building standard fireproofing, if applicable. |
4.03 | Modifications to the shell building systems set forth in Section 4.02 and special requirements of Tenant will be considered by Landlord only if applied for at the time Tenants Drawings are submitted for approval and if they are compatible with the capacity and character of the shell building. Drawings for such proposed modifications shall be certified (sealed) by an architect duly registered in the State of Utah. Landlord shall not be required to grant its consent to allow Tenants contractor to perform such work unless Tenant agrees to obtain from Landlords subcontractor(s) originally responsible for the installation of such shell building systems written statements in form satisfactory to Landlord, that Tenants modifications of such shell building systems will be performed in a good workmanlike manner and specifically affirming the continued validity of any and all warranties and guaranties in effect prior to commencement of Tenants Work from each such shell building systems subcontractor. Restrictions on mechanical and electrical connections by Tenant may be imposed as reasonably necessary by Landlord to insure that no warranty or guarantee pertaining to the shell building is lost or jeopardized. |
4.04 | No construction work shall be undertaken or commenced by Tenant until: |
(a) | Tenants Drawings have been submitted to and approved or deemed approved by Landlord, and |
(b) | all necessary building permits and required insurance coverages have been secured and certificates of insurance delivered to Landlord. |
4.05 | Tenant shall proceed with its work expeditiously, continuously, and efficiently, and shall complete the same by the date one hundred twenty (120) days following the Delivery Date. Failure of Tenant to complete by such date shall not prevent commencement of the term of the Lease or commencement of any rental or other charges payable by Tenant under the Lease. |
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4.06 | Tenant shall ensure that all materials, skill and workmanship in Tenants Work shall be of uniformly high quality, not less than building standard, and in accordance with the best standards of practice and any governing codes or regulations. Tenant shall have the obligation to timely deliver any materials and equipment and labor to be supplied by Tenant so as not to delay substantial completion of Tenants Work. Tenant represents and warrants that Tenants Drawings and the improvements contemplated thereby shall be in compliance with applicable building and zoning laws, ordinances, regulations and any covenants, conditions or restrictions affecting the Shopping Center, and that the same are in accordance with good engineering and architectural practice, and that Tenants Drawings are sufficient for issuance of a building permit for Tenants Work. Further, Tenant shall be responsible for obtaining the certificate of occupancy for the Premises with respect to Tenants Work, and shall furnish the same to Landlord prior to the Commencement Date. |
4.07 | Tenant shall appoint a representative as Tenants representative with full authority to make decisions and commitments on behalf of Tenant in respect to Tenants Work and changes therein. |
4.08 | All Tenants Work shall be confined to the interior of the Premises, with the exception of sign mountings, which shall be performed in compliance with Landlords sign criteria and the approved sign drawings. |
ARTICLE 5.00 TENANTS ACCESS FOR COMPLETION OF WORK
5.01 | Subject to compliance with applicable rules referred to in Article 5.00, Tenant and its architects, designers, engineers, contractors and workmen employed by Tenant shall have access to and non-exclusive use of the Premises to perform Tenants Work and such other work approved by Landlord as Tenant may desire. Any such work shall be done by contractors selected by Tenant and approved by Landlord, as aforesaid, provided that there shall be no conflict caused thereby with any union or other contract to which Landlord or Landlords general contractor may be a party and Tenants general contractor shall utilize Landlords base building subcontractors for mechanical, electrical and plumbing work. If Tenants contractor or subcontractors or trades or workmen cause such conflict, Tenant shall forthwith remove them from the Shopping Center. Landlord shall have no responsibility or liability whatsoever with respect to any work or attendant materials left or installed in the Shopping Center, and shall be reimbursed by Tenant for any additional costs and expenses of Landlord caused thereby, or resulting directly or indirectly from any delays caused to Landlord or to Landlords general contractor. |
5.02 | In order to ensure that work proceeds efficiently on the Shopping Center, Landlord and Landlords general contractor may from time to time make rules for coordination of all construction work. Tenant shall ensure that any architect, engineer, designer, contractor and workmen employed by Tenant is informed of and observes such rules, and prior to commencement of any construction work makes appropriate arrangements with Landlord or Landlords general contractor, particularly with respect to: |
(a) | Material handling and hoisting facilities. |
(b) | Material and equipment storage. |
(c) | Time and place of deliveries. |
(d) | Hours of work and coordination of work. |
(e) | Power, heating and washroom facilities. |
(f) | Scheduling. |
(g) | Security. |
(h) | Clean-up. |
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5.03 | Landlord may require that neat screens or hoardings as designed or prescribed by Landlord be erected at Tenants expense around the work and the Premises, that all work be conducted and all tools and materials be kept behind such hoardings, and that all cutting, drilling or other work of a noisy or vibrant nature be conducted outside the normal business hours of tenants in occupancy. |
5.04 | Tenant shall at all times keep the Premises and adjacent areas free from accumulations of waste material or rubbish caused by its suppliers, contractors or workmen. Landlord may require clean-up on a daily basis and reserves the right to do clean-up at the expense of Tenant if Landlords reasonable requirements in this regard are not complied with. At the completion of the work, Tenants contractor shall forthwith remove all rubbish and all tools, equipment and surplus materials from and about the Premises and shall leave the Premises clean to the satisfaction of Landlord. This final clean-up shall include the cleaning of light fixtures, windows, entries and public space affected by the work. Upon completion of Tenants Work, Tenant shall notify Landlords project manager or tenant coordinator that Tenants Work has been completed and is available for inspection for conformance with the approved Tenants Drawings. Tenant shall not occupy the Premises prior to this notification and inspection. |
5.05 | Any damage caused by Tenants contractor or sub-trades to any work of Tenants prime contractor to any property of Landlord or other tenants shall be repaired forthwith to the satisfaction of Landlord by Tenant at Tenants expense. |
5.06 | If Tenants contractor does not prosecute Tenants Work properly in accordance with the approved Tenants Drawings, Landlord, after three days written notice to Tenant, and without prejudice to any other right or remedy Landlord may have, may remedy the default or make good any deficiencies, and recover the costs incurred therein from Tenant, |
ARTICLE 6.00 PERFORMANCE OF TENANTS WORK BY LANDLORD
6.01 | If Landlord performs any of Tenants Work hereunder, whether at the request of Tenant or as provided herein to be performed by Landlord at Tenants cost, or if Landlord performs other work or supplies materials or equipment on the Premises or in the Building by agreement in writing with Tenant, Tenant shall pay to Landlord the direct cost thereof to Landlord plus 10% of such cost in respect of coordination by Landlord. |
6.02 | Tenant shall pay to Landlord any amount payable under Article 6.01 not more than 30 days after receipt of invoice therefor, provided that if requested by Landlord, Tenant shall pay to Landlord 35% of the estimated amount thereof at the time Landlord commences such work or orders materials or equipment for such work and shall make progress payments to Landlord as the work proceeds in such amounts as Landlord may require. |
ARTICLE 7.00 INSURANCE; PAYMENT DOCUMENTATION
7.01 | Prior to commencement of Tenants Work, Tenant shall obtain, at its sole expense, and maintain during the performance of Tenants Work, the following insurance coverages: |
(i) Workers compensation insurance covering all persons directly employed by Tenant in connection with Tenants Work and with respect to which death or injury claims could be asserted against Tenant, Landlord, the Shopping Center or any interest therein, with limits not less than as required by applicable laws and regulations, together with employers liability coverage with limits of not less than $250,000.00 per occurrence;
(ii) Commercial general liability insurance with limits of not less than $1,000,000.00 with respect to injury or death to any one person, $3,000,000.00 with respect to any one occurrence, and $500,000.00 with respect to property damage arising out of any one occurrence, which policy(ies) shall (a) name as additional insureds Landlord, its management agent and such other persons as Landlord may designate; (b) be written by
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insurance companies licensed to do business in the state where the Premises is located and reasonably acceptable to Landlord; (c) provide that such policy(ies) may not be canceled by the insurer without giving Landlord at least thirty (30) days prior written notice; (d) protect and insure Landlord and its management agent on account of any loss or damage arising from injury or death to persons or damage or destruction to property caused by or related to or occurring on (A) the Premises, (B) any act or omission of Tenant, or its respective agents, employees, licensees, invitees or contractors on any portion of the Shopping Center, including the Premises, and (C) any breach of Tenants indemnity obligations hereunder; and (e) include contractual liability coverage insuring the indemnity obligations provided for herein; and
(iii) All Risk Builders Risk And Casualty Liability insurance in the full amount of the cost of Tenants Work.
Further, Tenant shall cause each of Tenants architect and engineer to maintain an errors and omissions insurance policy written in limits of not less than $1,000,000.00 on a per occurrence basis. |
Tenant shall defend, indemnify and hold harmless Landlord, its management agent and the Landlord Affiliated Entities from and against any and all losses, damages, costs (including, without limitation, attorneys fees and court costs), liabilities, causes of action and settlements arising from or related to or in connection with any work performed by or on behalf of Tenant, including injury to persons or damage to property. Anything herein to the contrary notwithstanding, the obligations of Landlord under this Lease, and any covenant, representation, warranty or undertaking made by Landlord in this Lease, shall be deemed to exclude any matter to the extent attributable in whole or in part to (i) architectural, design and/or engineering defects contained in Tenants Drawings or non-compliance of the same with applicable building codes and rules and regulations of governmental authorities having jurisdiction thereof and other applicable laws, (ii) errors and/or omissions and/or negligent acts of Tenants architect and/or engineer and (iii) Tenants Work or the Tenants Improvements. |
7.02 | Prior to commencement of Tenants Work, Tenant shall furnish Landlord with a performance bond executed by a commercial surety reasonably satisfactory to Landlord, in an amount equal to the cost of all such work and the payment of all liens for labor and material that could arise therefrom. |
7.03 | Tenant shall furnish Landlord with sworn owners and contractors statements, contractors affidavits and partial and final waivers of lien, in such form and content as Landlord may require, in order to establish that the cost of all labor, services and materials furnished in connection with Tenants Work has been paid in full and to keep the Premises and the Shopping Center free from all liens and claims. |
ARTICLE 8.00 MECHANICS LIEN
8.01 |
Tenant shall not suffer or permit any mechanics lien or other lien to be filed against the Shopping Center, or any portion thereof including the Premises, by reason of Tenants Work. If any such mechanics lien or other lien shall at any time be filed against the Shopping Center, or any portion thereof including the Premises, Tenant shall cause the same to be discharged of record within 30 days after the date of filing the same. If Tenant shall fail to discharge such mechanics lien or liens or other lien within such period, then, in addition to any other right or remedy of Landlord, after five days prior written notice to Tenant, Landlord may, but shall not be obligated to, discharge the same by paying to the claimant the amount claimed to be due or by procuring the discharge of such lien as to the Shopping Center by deposit in the court having jurisdiction of such lien, the foreclosure thereof or other proceedings with respect thereto, of a cash sum sufficient to secure the discharge of the same, or by the deposit of a bond or other security with such court sufficient in form, content and amount to procure the discharge of such lien, or in such other manner as is now or may in the future be provided by present or future law for the discharge of such lien as a lien against the Shopping Center, or any portion thereof, including the Premises. Any amount paid by Landlord, or the value of any deposit so made by Landlord, together with all costs, fees and expenses in connection therewith (including reasonable attorneys fees of Landlord), together with interest thereon at the Maximum Rate, shall be repaid by Tenant to Landlord on demand by Landlord and if unpaid may be treated as Additional Rent. Tenant shall indemnify and defend Landlord and the Landlord Affiliated Entities against and save Landlord, the Landlord Affiliated Entities and |
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the Shopping Center, or any portion thereof, including the Premises, harmless from all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorneys fees resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanics lien or other lien.
All materialmen, contractors, artisans, mechanics, laborers and any other person now or hereafter furnishing any labor, services, materials, supplies or equipment to Tenant with respect to the Premises, or any portion thereof, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for the same. Notice is hereby given that Landlord shall not be liable for any labor, services, materials, supplies, skill, machinery, fixtures or equipment furnished or to be furnished to Tenant upon credit, and that no mechanics lien or other lien for any such labor, services, materials, supplies, machinery, fixtures or equipment shall attach to or affect the estate or interest of Landlord in and to the Shopping Center, or any portion thereof, including the Premises.
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EXHIBIT F
SIGN LOCATIONS
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Exhibit 10.17
FIRST AMENDMENT TO OFFICE LEASE
THIS FIRST AMENDMENT TO OFFICE LEASE ( First Amendment ) made this 13th day of October, 2015, ( Effective Date ) by and between Station Park CenterCal, LLC, a Delaware limited liability company ( Landlord ), and Pluralsight, LLC, a Utah limited liability company ( Tenant ).
W I T N E S S E T H :
WHEREAS, Landlord and Tenant entered into that certain Office Lease Agreement dated as of September 30, 2013 (hereinafter referred to as the Lease ), pursuant to which Tenant leased from Landlord a certain premises designated as Suite 200 on the second floor of Building E containing approximately 28,970 rentable square feet (the Original Premises ), located at 180 N. Union Avenue, Farmington, Utah 84025, in the development commonly known as Station Park; and
WHEREAS, the initial Term of the Lease expires on August 31, 2019, and is subject to two (2) Renewal Periods of five (5) years each; and
WHEREAS, the parties hereto desire to modify the Lease to expand the Original Premises to include the cross-hatched space indicated on the building site plan attached hereto as Exhibit A-1 comprising the entire third floor of Building J located at 320 North Station Parkway, Farmington Utah 84025 and consisting of an additional approximately 43,145 rentable square feet in aggregate (the Expansion Premises ), upon certain terms and conditions, including certain rent abatements for staged occupancy by Tenant for the Expansion Premises and certain term and options particular to the Expansion Premises, all as more specifically set forth herein below; and
WHEREAS, the parties hereto desire to amend and supplement the Lease, all as hereinafter provided.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and the mutual promises contained herein, the parties hereto, intending to be legally bound, agree as follows:
1) Incorporation of Recitals/Exhibits and Definitions . Each of the foregoing recitals and representations form a material part of this First Amendment and are incorporated herein by this reference. All capitalized terms not otherwise herein defined shall have the meanings set forth in the Original Lease.
2) Expansion Premises . From and after the date upon which the last of the following shall occur: (a) the date Landlord delivers exclusive possession of the Expansion Premises to Tenant, and (b) the date Landlords approval of Tenants Drawings for the Expansion Premises in accordance with Exhibit C ( Expansion Date ), the Premises referred to in the Lease shall be modified to include the Expansion Premises, and all references in the Lease inclusive of this First Amendment to the Premises shall include both the Expansion Premises and the Original Premises, and all references in the Lease to the Building or Buildings shall include Building J. Exhibit A and Exhibit A-1 attached hereto show the outline of the Premises and the Expansion Premises and their respective locations on the Site Plan for Station Park and, effective on the Expansion Date, is hereby substituted for the present Exhibit B and Exhibit B-1, respectively, attached to the Lease with the same force and effect as if the Expansion Premises had been leased originally to Tenant and Exhibit A and Exhibit A-1 attached hereto had originally been attached to the Lease. It is understood and agreed by and between the parties hereto that commencing on the Expansion Date all of the terms and conditions of the Lease shall apply to the Expansion Premises as though the Expansion Premises were originally a portion of the Premises as defined in the Lease, unless otherwise expressly modified or excepted by this First Amendment.
3) Term of Expansion Premises . The parties expressly agree (a) that the term of the Lease with respect to the Expansion Premises (hereinafter, the Expansion Term ) shall not be coterminous in duration with the Term of Original Premises, and, rather, (b) that the Expansion Term shall commence as of the Expansion Premises Rent Commencement Date and end upon the date that is sixty (60) months following the first day of the calendar month immediately following the month containing the Expansion Premises Rent Commencement Date (unless the Expansion Premises Rent Commencement Date is the first day of a calendar month, in which event the Term shall end sixty (60) months following the Expansion Premises Rent Commencement Date). The provisions of Article 16 of the Lease shall apply separately to the Original Premises and to the Expansion Premises upon the expiration of their respective terms. Notwithstanding the occurrence of the natural expiration of the Term with respect the Original Premises (in the event that Tenant does not exercise its option to renew pursuant to Section 1.2.4 of the Lease), the Lease shall remain full force and effect with respect to the Expansion Premises during the Expansion Term, unless sooner terminated in accordance with the terms and provisions of the Lease inclusive of this First Amendment.
4) Option to Renew . Tenant shall have the right, in accordance with and subject to the provisions set forth in Section 1.2.4 of the Lease, to renew the Expansion Term for one (1) period of five (5) years; provided, however, that the required time period for prior written notification by Tenant to Landlord of its election to renew the Expansion Term shall be on or before twelve (12) months prior to the expiration of the Expansion Term (Lease Section 1.2.4.C).
5) Rent Commencement Date of Expansion Premises . The commencement date for the payment of Basic Rent for the Expansion Space shall be the earliest of the following: (i) the date upon which Tenant first beneficially occupies the Expansion Premises for the conduct of its business, or (ii) the date one hundred twenty (120) days from and after the Expansion Date, or (iii) date of substantial completion of Tenants Expansion Improvements in the Initial Expansion Space (defined below), with the earliest of (i), (ii), or (iii) hereinafter being referred to as the Expansion Premises Rent Commencement Date . Notwithstanding anything to the contrary contained in the foregoing, Tenant shall be entitled to an abatement of Basic Rent for portions of the Expansion Premises in accordance with the following staged occupancy schedule: (a) for the period of the Expansion Term commencing on the Expansion Premises Rent Commencement Date and continuing through the eleventh (11 th ) month thereof, Tenant shall occupy and pay Basic Rent only on that portion of the Expansion Premises equal to 19,000 rentable square feet (the Initial Expansion Space ); (b) thereafter, beginning on the twelfth (12 th ) month of the Expansion Term and continuing through the seventeenth (17 th ) month thereof, Tenant shall occupy and pay Basic Rent upon that portion of the Expansion Space constituting the Initial Expansion Space plus an additional 9,500 rentable square feet of the Expansion Space (the Second Phase Space ) for a total of 28,500 rentable square feet in aggregate; and (c) thereafter, beginning on the eighteenth (18 th ) month of the Expansion Term, Tenant shall pay full Basic Rent upon and occupy the entire Expansion Premises of approximately 43,145 rentable square feet. The foregoing staged rent abatement provisions are conditioned as follows (the Rent Abatement Contingency ): in the event that Tenant takes occupancy of more than 22,800 rentable square feet of the Expansion Space prior to the eleventh (11 th ) month and/or more than 34,200 rentable square feet of the Expansion Space prior to the eighteenth (18 th ) month, then in each case Tenants rent abatement for such period shall cease and Tenant shall immediately commence payment of Basic Rent for the entirety of such space so occupied without the benefit of further rent abatement for such period. The parties agree that Tenant may perform Tenants Work on the entire Expansion Premises in accordance with Exhibit C . As a result, the amount of rentable square feet of the Expansion Space that Tenant shall be deemed to have taken occupancy for purposes of determining whether or not the Rent Abatement Contingency has been satisfied is shown per
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Exhibit D with occupancy phases identified therein. The parties agree that in order to determine the rentable square footage actually occupied by Tenant in the Expansion Premises for purposes hereof, each of Landlords and Tenants representatives shall coordinate and perform a walk-through of the Expansion Premises space each ninety (90) days following the Expansion Date, until such time as the Expansion Premises is occupied in full by Tenant, to inspect occupancy and verify the total rentable square footage then so-occupied by Tenant.
6) Expansion Premises Basic Rent; Base Year . Effective on the Expansion Premises Rent Commencement Date, the Basic Rent payable by Tenant under the Lease applicable to the Expansion Premises shall be $24.50 per rentable square foot (the Expansion Premises Basic Rent ) for the first lease year of the Expansion Term, and payable subject to the rent abatement schedule set forth in Section 4 hereinabove. The Base Year for the Expansion Premises shall be Calendar Year 2016. The Expansion Premises Basic Rent shall be subject to a three percent (3%) annual escalation for each year during the Expansion Term, following the first calendar year in which the Expansion Premises Rent Commencement Date occurs.
All Rent payments due under the Lease shall continue to be paid in the intervals and manner required under the Lease and shall be made payable to Landlord to the address for payments set forth in the Lease.
7) Tenants Expansion Improvements . Tenant shall provide all construction work and improvements to the Expansion Premises (the Tenants Expansion Improvements ) in accordance with Landlords prescribed procedures and practices set forth in Exhibit C to this First Amendment (which Exhibit C is expressly intended to be applicable to the Expansion Premises with respect to Tenants Expansion Improvements) attached hereto and made a part hereof. In the event of any conflict of provisions between Exhibit C of this First Amendment and Exhibit E of the Lease, the parties agree that Exhibit C of this First Amendment shall control as to the Expansion Premises. Except as otherwise specifically provided for in Exhibit C of this First Amendment, Tenant accepts the Expansion Premises in its as is condition; it being expressly understood that Landlord has made no representations or warranties with respect to such premises and that Tenant has inspected same and found such premises to be satisfactory.
8) Construction Allowances . As contribution to Tenants construction of Tenants Expansion Improvements, Landlord agrees to provide Tenant with a tenant improvement allowance in the amount equal to Fifty-Five and No/I00 Dollars ($55.00) per usable square foot of floor area of the Expansion Premises (the Expansion Premises is estimated to have 37,517 usable square feet), which equates to a sum of $2,063,435.00 (hereafter, the Expansion Construction Allowance ), together with a separate and additional fixed sum in an amount equal to Ninety-Three Thousand Dollars ($93,000) in connection with Tenants installation of a variable refrigerant HVAC system exclusively serving the Expansion Premises (the HVAC Allowance ) as part of Tenants Work (defined in Exhibit C ), which HVAC system shall remain at the Expansion Premises following Tenants surrender of the Expansion Premises at the expiration or earlier termination of the Expansion Term. The Expansion Construction Allowance and the HVAC Allowance shall be paid to Tenant in accordance with the requirements and procedures set forth in Section 3.03 of Exhibit C attached hereto and incorporated by reference.
9) Contingency . If, at end of the third (3 rd ) lease year of Expansion Term, Tenant, having determined that it needs additional space for its operations, (a) agrees to relocate within the Station Park development to office space comprising at least 100,000 rentable square feet or greater (a Substitute Space ), (b) provides Landlord with at least twelve (12) months written notice of its desire to relocate to a proposed Substitute Space, and (c) and executes and delivers to Landlord or a Landlord Affiliated Entity a new lease for such Substitute Space, the parties agree that this First Amendment with respect to the Expansion Premises shall be terminable by either party and thereafter become null and void and of no further force and effect as to the Expansion Premises, and neither party shall have any further rights or obligations hereunder as of the effective date of such termination with respect to the Expansion Premises, except for those provisions of the Lease that expressly survive the termination thereof.
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10) Brokers . Landlord and Tenant each represents and warrants to the other that it has not had any dealings with any realtors, brokers, finders or agents in connection with this First Amendment other than Coldwell Banker Commercial Advisors, for Landlord, and Newmark Grubb ACRES, for Tenant, and releases and will indemnify, defend and hold the other harmless from and against any Claim based on the failure or alleged failure to pay any realtors, brokers, finders or agents (other than any brokers specified herein) and from any cost, expense or liability for any compensation, commission or changes claimed by any realtors, brokers, finders or agents (other than any brokers specified herein) claiming by, through or on behalf of it with respect to the Lease or the negotiation of this Lease. Landlord will pay any brokers named in this paragraph in accordance with the applicable listing agreement for Building J.
11) Security Deposit . Concurrently with the execution and delivery of this First Amendment, Tenant shall deposit with Landlord the sum of Eighty-Eight Thousand Eighty-Seven and 71/100 Dollars ($88,087.71) in cash, as and for a security deposit for the full and faithful performance by Tenant of each and every term, provision, covenant and condition of the Lease with respect to the Expansion Premises (the Expansion Security Deposit ). The Expansion Security Deposit shall be subject to the terms and provisions of Section 2.5 of the Lease.
12) Signage . Notwithstanding anything to the contrary contained in Section 4.6 of the Lease, with respect to the Expansion Premises Landlord will provide to Tenant the right to install, at Tenants sole cost and expense, the following signage: (a) one building standard tenant identification sign adjacent to the entry door of the Expansion Premises, (b) one monument exterior sign position, at such time as a monument sign is constructed, and (c) one standard interior building directory listing. All such signage will be subject to review and approval by Landlord and shall conform to Landlords sign criteria. Subject to applicable laws and regulations and Landlords sign criteria, Landlord shall also permit Tenant to install up to three (3) exterior building crown signs on Building J in the locations shown on Exhibit B attached hereto, or otherwise the maximum number of exterior building crown signs as may be permitted by applicable law, whichever is less, in the locations on the building as shall be approved in advance by Landlord. Tenant agrees, at Tenants sole cost and expense, to have such exterior signs manufactured, erected and/or installed and fully operative on or before the Expansion Premises Rent Commencement Date in accordance with Landlords sign criteria and all applicable laws and regulations. Tenant will not install or permit to be installed in the Expansion Premises any other sign, decoration or advertising material of any kind that is visible from the exterior of the Expansion Premises. Landlord may immediately remove, at Tenants sole cost and expense, any sign, decoration or advertising material that violates this section.
13) Design Elements . As part of Tenants Expansion Improvements, Tenant desires to construct the following design features: (i) a 14-foot plastic tube slide feature originating from the Expansion Premises for the purpose of allowing egress of persons from the Premises onto the Building J second floor Common Area atrium (the Slide Feature ); and, (ii) a spiral staircase connecting the Expansion Premises to the Building J second floor Common Area atrium (the Staircase Feature ). In the event that Landlord approves such design features (as part of Landlords review and approval of Tenants plans pursuant to Exhibit C and Section 7 hereof) and Tenant constructs such design features, Tenant hereby agrees as follows: (a) Tenant, at its sole cost and expense, shall maintain in first-class condition and repair the Slide Feature and/or Staircase Feature at all times during the Expansion Term; (b) the Slide Feature and Staircase Feature shall be deemed part of the Premises for all purposes under the Lease, including, but not limited to, the provisions of Section 10.1.1(b) of the Lease with respect to Tenants commercial general liability insurance coverage, and Tenant shall procure an increase the combined single limit of its commercial general liability insurance
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coverage to Five Million and 00/100 Dollars ($5,000,000.00) on or before the Expansion Date; (c) notwithstanding anything to the contrary contained in the Lease, Tenant shall indemnify, defend and hold harmless Landlord and the Landlord Affiliated Entities from and against all Claims arising from, related to, or in connection with the use or presence of the Slide Feature and the Staircase Feature; and (e) upon Tenants surrender of the Expansion Premises following the expiration or earlier termination of the Lease, Tenant shall remove the Slide Feature and Staircase Feature and restore the Common Area and the Premises affected thereby to its original condition, repairing any damage occasioned by their removal.
14) Time is of the Essence . Time is of the essence with respect to each and every obligation arising under this First Amendment and the Lease.
15) Binding Effect . All of the covenants and agreements herein contained shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, representatives, successors and assigns.
16) Confirmation of Terms . All of the terms, covenants and conditions of the Lease, except as are herein specifically modified and amended, shall remain in full force and effect, and are hereby adopted and reaffirmed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and date set forth above.
WITNESS: | LANDLORD: | |||
Station Park CenterCal, LLC, | ||||
a Delaware limited liability company | ||||
By: CenterCal, LLC, |
||||
a Delaware limited liability company |
||||
Its: Sole Member |
||||
By: CenterCal Associates, LLC, |
||||
a Delaware limited liability company |
||||
Its: Manager |
||||
/s/ illegible |
By: /s/ illegible |
|||
Its: Manager |
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WITNESS: | TENANT: | |||
Pluralsight, LLC, | ||||
a Utah limited liability company | ||||
/s/ illegible |
By: /s/ Greg Woodward | |||
Name: Greg Woodward | ||||
Title: COO |
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Exhibit A
Expansion Premises/ Floor Plan
(attached)
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Exhibit A-1
Site Plan; Original Premises and Expansion Premises
(attached)
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Exhibit B
Tenants Building Signage
West Facing:
South Facing:
East Facing:
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Exhibit C
CONSTRUCTION PROCEDURES
ARTICLE 1.00 GENERAL DESIGN AND CONSTRUCTION CRITERIA
1.01 | Tenant is responsible for letting contracts relating to the construction and installation of Tenants Expansion Improvements (each, alternately referred to herein, as Tenants Work ), supervision and completion of such Tenants Expansion Improvements and payment therefor, procurement of all permits and permissions related to such Tenants Expansion Improvements, compliance with the requirements of all authorities having jurisdiction and with conditions contained herein, and payment of all fees and charges incurred in connection therewith. Tenant shall furnish Landlord for Landlords prior approval names and addresses of all contractors and subcontractors who shall perform the Tenants Expansion Improvements, copies of all contracts and subcontracts, and copies of all necessary permits, licenses and approvals. |
1.02 | Landlord reserves the right to withhold authorization for any Tenants Expansion Improvements to proceed until furnished with reasonable evidence that Tenant has made provision to pay the full cost of the work and to discharge any liens that may arise therefrom. |
1.03 | Tenant shall impose and enforce all terms hereof on any architect, engineer, designer, contractor and workmen engaged by Tenant, its contractors and subcontractors. |
1.04 | Tenant shall comply with that certain Tenant Design Criteria Manual dated June, 2015 (as may be amended from time to time, the Handbook ), a copy of which has previously been provided to Tenant and is hereby incorporated herein by reference. In the event of any conflict between the terms of this Exhibit C and the Handbook, the terms of the Handbook shall govern and control. |
ARTICLE 2.00 OTHER WORK OF LANDLORD
2.01 | Tenant acknowledges that Landlord may be carrying out certain other work in the Expansion Premises and the Shopping Center at the time that Tenants Expansion Improvements are being carried out and that such work by Landlord can only be undertaken at the same time or subsequent to work being completed by Tenant. Certain work (including correction of deficiencies) may be undertaken or completed subsequent to the Expansion Date. |
ARTICLE 3.00 TENANTS DRAWINGS
3.01 | Prior to the commencement of any Tenants Expansion Improvements, Tenant shall prepare and furnish to Landlord, at Tenants cost and expense, in compliance with applicable laws, statutes, ordinances and codes, a complete set of interior store finish working drawings ( Tenants Drawings ) which Tenants Drawings shall include, without limitation, floor plans, interior elevations, details of any special installation which will affect the Building or perimeter walls of the Expansion Premises, complete plans for all mechanical, plumbing and electrical work including details of underfloor surfaces, specifications for all materials, finishes and other work, and performance characteristics for fixtures and equipment. Where applicable, Tenants Drawings shall include sections and elevations for tenant entries, details of entry signage (which conform to Landlords sign criteria), reflected ceiling plans, and changes in sprinkler head locations. Tenants Drawings shall be full and complete in all respects as may be necessary for construction and determination of the specific scope of the Tenants Expansion Improvements. Tenants Drawings shall be certified (sealed) by an architect duly registered in the state where the Expansion Premises is located. |
3.02 | After Tenant submits Tenants Drawings to Landlord, Landlord shall have seven (7) days to approve or disapprove Tenants Drawings, and in the event Landlord does not approve the same, Landlord shall advise Tenant of Landlords comments to Tenants Drawings. Failure by Landlord to approve or disapprove Tenants Drawings within the time limits prescribed herein shall constitute a disapproval by Landlord. In the event Landlord disapproves Tenants Drawings, Tenant shall incorporate Landlords comments into Tenants Drawings within ten (10) days from receipt thereof and resubmit the same to Landlord, who shall have ten (10) days to approve or disapprove the revised Tenants Drawings. In the event Landlord does not approve the same, the procedures set forth herein shall be followed until such time as Landlord has approved the revised Tenants Drawings. |
Tenants Drawings shall be approved by Landlord and Tenant by affixing thereon the signature or initials of an authorized officer or employee of each of the respective parties hereto and shall be incorporated by reference as Exhibit C-1 to this First Amendm ent . The signature of an authorized officer or employee shall be deemed conclusive evidence of the approval indicated by such signature. Landlord and Tenant agree to appoint competent personnel to work with the other party in the preparation of Tenants Drawings.
In the event Tenant desires or is required to modify or change Tenants Drawings after the same have been approved in the manner provided above, Tenant shall submit such modifications or changes to Landlord for review and consideration and the procedures governing approval of Tenants Drawings shall apply to any such modifications or changes.
Any approval by Landlord of any of Tenants Drawings shall not in any way be construed or operate to bind Landlord or to constitute a representation or warranty of Landlord as to the adequacy or sufficiency of Tenants Drawings, or the improvements to which they relate, for any reason, purpose or condition, but such approval shall merely be the consent of Landlord, as may be required hereunder, in connection with performance of the Tenants Expansion Improvements in accordance with Tenants Drawings.
3.03 | Upon fulfillment of all of the conditions precedent set forth below, Landlord shall contribute the Expansion Construction Allowance and HVAC Allowance (both as set forth in Section 9 of the First Amendment) to apply toward Tenants Expansion Improvements. Said sums for the Expansion Construction Allowance and HVAC Allowance shall not in any event apply toward Tenants trade fixtures, personal property, or signs. The Expansion Construction Allowance and the HVAC Allowance shall be payable within thirty (30) days from the date Tenants Expansion improvements are completed in accordance with the terms of the Lease inclusive of the First Amendment and Tenant has submitted to Landlord a written statement requesting such payment, provided that at the time of such request and scheduled payment: |
(1) | Tenant shall not be in default of the Lease; |
(2) | Intentionally Deleted. |
(3) | No liens shall have been filed and appropriate waivers, affidavits and releases of lien shall have been received by Landlord covering all work for which payment is requested; |
(4) | The certificate of occupancy for the Expansion Premises shall have been issued; |
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(5) | Tenants architect shall have certified in writing to Landlord that Tenants Work has been completed in accordance with Tenants Drawings and with applicable laws, ordinances, rules, regulations and codes; |
(6) | Landlord has received, if applicable, the written affirmation from Tenants subcontractors as contemplated by Section 4.03 hereof, in form and substance acceptable to Landlord; and |
(7) | Landlord has received a complete set of as-built Tenants Drawings. |
In the event Landlord fails to pay Tenant the Expansion Construction Allowance and/or the HVAC Allowance when required following the satisfaction by Tenant of the foregoing, Tenant shall have the right to provide a second written request to Landlord. In the event Landlord fails to pay the Expansion Construction Allowance and/or the HVAC Allowance to Tenant within thirty (30) days following Tenants delivery of the second written request, Tenant shall have the right to offset such due and unpaid allowances against Basic Rent due under the First Amendment until the Expansion Construction Allowance and 1-IVAC Allowance have been recovered in fill.
ARTICLE 4.00 TENANTS WORK
4.01 | At its own expense, Tenant shall provide all design, engineering, plans, specifications, drawings, permits, fees, work, labor, skill and equipment required to construct any Tenants Work in accordance with Tenants Drawings, approved in the manner set forth herein. |
4.02 | The following shall be carried out at Tenants expense and by Landlords contractor: |
(1) | all approved modifications and/or additions to the shell building structural system, roof and life safety systems, including, without limitation, installation of approved modifications and additions for the existing shell building sprinkler system, and |
(2) | any drilling, cutting, coring and patching for conduit, pipe sleeves, chases, duct equipment, or openings in the floors, walls, columns or roofs of the Expansion Premises which is approved by Landlord. |
The following may be carried out by Tenants contractor at Tenants expense subject to the requirements of Section 4.03 below:
(1) | all approved modifications to the shell building plumbing, heating, cooling, ventilating, exhaust, control and electrical distribution systems as installed by Landlord, and |
(2) | patching of building standard fireproofing, if applicable. |
4.03 |
Modifications to the shell building systems set forth in Section 4.02 and special requirements of Tenant will be considered by Landlord only if applied for at the time Tenants Drawings are submitted for approval and if they are compatible with the capacity and character of the shell building. Drawings for such proposed modifications shall be certified (sealed) by an, architect duly registered in the State of Utah. Landlord shall not be required to grant its consent to allow Tenants contractor to perform such work unless Tenant agrees to obtain from Landlords subcontractor(s) originally responsible for the installation of such shell building systems written statements in form satisfactory to Landlord, that Tenants modifications of such shell building systems will be performed in a good workmanlike manner and specifically affirming the continued validity of any and all |
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warranties and guaranties in effect prior to commencement of any Tenants Work from each such shell building systems subcontractor. Restrictions on mechanical and electrical connections by Tenant may be imposed as reasonably necessary by Landlord to insure that no warranty or guarantee pertaining to the shell building is lost or jeopardized. |
4.04 | No construction work shall be undertaken or commenced by Tenant until: |
(1) | Tenants Drawings have been submitted to and approved by Landlord, and |
(2) | all necessary building permits and required insurance coverages have been secured and certificates of insurance delivered to Landlord. |
4.05 | Tenant shall proceed with Tenants Work with respect to Tenants Expansion Improvements expeditiously, continuously, and efficiently, and shall complete the same by the date one hundred twenty (120) days following the Expansion Date. Failure to complete by such date shall not prevent commencement of the Expansion Term or commencement of any rental or other charges payable by Tenant under the First Amendment and the Lease. |
4.06 | Tenant shall ensure that all materials, skill and workmanship in the Tenants Work shall be of uniformly high quality, not less than building standard, and in accordance with the best standards of practice and any governing codes or regulations. Tenant shall have the obligation to timely deliver any materials and equipment and labor to be supplied by Tenant so as not to delay substantial completion of the Tenants Work. Tenant represents and warrants that Tenants Drawings and the improvements contemplated thereby shall be in compliance with applicable building and zoning laws, ordinances, regulations and any covenants, conditions or restrictions affecting the Shopping Center, and that the same are in accordance with good engineering and architectural practice, and that Tenants Drawings are sufficient for issuance of a building permit for the Tenants Work. Further, Tenant shall be responsible for obtaining the certificate of occupancy for the Expansion Premises, and shall furnish the same to Landlord prior to the Expansion Premises Rent Commencement Date. |
4.07 | Tenant shall appoint a representative as Tenants representative with full authority to make decisions and commitments on behalf of Tenant in respect to Tenants Work and changes therein. |
4.08 | All Tenants Work shall be confined to the interior of the Expansion Premises, with the exception of sign mountings, which shall be performed in compliance with Landlords sign criteria and the approved sign drawings. |
ARTICLE 5.00 TENANTS ACCESS FOR COMPLETION OF WORK
5.01 | Subject to compliance with applicable rules referred to in Article 5.00, Tenant and its architects, designers, engineers, contractors and workmen employed by Tenant shall have access to and non-exclusive use of the Expansion Premises to perform Tenants Work and such other work approved by Landlord as Tenant may desire. Any such work shall be done by contractors selected by Tenant and approved by Landlord, as aforesaid, provided that there shall be no conflict caused thereby with any union or other contract to which Landlord or Landlords general contractor may be a party and Tenants general contractor shall utilize Landlords base building subcontractors for mechanical, electrical and plumbing work. If Tenants contractor or subcontractors or trades or workmen cause such conflict, Tenant shall forthwith remove them from the Shopping Center. Landlord shall have no responsibility or liability whatsoever with respect to any work or attendant materials left or installed in the Shopping Center, and shall be reimbursed by Tenant for any additional costs and expenses of Landlord caused thereby, or resulting directly or indirectly from any delays caused to Landlord or to Landlords general contractor. |
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5.02 | In order to ensure that work proceeds efficiently on the Shopping Center, Landlord and Landlords general contractor may from time to time make rules for coordination of all construction work. Tenant shall ensure that any architect, engineer, designer, contractor and workmen employed by Tenant is informed of and observes such rules, and prior to commencement of any construction work makes appropriate arrangements with Landlord or Landlords general contractor, particularly with respect to: |
(a) | Material handling and hoisting facilities. |
(b) | Material and equipment storage. |
(c) | Time and place of deliveries. |
(d) | Hours of work and coordination of work. |
(e) | Power, heating and washroom facilities. |
(f) | Scheduling. |
(g) | Security. |
(h) | Clean-up. |
5.03 | Landlord may require that neat screens or hoardings as designed or prescribed by Landlord be erected at Tenants expense around the work and the Expansion Premises, that all work be conducted and all tools and materials be kept behind such hoardings, and that all cutting, drilling or other work of a noisy or vibrant nature be conducted outside the normal business hours of tenants in occupancy. |
5.04 | Tenant shall at all times keep the Expansion Premises and adjacent areas free from accumulations of waste material or rubbish caused by its suppliers, contractors or workmen. Landlord may require clean-up on a daily basis and reserves the right to do clean-up at the expense of Tenant if Landlords reasonable requirements in this regard are not complied with. At the completion of the work, Tenants contractor shall forthwith remove all rubbish and all tools, equipment and surplus materials from and about the Expansion Premises and shall leave the Expansion Premises clean to the satisfaction of Landlord. This final clean-up shall include the cleaning of light fixtures, windows, entries and public space affected by the work. Upon completion of any Tenants Work, Tenant shall notify Landlords project manager or tenant coordinator that the Tenants Work have been completed and is available for inspection for conformance with the approved Tenants Drawings and shall promptly deliver to Landlord a complete set of as-built Tenants Drawings. |
5.05 | Any damage caused by Tenants contractor or sub-trades to any work of Tenants prime contractor to any property of Landlord or other tenants shall be repaired forthwith to the satisfaction of Landlord by Tenant at Tenants expense. |
5.06 | If Tenants contractor does not prosecute the Tenants Work properly in accordance with the approved Tenants Drawings, Landlord, after three days written notice to Tenant, and without prejudice to any other right or remedy Landlord may have, may remedy the default or make good any deficiencies, and recover the costs incurred therein from Tenant. |
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ARTICLE 6.00 PERFORMANCE OF TENANTS WORK BY LANDLORD
6.01 | If Landlord performs any of Tenants Work hereunder, whether at the request of Tenant or as provided herein to be performed by Landlord at Tenants cost, or if Landlord performs other work or supplies materials or equipment on the Expansion Premises or in the Building by agreement in writing with Tenant, Tenant shall pay to Landlord the direct cost thereof to Landlord plus 10% of such cost in respect of coordination by Landlord. |
6.02 | Tenant shall pay to Landlord any amount payable under Article 6.01 not more than 30 days after receipt of invoice therefor, provided that if requested by Landlord, Tenant shall pay to Landlord 35% of the estimated amount thereof at the time Landlord commences such work or orders materials or equipment for such work and shall make progress payments to Landlord as the work proceeds in such amounts as Landlord may require. |
ARTICLE 7.00 INSURANCE; PAYMENT DOCUMENTATION
7.01 | Prior to commencement of Tenants Work, Tenant shall obtain, at its sole expense, and maintain during the performance of such Tenants Work, the following insurance coverages: |
(i) | Workers compensation insurance covering all persons directly employed by Tenant in connection with such Tenants Work and with respect to which death or injury claims could be asserted against Tenant, Landlord, the Shopping Center or any interest therein, with limits not less than as required by applicable laws and regulations, together with employers liability coverage with limits of not less than $250,000.00 per occurrence; |
(ii) | Commercial general liability insurance with limits of not less than $1,000,000.00 with respect to injury or death to any one person, $3,000,000.00 with respect to any one occurrence, and $500,000.00 with respect to property damage arising out of any one occurrence, which policy(ies) shall (a) name as additional insureds Landlord, its management agent and such other persons as Landlord may designate; (b) be written by insurance companies licensed to do business in the state where the Expansion Premises is located and reasonably acceptable to Landlord; (c) provide that such policy(ies) may not be canceled by the insurer without giving Landlord at least thirty (30) days prior written notice; (d) protect and insure Landlord and its management agent on account of any loss or damage arising from injury or death to persons or damage or destruction to property caused by or related to or occurring on (A) the Expansion Premises, (B) any act or omission of Tenant, or its respective agents, employees, licensees, invitees or contractors on any portion of the Shopping Center, including the Expansion Premises, and (C) any breach of Tenants indemnity obligations hereunder; and (e) include contractual liability coverage insuring the indemnity obligations provided for herein; and |
(iii) | All Risk Builders Risk And Casualty Liability insurance in the full amount of the cost of the Tenants Work. |
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Further, Tenant shall cause each of Tenants architect and engineer to maintain an errors and omissions insurance policy written in limits of not less than $1,000,000.00 on a per occurrence basis.
Tenant shall defend, indemnify and hold harmless Landlord, its management agent and the Landlord Affiliated Entities from and against any and all losses, damages, costs (including, without limitation, attorneys fees and court costs), liabilities, causes of action and settlements arising from or related to or in connection with any work performed by or on behalf of Tenant, including injury to persons or damage to property. Anything herein to the contrary notwithstanding, the obligations of Landlord under this Lease (including, without limitation, Landlords covenant to construct and install the Improvements), and any covenant, representation, warranty or undertaking made by Landlord in this Lease, shall be deemed to exclude any matter to the extent attributable in whole or in part to (i) architectural, design and/or engineering defects contained in Tenants Drawings or non-compliance of the same with applicable building codes and rules and regulations of governmental authorities having jurisdiction thereof and other applicable laws, (ii) errors and/or omissions and/or negligent acts of Tenants architect and/or engineer and (iii) the Tenants Work.
7.02 | Prior to commencement of any Tenants Work, Tenant shall furnish Landlord with a performance bond executed by a commercial surety reasonably satisfactory to Landlord, in an amount equal to the cost of all such work and the payment of all liens for labor and material that could arise therefrom. |
7.03 | Tenant shall furnish Landlord with sworn owners and contractors statements, contractors affidavits and partial and final waivers of lien, in such form and content as Landlord may require, in order to establish that the cost of all labor, services and materials furnished in connection with Tenants Work has been paid in full and to keep the Expansion Premises and the Shopping Center free from all liens and claims. |
ARTICLE 8.00 ARTICLE 8.00 MECHANICS LIEN
8.01 | Tenant shall not suffer or permit any mechanics lien or other lien to be filed against the Shopping Center, or any portion thereof including the Expansion Premises, by reason of Tenants Work. If any such mechanics lien or other lien shall at any time be filed against the Shopping Center, or any portion thereof including the Expansion Premises, Tenant shall cause the same to be discharged of record within 30 days after the date of filing the same. If Tenant shall fail to discharge such mechanics lien or liens or other lien within such period, then, in addition to any other right or remedy of Landlord, after five days prior written notice to Tenant, Landlord may, but shall not be obligated to, discharge the same by paying to the claimant the amount claimed to be due or by procuring the discharge of such lien as to the Shopping Center by deposit in the court having jurisdiction of such lien, the foreclosure thereof or other proceedings with respect thereto, of a cash sum sufficient to secure the discharge of the same, or by the deposit of a bond or other security with such court sufficient in form, content and amount to procure the discharge of such lien, or in such other manner as is now or may in the future be provided by present or future law for the discharge of such lien as a lien against the Shopping Center, or any portion thereof, including the Expansion Premises. Any amount paid by Landlord, or the value of any deposit so made by Landlord, together with all costs, fees and expenses in connection therewith (including reasonable attorneys fees of Landlord), together with interest thereon at the Maximum Rate, shall be repaid by Tenant to Landlord on demand by Landlord and if unpaid may be treated as Additional Rent. Tenant shall indemnify and defend Landlord and the Landlord Affiliated Entities against and save Landlord, the Landlord Affiliated Entities and the Shopping Center, or any portion thereof, including the Expansion Premises, harmless from all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorneys fees resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanics lien or other lien. |
All materialmen, contractors, artisans, mechanics, laborers and any other person now or hereafter furnishing any labor, services, materials, supplies or equipment to Tenant with respect to the Expansion Premises, or any portion thereof, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for the same. Notice is hereby given that Landlord shall not be liable for any labor, services, materials, supplies, skill, machinery, fixtures or equipment furnished or to be furnished to Tenant upon credit, and that no mechanics lien or other lien for any such labor, services, materials, supplies, machinery, fixtures or equipment shall attach to or affect the estate or interest of Landlord in and to the Shopping Center, or any portion thereof, including the Expansion Premises.
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Exhibit 10.18
Commencement Date Memorandum
THIS MEMORANDUM is made and entered into as of August 17 , 201 7 , by and between Station Park CenterCal, LLC, a Delaware limited liability company (Landlord), and Pluralsight, LLC, a Utah limited liability company (Tenant).
RECITALS:
A. By that certain Multi-Tenant Office Lease Agreement dated as of September 20, 2013, as amended by that certain First Amendment to Office Lease dated October 13, 2015 (collectively the Lease), pursuant to which Tenant leased from Landlord a certain expansion premises designated as Suite J-300 (Premises), located in the development commonly known as Station Park in Farmington, Utah (Building).
B. Landlord and Tenant desire to confirm the Expansion Premises Commencement Date and the date the Expansion Term of the Lease expires.
C. Unless otherwise provided herein, all capitalized terms not otherwise defined in this Memorandum have the meaning ascribed to them in the Lease.
ACKNOWLEDGMENTS:
NOW THEREFORE , for and in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. | The Expansion Premises Commencement Date under the Lease is February 16, 2016 . |
2. | The Expansion Term of the Lease expires on February 28, 2021 , unless the Lease is sooner terminated in accordance with the terms and conditions of the Lease. |
3. | The rentable area of the Expansion Premises is 43,145 square feet. |
4. | Tenant shall exercise its right to the Expansion Renewal Term, if at all, before February 29, 2020 subject to the conditions and limitations set forth in Section 1.2.4 of the Lease. |
5. | This Memorandum may be executed in counterparts, each of which is an original and all of which constitute one instrument. |
Landlord and Tenant each caused this Memorandum to be executed by its duly authorized representative as of the day and date written above,
LANDLORD: | TENANT: | |||||||
Station Park CenterCal, LLC, | Pluralsight, LLC, a Utah limited liability company | |||||||
a Delaware limited liability company | ||||||||
By: | CenterCal, LLC, | By: |
/s/ Anita Grantham |
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a Delaware limited liability company | Name: | Anita Grantham | ||||||
Its: | Sole Member | Title: | Chief People Officer |
By: | CenterCal Association, LLC, | |||||||||
a Delaware limited liability company | ||||||||||
Its: | Manager | |||||||||
By: |
/s/ illegible |
|||||||||
Its: |
President |
Exhibit 10.19
SUBLEASE
Lucid Software Inc./Pluralsight, LLC
THIS SUBLEASE (this Sublease ) is entered into as of the 26 th day of September, 2017, between LUCID SOFTWARE INC. , a Delaware corporation ( Sublandlord ), whose address is 10355 South Jordan Gateway, Suite 300, South Jordan, Utah 84095, and PLURALSIGHT, LLC , a Nevada limited liability company ( Subtenant ), whose address is 3400 North Ashton Boulevard, Suite 420, Lehi, Utah 84043. (Sublandlord and Subtenant are referred to in this Sublease collectively as the Parties and individually as a Party .)
FOR THE SUM OF TEN DOLLARS ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties agree as follows:
1. Definitions . As used in this Sublease, each of the following terms shall have the meaning indicated, and any term that is capitalized but not defined in this Sublease shall have the meaning set forth in the Lease (as defined below):
Landlord means Sojo Station North, LLC, a Utah limited liability company, whose address is 2801 North Thanksgiving Way, Suite 100, Lehi, Utah 84043.
Lease means the Lease, dated October 19, 2016, as amended by the Amended and Restated First Amendment to Lease, dated August 10, 2017, both entered into between Landlord, as landlord, and Sublandlord, as tenant, copies of which are attached as Exhibit A .
Sublease Basic Monthly Rent means the following amounts for the periods indicated, which amounts are subject to adjustment as set forth in the definition of Premises in the Lease; provided, however, that:
(i) if the Sublease Commencement Date occurs on a date other than October 1, 2017, then the periods set forth below shall begin on such other date that is the Sublease Commencement Date (as memorialized in a certificate entered into between the Parties) and shall shift accordingly in a manner consistent with the definition of Sublease Expiration Date (with the Sublease Expiration Date being on the last day of the relevant month); and
(ii) if the Sublease Expansion Date occurs on a date other than February 1, 2018, then:
(a) the Sublease Expansion Date shall begin on such other date that is the Sublease Expansion Date (as memorialized in an instrument entered into between the Parties); and
(b) consistent with the below schedule, during the first month following the Sublease Expansion Date, the Sublease Basic Monthly Rent for Suite 160 shall be $-0-, and during the period after the first month following the Sublease Expansion Date, the Sublease Basic Monthly Rent for Suite 160 shall be the same as the Sublease Basic Monthly Rent for Suite 400 on an annual per rentable square foot basis.
but the Sublease Expiration Date will not be affected; however, in all events, the Sublease Basic Monthly Rent and Subtenants Share of Operating Expenses, if any, shall be abated in their entirety, that is, shall be zero, for Suite 400 during the first month following the Sublease Commencement Date, and for Suite 160 during the first month following the Sublease Expansion Date:
Sublease Commencement Date means the date on which Substantial Completion of Suite 400 has occurred under the Lease, and the work of improvement described in Paragraph 12 of this Sublease has been completed with respect to Suite 400. The Sublease Commencement Date is projected to occur on October 1, 2017.
Subleased Premises means:
(i) Suite 400 ( Suite 400 ) on the fourth floor of the Building, consisting of approximately 27,533 usable square feet and approximately 30,257 rentable square feet; and
(ii) on and after the Sublease Expansion Date, also Suite 160 ( Suite 160 ) on the first floor of the Building, consisting of approximately 12,415 usable square feet and approximately 14,270 rentable square feet, comprising in the aggregate a total of approximately 39,948 usable square feet and approximately 44,527 rentable square feet, shown on the attached Exhibit B , constituting a portion of the Premises.
1 | The Sublease Basic Monthly Rent in this projected schedule for the period from October 1, 2017 through January 31, 2018, inclusive, is calculated based on 30,257 rentable square feet; however, as set forth above, the Sublease Basic Monthly Rent for Suite 400 is abated in its entirety during the first month following the Sublease Commencement Date. |
2 | The Sublease Basic Monthly Rent in this projected schedule for the period from February 1, 2018 through March 31, 2020, inclusive, is calculated based on 44,527 rentable square feet; however, as set forth above, the Sublease Basic Monthly Rent for Suite 160 is abated in its entirety during the first month following the Sublease Expansion Date. |
3 |
During the first month following the Sublease Expansion Date, the annual cost per rentable square foot for Suite 400 is $29.00 and for Suite 160 is $-0-. |
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Sublease Expansion Date means the date on which Substantial Completion of Suite 160 has occurred under the Lease, and the work of improvement described in Paragraph 12 of this Sublease has been completed with respect to Suite 160. The Sublease Expansion Date is projected to occur on February 1, 2018.
Sublease Expiration Date means the date that is the last day of the month, two (2) years after the later of the following:
(i) the Sublease Commencement Date, if the Sublease Commencement Date occurs on the first day of a calendar month; or
(ii) the first day of the first full calendar month following the Sublease Commencement Date, if the Sublease Commencement Date does not occur on the first day of a calendar month, as such date may be extended or sooner terminated in accordance with this Sublease.
Sublease Security Deposit means an amount equal to Sublease Basic Monthly Rent for the final calendar month of the initial period constituting the Sublease Term ($110,315.64), which amount is subject to adjustment as set forth in the definition of Premises in the Lease.
Sublease Term means the period commencing on 12:01 a.m. of the Sublease Commencement Date and expiring at midnight of the Sublease Expiration Date.
Subtenants Occupants means any assignee, subtenant, employee, agent, licensee or invitee of Subtenant.
Subtenants Share of Operating Expenses shall be equal to an amount determined by multiplying all Operating Expenses payable by Sublandlord, as tenant, under the Lease during the period concerned by a fraction, the numerator of which is the rentable square feet of the Subleased Premises during the period concerned, and the denominator of which is the rentable square feet of the Premises during the period concerned.
2. Sublease; Extension .
2.1 Sublease . Subject to all of the provisions of the Lease and this Sublease, Sublandlord subleases to Subtenant and Subtenant subleases from Sublandlord the Subleased Premises for the Sublease Term. Except as expressly limited by this Sublease, as between the Parties, Subtenant shall be responsible for, Subtenant assumes, and Subtenant shall timely pay and perform, all of Sublandlords obligations of payment and performance under the Lease on and after the Sublease Commencement Date with respect to the Subleased Premises, provided that except as set forth in the Sublease Consent Agreement (as defined below), Subtenant shall not be required to pay to Sublandlord the rentals or other amounts required to be paid under the Lease, it being understood that Subtenant shall pay to Sublandlord the Sublease Basic Monthly Rent, the Subtenants Share of Operating Expenses and all other amounts when due under this Sublease (including, without limitation, those amounts due under Paragraphs 8.2 , 8.3 and 9.1(a) of the Lease). As between the Parties, Sublandlord shall be responsible for and shall assume and perform all of Landlords obligations under the Lease to the extent that they are not performed by Landlord. Except as expressly limited by this Sublease, with respect to the Subleased Premises, Subtenant expressly agrees to be bound by the provisions of the Lease vis-a-vis Sublandlord to the full extent that Sublandlord is obligated to Landlord. To the extent of any inconsistencies between this Sublease and the Lease, this Sublease shall control as between the Parties, but not as between Sublandlord and Landlord, as to which the Lease shall control. Notwithstanding anything to the contrary set forth in this Sublease, Subtenant shall not be responsible for any additional obligations created by an amendment to the Lease executed after the date of this Sublease without Subtenants prior written consent.
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2.2 Extension .
(a) Subtenant shall have the option to extend the initial period constituting the Sublease Term under this Sublease for six (6) additional periods of one (1) month each (only), provided that Subtenant gives Sublandlord written notice of the exercise of one or more of such options on or before the date that is four (4) months prior to the expiration of the then-existing period constituting the Sublease Term, and that at the time each such notice is given and on the commencement of the extension term concerned: (i) this Sublease is in full force and effect; (ii) Subtenant is not in default under this Sublease beyond the expiration of any applicable notice and cure period given to Subtenant in this Sublease; and (iii) Subtenant has not assigned this Sublease or further subleased all or any portion of the Subleased Premises under any then-existing sublease, and such extension is not being made in connection with or for the purpose of facilitating any such assignment or sublease. Each such extension term shall commence at 12:01 a.m. on the first day following the expiration of the immediately preceding period constituting the Sublease Term.
(b) During each such extension term, all provisions of this Sublease shall apply (but as to this Paragraph 2.2 , only with respect to any remaining options to extend, if any), except for any provision relating to the improvement of the Subleased Premises by Sublandlord or at Sublandlords expense. If Subtenant fails to exercise any such option in a timely manner, the relevant option to extend (and any subsequent option to extend) shall automatically terminate and be of no further force or effect.
3. Use . Subtenant shall use the Subleased Premises for general office purposes only and for no other use or purpose.
4. Sublease Basic Monthly Rent . In full satisfaction of the obligation of Subtenant to pay the Basic Monthly Rent payable under the Lease, Subtenant covenants to pay to Sublandlord without abatement, deduction, offset, prior notice or demand the Sublease Basic Monthly Rent in lawful money of the United States in consecutive monthly installments at the address set forth at the outset of this Sublease for Sublandlord or at such other place as Sublandlord may designate, in advance on or before the first day of each calendar month during the Sublease Term, commencing on the Sublease Commencement Date. If the Sublease Commencement Date occurs on a day other than the first day of a calendar month, on or before the Sublease Commencement Date the Sublease Basic Monthly Rent shall be paid for the initial fractional calendar month prorated on a per diem basis and for the first full calendar month following such due date. If this Sublease expires or terminates on a day other than the last day of a calendar month, the Sublease Basic Monthly Rent for such fractional month shall be prorated on a per diem basis. Notwithstanding the foregoing, prior to the date of this Sublease, Subtenant has paid to Sublandlord the amount of $250,000.00 as a deposit. On and after the Sublease Commencement Date, Sublandlord shall, from such deposit, deduct the Sublease Basic Monthly Rent when and as due until such deposit has been reduced to the amount of the Sublease Security Deposit, after which Subtenant shall pay the Sublease Basic Monthly Rent to Sublandlord in accordance with the foregoing portion of this Paragraph. The remaining amount of such deposit, equal to the Sublease Security Deposit, shall be held by Sublandlord as the Sublease Security Deposit under this Sublease.
5. Sublease Security Deposit . The Sublease Security Deposit shall be held by Sublandlord, as set forth in Paragraph 4 of this Sublease, as security for the faithful performance by Subtenant under this Sublease. The Sublease Security Deposit shall be returned (without interest) to Subtenant (or, at Sublandlords option, to the last assignee of Subtenants interest under this Sublease) after the expiration of the Sublease Term or sooner termination of this Sublease and delivery of possession of the Subleased Premises to Sublandlord in accordance with Paragraph 17 of the Lease if, at such time, Subtenant is not in default under this Sublease. If Sublandlords interest in this Sublease is conveyed, transferred or assigned, Sublandlord shall transfer or credit the Sublease Security Deposit to Sublandlords successor in interest, and Sublandlord shall be released from any liability for the return of the Sublease Security Deposit, provided that such successor assumes Sublandlords obligations under this Sublease. Sublandlord may intermingle the Sublease Security Deposit with Sublandlords own funds, and shall not be deemed to be a trustee of the Sublease Security Deposit. If Subtenant fails to pay or perform in a timely manner any obligation under this Sublease, Sublandlord may, prior to, concurrently with or subsequent to, exercising any other
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right or remedy, use, apply or retain all or any part of the Sublease Security Deposit for the payment of any monetary obligation due under this Sublease, or to compensate Sublandlord for any other expense, loss or damage which Sublandlord may incur by reason of Subtenants failure, including any damage or deficiency in the reletting of the Subleased Premises. If all or any portion of the Sublease Security Deposit is so used, applied or retained, Subtenant shall immediately deposit with Sublandlord cash in an amount sufficient to restore the Sublease Security Deposit to the original amount. Sublandlord may withhold the Sublease Security Deposit after the expiration of the Sublease Term or sooner termination of this Sublease until Subtenant has paid in full Subtenants Share of Operating Expenses for the year (or portion thereof) in which such expiration or sooner termination occurs (as provided in Paragraph 7 of this Sublease) and all other amounts payable under this Sublease, provided that with respect to such Subtenants Share of Operating Expenses, Sublandlord provides to Subtenant an Actual OpEx Statement for such year (or portion thereof) within ninety (90) days after the expiration of the Sublease Term or sooner termination of this Sublease. The Sublease Security Deposit is not a limitation on Sublandlords damages or other rights under this Sublease, a payment of liquidated damages or prepaid rent and shall not be applied by Subtenant to the rent for the last (or any) month of the Sublease Term, or to any other amount due under this Sublease.
6. Parking Stall Allocation; Signage . Subtenant shall have the use of 4.5 parking stalls per 1,000 usable square feet of the Subleased Premises, four (4) parking stalls of which shall be covered reserved stalls designated by Sublandlord directly under the Building accessed via an elevator, subject to Paragraph 19.1 of the Lease. Subtenant shall not, in any event or under any circumstance, have the right to use more than the number of parking stalls set forth in the immediately preceding sentence.
7. Operating Expenses . In addition to the Sublease Basic Monthly Rent, Subtenant covenants to pay to Sublandlord without abatement, deduction, offset, prior notice or demand Subtenants Share of Operating Expenses in lawful money of the United States at such place as Sublandlord may designate, in advance on or before the first day of each calendar month during the Sublease Term, commencing on the Sublease Commencement Date, in accordance with the applicable provisions of the Lease.
8. Assignment . Subtenant shall not, either voluntarily or by operation of law, assign, transfer, mortgage, encumber, pledge or hypothecate this Sublease or Subtenants interest in this Sublease, in whole or in part, permit the use of the Subleased Premises or any part of the Subleased Premises by any persons other than Subtenant or Subtenants employees, or further sublease the Subleased Premises or any part of the Subleased Premises, without the prior written consent of Sublandlord and Landlord, which shall not be unreasonably withheld. Consent to any assignment or subleasing shall not operate as a waiver of the necessity for consent to any subsequent assignment or subleasing and the terms of such consent shall be binding on any person holding by, through or under Subtenant. At Sublandlords option, any assignment or sublease without Sublandlords prior written consent shall be void ab initio . Notwithstanding anything contained in the foregoing portion of this Paragraph to the contrary, Subtenant may, without the consent of Sublandlord or Landlord, assign this Sublease or further sublease all or any portion of the Subleased Premises to:
(a) | an affiliate, franchisor or franchisee of Subtenant; |
(b) | a person that acquires all or substantially all of the assets or stock of Subtenant; or |
(c) | an entity resulting from a merger, consolidation or reorganization with Subtenant, |
provided that (i) such assignee or subtenant assumes the relevant obligations of Subtenant under this Sublease, (ii) Subtenant gives Sublandlord and Landlord notice of such assignment or sublease no later than five (5) business days thereafter, accompanied by an executed counterpart of any assignment or sublease agreement concerned (from which any financial terms may be redacted) if such an assignment or sublease agreement exists, and (iii) such assignee or subtenant has a net worth, cash balance and operating income immediately following such transaction that is reasonably sufficient to satisfy the financial obligations under this Sublease or such sublease, as the case may be. In addition, the sale of stock or other equity interests in Subtenant on a public stock exchange (e.g., NYSE or
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NASDAQ), whether in connection with an initial public offering or thereafter, shall not be deemed an assignment of this Sublease and shall not require Sublandlords or Landlords consent. Notwithstanding the foregoing or anything else contained in this Sublease to the contrary, any person that acquires all or substantially all of the assets or stock of, or all or substantially all of the other equity interests in, Subtenant shall be required as a condition to such acquisition to enter into a guaranty of this Sublease on Sublandlords standard form.
9. Indemnity . As between the Parties and as between Subtenant and Landlord with regard to Subtenants indemnity obligations in favor of Landlord set forth in this Paragraph 9 (only), the indemnities set forth in this Paragraph 9 shall replace the indemnities set forth in Paragraph 11 of the Lease, and the indemnities set forth in said Paragraph 11 shall have no force or effect. However, this Paragraph 9 shall not have any effect whatsoever as to the applicability of said Paragraph 11 as between Landlord, as landlord, and Sublandlord, as tenant, as to which said Paragraph 11 shall continue in full force and effect in accordance with its terms.
9.1 Indemnity by Subtenant . Subtenant shall indemnify, defend and hold harmless Sublandlord and Landlord and their respective employees from and against all demands, claims, causes of action, judgments, losses, damages, liabilities, fines, penalties, costs and expenses, including attorneys fees, arising from either of the following:
(a) the occupancy or use of, or entry onto, any portion of the Property by Subtenant or Subtenants Occupants (including, without limitation, any slip and fall or other accident on the Property involving Subtenant or Subtenants Occupants), unless directly and proximately caused by the indemnified partys employees, agents or contractors;
(b) any Hazardous Materials deposited, released or stored by Subtenant or Subtenants Occupants on the Property; or
(c) a breach by Subtenant under the Lease.
If any action or proceeding is brought against Sublandlord or Landlord or their respective employees by reason of any of the matters set forth in the preceding sentence that creates an obligation under the preceding sentence for Subtenant to defend, Subtenant, on notice from either Sublandlord or Landlord or both of them, as the case may be, shall defend the party(ies) giving such notice and their respective employees at Subtenants sole cost and expense with competent and licensed legal counsel reasonably satisfactory to the indemnified party(ies), but selected by Subtenant. The provisions of this Paragraph 9.1 shall survive expiration of the Sublease Term or the sooner termination of this Sublease.
9.2 Indemnity by Sublandlord . Sublandlord shall indemnify, defend and hold harmless Subtenant and Subtenants employees from and against all demands, claims, causes of action, judgments, losses, damages, liabilities, fines, penalties, costs and expenses, including attorneys fees, arising from either of the following:
(a) the occupancy or use of, or entry onto, any portion of the Property by Sublandlord or Sublandlords employees, agents or contractors (including, without limitation, any slip and fall or other accident on the Property involving Sublandlord or Sublandlords employees, agents or contractors), unless directly and proximately caused by Subtenant or Subtenants Occupants;
(b) any Hazardous Materials deposited, released or stored by Sublandlord or Sublandlords employees, agents or contractors on the Property; or
(c) a breach by Sublandlord under the Lease.
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If any action or proceeding is brought against Subtenant or Subtenants employees by reason of any of the matters set forth in the preceding sentence that creates an obligation under the preceding sentence for Sublandlord to defend, Sublandlord, on notice from Subtenant, shall defend Subtenant and Subtenants employees at Sublandlords sole cost and expense with competent and licensed legal counsel reasonably satisfactory to Subtenant, but selected by Sublandlord. The provisions of this Paragraph 9.2 shall survive expiration of the Sublease Term or the sooner termination of this Sublease.
9.3 Exception . Notwithstanding anything contained in this Paragraph 9 to the contrary, the indemnities set forth in this Paragraph 9 shall not cover employees of Federal Express, United Parcel Service, the United States Postal Service or other mail/package courier companies who enter onto the Property to service multiple tenants of the Building or the Building generally.
10. Insurance . The insurance obtained by Subtenant pursuant to Paragraph 12.1 of the Lease (in the same amounts as set forth in said Paragraph 12.1 ) shall name Sublandlord and Landlord and any other person specified from time to time by Sublandlord or Landlord as an additional insured, and shall contain a provision that Sublandlord, Landlord and any other additional insured, although named as an insured, shall nevertheless be entitled to recover under such policies for any loss sustained by Sublandlord, Landlord or their respective employees and agents as a result of the acts or omissions of Subtenant. Concurrently with the execution of this Sublease, Subtenant shall furnish Sublandlord and Landlord with certificates of coverage. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Sublandlord and Landlord by the insurer. All such policies shall be written as primary policies, not contributing with and not in excess of the coverage that Sublandlord or Landlord may carry, and shall only be subject to such deductibles as may be approved in writing in advance by Sublandlord and Landlord. Subtenant shall, at least ten (10) days prior to the expiration of such policies, furnish Sublandlord and Landlord with renewals of, or binders for, such policies.
11. Default .
11.1 Default by Subtenant . The occurrence of any of the following events shall constitute a default by Subtenant under this Sublease: (a) Subtenant fails to pay in a timely manner any installment of Sublease Basic Monthly Rent or any other sum due under this Sublease, and such failure is not cured within three (3) business days after written notice is given to Subtenant that the same is past due; (b) Subtenant fails to observe or perform in a timely manner any other term, covenant or condition to be observed or performed by Subtenant under the Lease or this Sublease within five (5) business days after written notice is given to Subtenant of such failure; provided, however, that if more than five (5) business days is reasonably required to cure such failure, Subtenant shall not be in default if Subtenant commences such cure within such five (5) business day period and diligently prosecutes such cure to completion; (c) Subtenant (i) files a petition in bankruptcy, (ii) becomes insolvent, (iii) has taken against Subtenant in any court, pursuant to state or federal statute, a petition in bankruptcy or insolvency or for reorganization or appointment of a receiver or trustee (and such petition is not dismissed within sixty (60) days), (iv) petitions for or enters into an arrangement for the benefit of creditors, or (v) suffers this Sublease to become subject to a writ of execution; or (d) Subtenant vacates or abandons the Subleased Premises, if such vacation would adversely affect or render void the property insurance carried by Landlord on the Building; provided, however, that if the sole, adverse effect caused by such vacation is an increase in the premium for such property insurance and Subtenant pays the incremental amount of such increase within ten (10) business days after written notice thereof, such vacation shall not be a default by Subtenant under this Sublease.
11.2 Remedies . On any default by Subtenant under this Sublease, Sublandlord may at any time, without waiving or limiting any other right or remedy available to Sublandlord, (a) perform in Subtenants stead any obligation that Subtenant has failed to perform, and Sublandlord shall be reimbursed promptly for any cost incurred by Sublandlord with interest from the date of such expenditure until paid in full at the greater of (i) the prime rate then charged by Zions First National Bank, Salt Lake City (or any other bank designated by Sublandlord), plus four percent (4%), or (ii) twelve percent (12%) per annum (the Interest Rate ), (b) terminate Subtenants rights under this Sublease by written notice, (c) reenter and take possession of the Subleased Premises by any lawful means (with
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or without terminating this Sublease), or (d) pursue any other remedy allowed by law. Subtenant shall pay to Sublandlord the cost of recovering possession of the Subleased Premises, all costs of reletting, including reasonable renovation, remodeling and alteration of the Subleased Premises, the amount of any commissions paid by Sublandlord in connection with such reletting, and all other costs and damages arising out of Subtenants default, including attorneys fees and costs. Notwithstanding any termination or reentry, the liability of Subtenant for the rent payable under this Sublease shall not be extinguished for the balance of the Sublease Term, and Subtenant agrees to compensate Sublandlord on demand for any deficiency arising from reletting the Subleased Premises at a lesser rent than applies under this Sublease.
11.3 Past Due Amounts . If Subtenant fails to pay when due any amount required to be paid by Subtenant under this Sublease, such unpaid amount shall bear interest at the Interest Rate from the due date of such amount to the date of payment in full, with interest. In addition, Sublandlord may also charge a sum of five percent (5%) of such unpaid amount as a service fee. This late payment charge is intended to compensate Sublandlord for Sublandlords additional administrative costs resulting from Subtenants failure to perform in a timely manner Subtenants obligations under this Sublease, and has been agreed on by the Parties after negotiation as a reasonable estimate of the additional administrative costs that will be incurred by Sublandlord as a result of such failure. The actual cost in each instance is extremely difficult, if not impossible, to determine. This late payment charge shall constitute liquidated damages and shall be paid to Sublandlord together with such unpaid amount. The payment of this late payment charge shall not constitute a waiver by Sublandlord of any default by Subtenant under this Sublease. All amounts due under this Sublease are and shall be deemed to be rent or additional rent, and shall be paid without abatement, deduction, offset, prior notice or demand (unless provided by the terms of this Sublease). Sublandlord shall have the same remedies for a default in the payment of any amount due under this Sublease as Sublandlord has for a default in the payment of Sublease Basic Monthly Rent.
12. Work of Improvement . Sublandlord shall cause Landlord to improve the Subleased Premises in accordance with Exhibit A attached to the Lease, as well as the plans and specifications attached to this Sublease as Exhibit C . Sublandlord shall deliver or cause to be delivered the Subleased Premises in turnkey fashion, ready for occupancy by Subtenant, in accordance with the furniture fit plans and specifications on the furniture set forth in the attached Exhibit C . The furniture includes 200 work stations for Suite 400 and up to 100 work stations for Suite 160 as mutually agreed by the Parties. However, Subtenant shall, at its sole cost and expense, pay for and install, subject to the applicable terms and conditions of the Lease, any TV/conference/AV/telephone/video/camera equipment or facilities. Subtenant and its representatives may participate in the walk-through of the Subleased Premises described in Paragraph 2.2(b) of the Lease. Sublandlord shall cause Landlord to perform all of its obligations under Paragraph 2.2(b) with respect to the Subleased Premises.
13. Sublease Consent Agreement . This Sublease shall not be effective unless and until Landlord and the Parties enter into a Sublease Consent Agreement (the Sublease Consent Agreement ) in the form attached as Exhibit D , and Landlord receives a fully executed copy of this Sublease. The Parties shall fully execute the Sublease Consent Agreement concurrently with the full execution of this Sublease, and promptly deliver both to Landlord. If Landlord has not fully executed and delivered the Sublease Consent Agreement within ten (10) business days after the date on which Landlord receives a fully executed copy of this Sublease and a copy of the Sublease Consent Agreement fully executed by the Parties, then Subtenant shall have the right to terminate this Sublease (only) by giving written notice to Sublandlord and Landlord within three (3) business days after the expiration of such ten (10)-business day period.
14. Representations and Warranties . Sublandlord represents and warrants to Subtenant as follows:
(a) On Subtenant paying rent and all other amounts payable by Subtenant under this Sublease and observing and performing all of the terms, covenants and conditions on Subtenants part to be observed and performed under this Sublease within any applicable notice and cure period given to Subtenant in this Sublease, Subtenant shall have quiet use and enjoyment of the Subleased Premises for the Sublease Term without interference, hindrance or interruption from Sublandlord or anyone claiming by, through or under Sublandlord, subject to all of the provisions of this Sublease.
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(b) The Lease attached as Exhibit A to this Sublease is a true, correct and complete copy of the Lease. Also attached are all existing modifications, amendments and supplements thereto, and all of those attachments are the only existing agreements between Landlord and Sublandlord with respect to the Subleased Premises.
(c) Sublandlord holds the entire leasehold estate to the Subleased Premises and has not previously assigned any of its rights under the Lease or subleased any portion of the Subleased Premises.
(d) Sublandlord has the full and complete right to enter into this Sublease without the consent of any other person, other than Landlord.
(e) To Sublandlords current, actual knowledge, all of the obligations and conditions that are required to have been performed or observed by Landlord on or prior to the date of this Sublease under the terms of the Lease have been duly performed and observed.
(f) To Sublandlords current, actual knowledge, neither Landlord nor Sublandlord is currently in breach or default under the Lease, and no event has occurred which, with the giving of notice of the passage of time or both, would constitute such a breach or default.
15. Attorneys Fees . If any action is brought to recover any rent or other amount under this Sublease because of any default under this Sublease, to enforce or interpret any of the provisions of this Sublease, or for recovery of possession of the Subleased Premises, the party prevailing in such action shall be entitled to recover from the other party reasonable attorneys fees (including those incurred in connection with any appeal), the amount of which shall be fixed by the court and made a part of any judgment rendered.
16. Brokerage Commissions . Sublandlord is represented in this Sublease by Eric Woodley/Woodley Real Estate, and Subtenant is represented in this Sublease by Chris Falk/Newmark Grubb ACRES. Sublandlord has agreed to pay a commission in connection with the original term (only) of this Sublease to both such brokers pursuant to a separate agreement. Except as set forth in the foregoing portion of this Paragraph, Sublandlord represents and warrants that no claim exists for a brokerage commission, finders fee or similar fee in connection with this Sublease based on any agreement made by Sublandlord. Sublandlord shall indemnify, defend and hold harmless Subtenant from and against any claim for a brokerage commission, finders fee or similar fee in connection with this Sublease based on an actual or alleged agreement made by Sublandlord. Except as set forth in the foregoing portion of this Paragraph, Subtenant represents and warrants that no claim exists for a brokerage commission, finders fee or similar fee in connection with this Sublease based on any agreement made by Subtenant. Except as set forth in the foregoing portion of this Paragraph, Subtenant shall indemnify, defend and hold harmless Sublandlord from and against any claim for a brokerage commission, finders fee or similar fee in connection with this Sublease based on an actual or alleged agreement made by Subtenant.
17. Notices . Any notice or demand to be given by either Party to the other shall be given in writing by express mail, Federal Express or mailing in the United States mail, postage prepaid, certified, return receipt requested and addressed to such party as set forth at the outset of this Sublease. Either Party may change the address at which such party desires to receive notice on written notice of such change to the other party. Any such notice shall be deemed to have been given, and shall be effective, on delivery to the notice address then applicable for the party to which the notice is directed; provided, however, that refusal to accept delivery of a notice or the inability to deliver a notice because of an address change that was not properly communicated shall not defeat or delay the giving of a notice.
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18. General Provisions . This Sublease shall be governed by, and construed and interpreted in accordance with, the laws (excluding the choice of laws rules) of the state of Utah. This Sublease may be executed in any number of duplicate originals or counterparts, each of which when so executed shall constitute in the aggregate but one and the same document. Each exhibit referred to in, and attached to, this Sublease is an integral part of this Sublease and is incorporated in this Sublease by this reference. Landlord is a third-party beneficiary of any provisions in this Sublease running in favor of Landlord, and is entitled to enforce such provisions directly.
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SUBLANDLORD AND SUBTENANT have executed this Sublease on the respective dates set forth below, to be effective as of the date first set forth above.
SUBLANDLORD: | ||
LUCID SOFTWARE INC., | ||
a Delaware corporation | ||
By |
/s/ Karl Sun |
|
Print or Type Name of Signatory: | ||
Karl Sun |
||
Its | CEO | |
Date: 26 September 2017 | ||
SUBTENANT: | ||
PLURALSIGIIT, LLC, | ||
a Nevada limited liability company | ||
By |
/s/ James Budge |
|
Print or Type Name of Signatory: | ||
James Budge |
||
Its | CFO | |
Date: 9/25/2017 |
EXHIBIT A
to
SUBLEASE
LEASE
The Lease referred to in the foregoing instrument is attached.
Exhibit A-1
AMENDED AND RESTATED
FIRST AMENDMENT TO LEASE
Sojo Station North, LLC/Lucid Software Inc.
THIS AMENDMENT (this Amendment ) is entered into as of the 10th day of August, 2017, between SOJO STATION NORTH, LLC , a Utah limited liability company ( Landlord ), and LUCID SOFTWARE INC. , a Delaware limited liability company ( Tenant ). (Landlord and Tenant are referred to in this Amendment collectively as the Parties and individually as a Party .) This Amendment amends, restates, supersedes and replaces in its entirety the First Amendment, dated of even date herewith, entered into between the Parties.
FOR GOOD AND VALUABLE CONSIDERATION , the receipt and sufficiency of which are acknowledged, the Parties agree as follows:
1. Definitions . As used in this Amendment, each of the following terms shall have the indicated meaning, and any term used in this Amendment that is not defined shall have the same meaning as set forth in the Lease (defined below in this Paragraph 1 ), as amended by this Amendment:
Additional Space means the additional space being added to the Lease by this Amendment, described as:
(i) Suite 150 on the first floor of the Building, consisting of approximately 4,590 usable square feet and approximately 5,276 rentable square feet; and
(ii) Suite 160 on the first floor of the Building, consisting of approximately 12,415 usable square feet and approximately 14,270 rentable square feet,
comprising in the aggregate a total of approximately 17,005 usable square feet and approximately 19,546 rentable square feet.
Existing Space means the space covered by the Lease prior to this Amendment, described as follows:
(i) Suite 200 on the second floor of the Building, consisting of approximately 27,960 usable square feet and approximately 30,725 rentable square feet;
(ii) Suite 300 on the third floor of the Building, consisting of approximately 28,701 usable square feet and approximately 31,540 rentable square feet; and
(iii) Suite 400 on the fourth floor of the Building, consisting of approximately 28,701 usable square feet and approximately 31,540 rentable square feet,
comprising in the aggregate a total of approximately 85,362 usable square feet and approximately 93,805 rentable square feet.
Expansion Date means the earlier of (i) the date on which Landlords construction obligations with respect to the Additional Space have been fulfilled, subject only to the completion by Landlord of any punch list items that do not materially interfere with Tenants use and enjoyment of the Additional Space, or (ii) the date on which such obligations would have been fulfilled, but for Tenant Delay. The projected Expansion Date is February 1, 2018. On or about the Expansion Date, the Parties shall enter into an Expansion Date Certificate, establishing the dates of the Term and the Basic Monthly Rent schedule for the Additional Space.
Lease means the Office Lease, dated October 19, 2016, entered into between Landlord, as landlord, and Tenant, as tenant, and, where applicable, as amended by this Amendment.
2. Purpose . The Lease currently covers the Existing Space. The Parties desire to add the Additional Space to the Lease as of the Expansion Date in accordance with the terms and conditions set forth in this Amendment. In addition, Paragraph 8.1(c) of the Lease provides as follows:
(c) Tenant may not install its own backup generator. If Tenant elects to connect to the Building backup generator prior to Landlords commencement of the construction of the Tenant Improvements, such connection shall be made by Landlord for Tenant, at Tenants sole cost and expense, and an additional $0.40 per rentable square foot of the Premises (on an annual basis) shall be added to the Basic Monthly Rent otherwise payable during the Term.
In accordance with said Paragraph 8.1(c) , Tenant has elected to connect to the Building backup generator with respect to the third floor of the Building only, and has elected not to connect to the generator with respect to any other portion of the Premises. Landlord has approved such election. The effect of such election is that such connection will be made by Landlord for Tenant, at Tenants sole cost and expense, and an additional $0.40 per rentable square foot of the Premises (on an annual basis) shall be added to the Basic Monthly Rent otherwise payable during the Term for the third floor (only). Consequently, the Parties desire to revise the Basic Monthly Rent schedule set forth in Paragraph 1 of the Lease accordingly.
3. Lease Definitions . The following definitions in Paragraph 1 (Definitions) of the Lease are revised to read as follows (and any term used in the following definitions that is not defined in the Lease shall have the same meaning as set forth in this Amendment):
Basic Monthly Ren t means the following amounts for the periods indicated, which amounts are subject to adjustment as set forth in the definition of Premises ; provided, however, that:
(i) if the Commencement Date occurs on a date other than the Projected Commencement Date, then the periods set forth below for the Existing Space shall begin on such other date that is the Commencement Date (as memorialized in a certificate entered into between the Parties) and shall shift accordingly in a manner consistent with the definition of Expiration Date (with the Expiration Date being on the last day of the relevant month), but in all events, Tenant shall have an initial nine (9)-month period of Basic Monthly Rent at the annual per rentable square foot costs set forth below for the Existing Space ($7.00 for Suites 200 and 400, and $7.40 for Suite 300); and
(ii) if the Expansion Date occurs on a date other than February 1, 2018, then the periods set forth below for the Additional Space shall begin on such other date that is the Expansion Date (as memorialized in a certificate entered into between the Parties) and shall shift accordingly in a manner consistent with the definition of Expiration Date (with the Expiration Date being on the last day of the relevant month), but in all events, Tenant shall have an initial nine (9)-month period of Basic Monthly Rent at an annual cost of $7.00 per rentable square foot for the Additional Space:
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Additional Space: Suites 150 and 16019,546 rentable square feet
Periods |
Basic Monthly Rent |
Annual Cost Per
Rentable Square Foot |
||||||
February 1, 2018 through October 31, 2018, inclusive |
$ | 11,401.83 per month | $ | 7.00 | ||||
November 1, 2018 through January 31, 2019, inclusive |
$ | 47,073.28 per month | $ | 28.90 | ||||
February 1, 2019 through January 31, 2020, inclusive |
$ | 48,073.28 per month | $ | 29.62 | ||||
February 1, 2020 through January 31, 2021, inclusive |
$ | 48,246.04 per month | $ | 30.36 | ||||
February 1, 2021 through January 31, 2022, inclusive |
$ | 49,451.38 per month | $ | 31.12 | ||||
February 1, 2022 through January 31, 2023, inclusive |
$ | 51,959.78 per month | $ | 31.90 | ||||
February 1, 2023 through January 31, 2024, inclusive |
$ | 53,262.85 per month | $ | 32.70 | ||||
February 1, 2024 through January 31, 2025, inclusive |
$ | 54,598.49 per month | $ | 33.52 | ||||
February 1, 2025 through January 31, 2026, inclusive |
$ | 55,950.43 per month | $ | 34.35 | ||||
February 1, 2026 through January 31, 2027, inclusive |
$ | 57,351.22 per month | $ | 35.21 | ||||
February 1, 2027 through October 31, 2027, inclusive |
$ | 58,784.60 per month | $ | 36.09 | ||||
(if the first option to extend set forth in Paragraph 3.3 is exercised) | ||||||||
November 1, 2027 through January 31, 2028, inclusive |
$ | 58,784.60 per month | $ | 36.09 | ||||
February 1, 2028 through January 31, 2029, inclusive |
$ | 60,250.55 per month | $ | 36.99 | ||||
February 1, 2029 through January 31, 2030, inclusive |
$ | 61,765.36 per month | $ | 37.92 | ||||
February 1, 2030 through October 31, 2030, inclusive |
$ | 63,312.75 per month | $ | 38.87 | ||||
(if the second option to extend set forth in Paragraph 3.3 is exercised) | ||||||||
November 1, 2030 through January 31, 2031, inclusive |
$ | 63,312.75 per month | $ | 38.87 | ||||
February 1, 2031 through January 31, 2032, inclusive |
$ | 64,892.72 per month | $ | 39.84 | ||||
February 1, 2032 through January 31, 2033, inclusive |
$ | 66,505.27 per month | $ | 40.83 | ||||
February 1, 2033 through October 31, 2033, inclusive |
$ | 68,182.96 per month | $ | 41.86 |
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Existing Space: Suites 200 and 40062,265 rentable square feet
Periods |
Basic Monthly Rent |
Annual Cost Per
Rentable Square Foot |
||||||
October 1, 2017 through June 30, 2018, inclusive |
$ | 36,321.25 per month | $ | 7.00 | ||||
July 1, 2018 through September 30, 2018, inclusive |
$ | 149,954.88 per month | $ | 28.90 | ||||
October 1, 2018 through September 30, 2019, inclusive |
$ | 153,690.78 per month | $ | 29.62 | ||||
October 1, 2019 through September 30, 2020, inclusive |
$ | 157,530.45 per month | $ | 30.36 | ||||
October 1, 2020 through September 30, 2021, inclusive |
$ | 161,473.90 per month | $ | 31.12 | ||||
October 1, 2021 through September 30, 2022, inclusive |
$ | 165,521.13 per month | $ | 31.90 | ||||
October 1, 2022 through September 30, 2023, inclusive |
$ | 169,672.13 per month | $ | 32.70 | ||||
October 1, 2023 through September 30, 2024, inclusive |
$ | 173,926.90 per month | $ | 33.52 | ||||
October 1, 2024 through September 30, 2025, inclusive |
$ | 178,233.56 per month | $ | 34.35 | ||||
October 1, 2025 through September 30, 2026, inclusive |
$ | 173,926.90 per month | $ | 35.21 | ||||
October 1, 2026 through June 30, 2027, inclusive |
$ | 178,233.56 per month | $ | 36.09 | ||||
(if the first option to extend set forth in Paragraph 3.3 is exercised) | ||||||||
July 1, 2027 through September 30, 2027, inclusive |
$ | 187,261.99 per month | $ | 36.09 | ||||
October 1, 2027 through September 30, 2028, inclusive |
$ | 191,931.86 per month | $ | 36.99 | ||||
October 1, 2028 through September 30, 2029, inclusive |
$ | 196,757.40 per month | $ | 37.92 | ||||
October 1, 2029 through June 30, 2030, inclusive |
$ | 201,686.71 per month | $ | 38.87 | ||||
(if the second option to extend set forth in Paragraph 3.3 is exercised) | ||||||||
July 1, 2030 through September 30, 2030, inclusive |
$ | 201,686.71 per month | $ | 38.87 | ||||
October 1, 2030 through September 30, 2031, inclusive |
$ | 206,719.80 per month | $ | 39.84 | ||||
October 1, 2031 through September 30, 2032, inclusive |
$ | 211,856.66 per month | $ | 40.83 | ||||
October 1, 2032 through June 30, 2033, inclusive |
$ | 217,201.08 per month | $ | 41.86 |
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Existing Space: Suite 30031,540 rentable square feet
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Periods |
Basic Monthly Rent |
Annual Cost Per
Rentable Square Foot |
||||||
July 1, 2030 through September 30, 2030, inclusive |
$ | 103,214.65 per month | $ | 39.27 | ||||
October 1, 2030 through September 30, 2031, inclusive |
$ | 105,764.13 per month | $ | 40.24 | ||||
October 1, 2031 through September 30, 2032, inclusive |
$ | 108,366.18 per month | $ | 41.23 | ||||
October 1, 2032 through June 30, 2033, inclusive |
$ | 111,073.37 per month | $ | 42.26 |
Expiration Date means the following:
(i) with respect to the Existing Space, the date that is the last day of the month, nine (9) years and nine (9) months after the later of the following:
(a) the Commencement Date, if the Commencement Date occurs on the first day of a calendar month; or
(b) the first day of the first full calendar month following the Commencement Date, if the Commencement Date does not occur on the first day of a calendar month; and
(ii) with respect to the Additional Space, the date that is the last day of the month, nine (9) years and nine (9) months after the later of the following:
(a) the Expansion Date, if the Expansion Date occurs on the first day of a calendar month; or
(b) the first day of the first full calendar month following the Expansion Date, if the Expansion Date does not occur on the first day of a calendar month,
as such dates may be extended or sooner terminated in accordance with the Lease.
Premises means the following:
(i) prior to the Expansion Date:
(a) Suite 200 on the second floor of the Building, consisting of approximately 27,960 usable square feet and approximately 30,725 rentable square feet;
(b) Suite 300 on the third floor of the Building, consisting of approximately 28,701 usable square feet and approximately 31,540 rentable square feet; and
(c) Suite 400 on the fourth floor of the Building, consisting of approximately 28,701 usable square feet and approximately 31,540 rentable square feet,
comprising in the aggregate a total of approximately 85,362 usable square feet and approximately 93,805 rentable square feet; and
(ii) on and after the Expansion Date:
(a) Suite 150 on the first floor of the Building, consisting of approximately 4,590 usable square feet and approximately 5,276 rentable square feet;
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(b) Suite 160 on the first floor of the Building, consisting of approximately 12,415 usable square feet and approximately 14,270 rentable square feet;
(c) Suite 200 on the second floor of the Building, consisting of approximately 27,960 usable square feet and approximately 30,725 rentable square feet;
(d) Suite 300 on the third floor of the Building, consisting of approximately 28,701 usable square feet and approximately 31,540 rentable square feet; and
(e) Suite 400 on the fourth floor of the Building, consisting of approximately 28,701 usable square feet and approximately 31,540 rentable square feet,
comprising in the aggregate a total of approximately 102,367 usable square feet and approximately 113,351 rentable square feet,
shown on Appendix 1 to the attached Exhibit A , subject to final measurement and verification as set forth below in this definition. The Premises do not include, and Landlord reserves, the land and other area beneath the floor of the Premises, the pipes, ducts, conduits, wires, fixtures and equipment above the suspended ceiling of the Premises and the structural elements that serve the Premises or comprise the Building; provided, however, that, subject to Paragraphs 9.2 and 17.1, Tenant may, at Tenants sole cost and expense, install Tenants voice and data lines, wiring, cabling and facilities above the suspended ceiling of the Premises for the conduct by Tenant of business in the Premises for the Permitted Use. Landlords reservation includes the right to install, use, inspect, maintain, repair, alter and replace those areas and items and to enter the Premises in order to do so in accordance with and subject to Paragraph 9.3 . For all purposes of this Lease, the calculation of usable square feet contained within the Premises and the Building shall be subject to final measurement and verification by Landlords licensed architect, at Landlords sole cost and expense, according to ANSI/BOMA Standard Z65.1-2010 (or any successor standard), and the rentable square feet contained within the Premises and the Building shall be the quotient of the usable square feet so calculated divided by (i) 0.87 with respect to the Additional Space, and (ii) 0.91 with respect to the Existing Space, which measurement and verification may, at Tenants option and at Tenants sole cost and expense, be confirmed by Tenants licensed architect. (The immediately preceding sentence shall be the sole and exclusive method used for the measurement and calculation of usable and rentable square feet under this Lease for the Premises and the Building.) On request of Tenant, Landlord shall provide Tenant with a copy of Landlords architects verification and certification as to the actual usable and rentable square feet of the Premises prior to the Commencement Date. In the event of a variation between the square footage set forth above in this definition and the square footage set forth in such verification and certification, the Parties shall amend this Lease accordingly to conform to the square footage set forth in such verification and certification, amending each provision that is based on usable or rentable square feet, including, without limitation, Basic Monthly Rent, the Security Deposit, Tenants Parking Stall Allocation, Tenants Percentage of Operating Expenses, the TI Allowance and the TI AllowanceAdditional Space, and shall appropriately reconcile any payments already made pursuant to those provisions; provided, that if Landlords architect and Tenants architect disagree on the amount of usable or rentable square feet within the Premises and the Building, and such disagreement is not resolved within ten (10) business days after such measurement and verification is completed by Landlords architect, such disagreement shall be resolved by an independent, licensed architect mutually selected by the Parties, acting reasonably, the cost of which architect shall be shared equally by the Parties.
Security Deposit means an amount ($274,038.33) equal to the total aggregate amount of Basic Monthly Rent payable for each portion of the Premises during the first non-discounted calendar month for each such portion, which amount is subject to adjustment as set forth in the definition of Premises.
Tenants Parking Stall Allocation means the following:
(i) for the period prior to the Expansion Date, 384 parking stalls, based on 4.5 parking stalls per 1,000 usable square feet of the Premises having 85,362 usable square feet; and
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(ii) for the period on and after the Expansion Date, 461 parking stalls, based on 4.5 parking stalls per 1,000 usable square feet of the Premises having 102,367 usable square feet, which numbers of parking stalls are subject to adjustment as set forth in the definition of Premises and are inclusive of the reserved parking stalls described in Paragraph 19.1(a) .
Tenants Percentage of Operating Expenses means the following:
(i) for the period prior to the Expansion Date, 51.827 percent, which is the percentage determined by dividing the rentable square feet of the Premises (93,805 rentable square feet) by the rentable square feet of the Building (180,996 rentable square feet) (whether or not leased), multiplying the quotient by 100 and rounding to the third (3rd) decimal place; and
(ii) for the period on and after the Expansion Date, 62.626 percent, which is the percentage determined by dividing the rentable square feet of the Premises (113,351 rentable square feet) by the rentable square feet of the Building (180,996 rentable square feet) (whether or not leased), multiplying the quotient by 100 and rounding to the third (3rd) decimal place, which percentages are subject to adjustment as set forth in the definition of Premises .
4.
Parking
.
Paragraph 19.1(a)
of the Lease is revised to read as follows:
(a) Parking on the Property is provided generally to tenants of the Building on a non-reserved, first-come-first-served basis. During the Term, Landlord shall provide at least the same number of visitor parking spaces as are currently provided for the Building. Tenant and Tenants Occupants shall have the non-exclusive right (together with other tenants of the Building) without charge, other than as contemplated by Paragraph 5 with respect to Operating Expenses, to use a number of parking stalls located on the Property equal to Tenants Parking Stall Allocation only, and shall not use a number of parking stalls greater than Tenants Parking Stall Allocation (excluding de minimis , occasional excess use), unless prior consent has been given by Landlord; provided, however, that as part of Tenants Parking Stall Allocation, Landlord shall provide to Tenant, and mark with appropriate signage (at Tenants cost), sixteen (16) reserved, covered parking stalls; provided further, however, that if Tenant subleases to one subtenant a portion of the Premises greater than 15,000 rentable square feet, then as part of Tenants Parking Stall Allocation, Landlord shall provide to such subtenant, and mark with appropriate signage (at Tenants cost), two (2) additional reserved, covered parking stalls.
5. Improvement of Additional Space . Prior to the Expansion Date, Landlord shall improve the Additional Space in accordance with Exhibit A attached to the Lease. Landlord shall contribute an amount of $45.00 per usable square foot of the Additional Space ($765,225.00 based on 17,005 usable square feet) (the TI AllowanceAdditional Space ), the total amount of which shall be subject to adjustment as set forth in the definition of Premises in Paragraph 1 of the Lease (as amended by this Amendment), toward the costs incurred for the Tenant Improvements and Change Orders for the Additional Space, including, without limitation, painting, carpeting, tile, wall covering, light fixtures, plans, permits, insurance and architectural fees (but expressly excluding Tenants Property other than data and audiovisual cabling, for which Tenant shall be solely responsible); provided, however, that if all or any portion of the TI AllowanceAdditional Space is not used for the Additional Space on or before the date that is one (1) year after the Expansion Date, the TI AllowanceAdditional Space or such portion that is not used shall be lost and shall no longer be available to Tenant. In calculating the cost of Tenant Improvements and Change Orders for the Additional Space, Landlord shall give Tenant the benefit of any cash, trade and quantity discounts actually received by Landlord.
6. Description of Premises . The description of the Premises, as previously set forth on Appendix 1 attached to Exhibit A of the Lease, shall be as set forth on the attached Exhibit A .
7. Security Deposit . As set forth above, the amount of the Security Deposit shall be increased to $274,038.33. Therefore, concurrently with the execution and delivery of this Amendment, Tenant shall pay to Landlord such additional incremental amount as is necessary to cause the Security Deposit held by Landlord to equal $274,038.33.
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8. Enforceability . Each Party represents and warrants that:
(a) such Party was duly formed and is validly existing and in good standing under the laws of the state of its formation;
(b) such Party has the requisite power and authority under all applicable laws and its governing documents to execute, deliver and perform its obligations under this Amendment;
(c) the individual executing this Amendment on behalf of such Party has full power and authority under such Partys governing documents to execute and deliver this Amendment in the name of, and on behalf of, such Party and to cause such Party to perform its obligations under this Amendment;
(d) this Amendment has been duly authorized, executed and delivered by such Party; and
(e) this Amendment is the legal, valid and binding obligation of such Party, and is enforceable against such Party in accordance with its terms.
9. Brokerage Commissions . Except as may be set forth in one or more separate agreements between (i) Landlord and Landlords broker, or (ii) Landlord or Landlords broker and Tenants broker:
(a) Landlord represents and warrants to Tenant that no claim exists for a brokerage commission, finders fee or similar fee in connection with this Amendment based on any agreement made by Landlord; and
(b) Tenant represents and warrants to Landlord that no claim exists for a brokerage commission, finders fee or similar fee in connection with this Amendment based on any agreement made by Tenant.
Landlord shall indemnify, defend and hold harmless Tenant from and against any claim for a brokerage commission, finders fee or similar fee in connection with this Amendment based on an actual or alleged agreement made by Landlord. Tenant shall indemnify, defend and hold harmless Landlord from and against any claim for a brokerage commission, finders fee or similar fee in connection with this Amendment based on an actual or alleged agreement made by Tenant.
10. Entire Agreement . The Lease, as amended by this Amendment, exclusively encompasses the entire agreement of the Parties, and supersedes all previous negotiations, understandings and agreements between the Parties, whether oral or written, including, without limitation, any oral discussions, letters of intent and email correspondence. The Parties acknowledge and represent, by their signatures below, that the Parties have not relied on any representation, understanding, information, discussion, assertion, guarantee, warranty, collateral contract or other assurance, except those expressly set forth in the Lease and this Amendment, made by or on behalf of any other Party or any other person whatsoever, prior to the execution of this Amendment. The Parties waive all rights and remedies, at law or in equity, arising or which may arise as the result of a Partys reliance on such representation, understanding, information, discussion, assertion, guarantee, warranty, collateral contract or other assurance.
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11. General Provisions . In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. Except as set forth in this Amendment, the Lease is ratified and affirmed in its entirety. This Amendment shall inure to the benefit of, and be binding on, the Parties and their respective successors and assigns. This Amendment shall be governed by, and construed and interpreted in accordance with, the laws (excluding the choice of laws rules) of the state of Utah. This Amendment may be executed in any number of duplicate originals or counterparts, each of which when so executed shall constitute in the aggregate but one and the same document. Each exhibit referred to in, and attached to, this Amendment is an integral part of this Amendment and is incorporated in this Amendment by this reference.
[Remainder of page intentionally left blank; signatures on following page]
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THE PARTIES have executed this Amendment on the respective dates set forth below, to be effective as of the date first set forth above.
LANDLORD: | ||
SOJO STATION NORTH, LLC | ||
a Utah limited liability corporation | ||
By |
/s/ Andrew Bybee |
|
Print or Type Name of Signatory: | ||
Andrew Bybee |
||
Its | Manager | |
Date: 8/31/2017 | ||
TENANT: | ||
Lucid software Inc., | ||
a Delaware limited liability company | ||
By |
/s/ Karl Sun |
|
Print or Type Name of Signatory: | ||
Karl Sun |
||
Its | CEO | |
Date: 29 August 2017 |
-11-
EXHIBIT A
to
FIRST AMENDED AND RESTATED
FIRST AMENDMENT TO LEASE
DESCRIPTION OF PREMISES
(See attached)
Exhibit A-14
EXHIBIT B
to
SUBLEASE
SUBLEASED PREMISES
The Subleased Premises referred to in the foregoing instrument are shown on the attachments.
Exhibit B-1
Exhibit B-3
EXHIBIT C
to
SUBLEASE
WORK OF IMPROVEMENT
The Subleased Premises shall be improved in accordance with the below.
Exhibit C-1
Exhibti C-2
EXHIBIT D
to
SUBLEASE
SUBLEASE CONSENT AGREEMENT
The form of the Sublease Consent Agreement referred to in the foregoing instrument is attached.
Exhibit D-1
SUBLEASE CONSENT AGREEMENT
THIS AGREEMENT (this Agreement ) is entered into as of the 27 day of September, 2017, among the following:
(i) SOJO STATION NORTH, LLC , a Utah limited liability company ( Landlord ), whose address is 2801 North Thanksgiving Way, Suite 100, Lehi, Utah 84043, with a copy via email to vtaylor.re@gmail.com;
(ii) LUCID SOFTWARE INC. , a Delaware corporation ( Tenant ), whose address is 10355 South Jordan Gateway, Suite 300, South Jordan, Utah 84095; and
(iii) PLURALSIGHT, LLC , a Nevada limited liability company ( Subtenant ), whose address is 3400 North Ashton Boulevard, Suite 420, Lehi, Utah 84043.
(Landlord, Tenant and Subtenant are referred to in this Agreement collectively as the Parties , and individually as a Party .)
FOR GOOD AND VALUABLE CONSIDERATION , the receipt and sufficiency of which are acknowledged, the Parties agree as follows:
1. Definitions . As used in this Agreement, each of the following terms shall have the indicated meaning:
Lease means the Lease, dated October 19, 2016, as amended by the Amended and Restated First Amendment to Lease, dated August 10, 2017, both entered into between Landlord, as landlord, and Tenant, as tenant, copies of which are attached as Exhibit A .
Premises means the premises covered by the Lease.
Sublease means the Sublease, dated on or about the date of this Agreement, entered into between Tenant, as sublandlord, and Subtenant, as subtenant, covering the Subleased Premises, a copy of which is attached as Exhibit B .
Subleased Premises means a portion of the Premises, consisting of Suite 400 on the fourth floor of the Building, consisting of approximately 30,257 rentable square feet, and Suite 160 on the first floor of the Building, consisting of approximately 14,270 rentable square feet, comprising in the aggregate a total of approximately 44,527 rentable square feet, and shown on the attached Exhibit C .
2. Consent to Sublease; Representations and Warranties .
2.1 Consent to Sublease . Landlord consents to the subleasing by Tenant to Subtenant of the Subleased Premises; provided, however, that:
(a) such consent does not:
(i) relieve, release or discharge Tenant of any obligation to be paid or performed by Tenant under the Lease, including, without limitation, the payment of rent and other amounts when due under the Lease, whether occurring before or after such consent or the date of the Sublease, and Tenant will not be released from any liability under the Lease because of Landlords failure to give notice of default by Subtenant under or with respect to any of the provisions of the Lease, but rather Tenant and, with respect to the Subleased Premises (except as expressly set forth in the Sublease with respect to the amount of rent or security deposit payable), Subtenant shall be jointly and severally primarily liable for such payment and performance;
(ii) constitute consent by Landlord to, approval or ratification by Landlord of, or agreement by Landlord with, any particular provision of the Sublease or a representation or warranty by Landlord with respect to the Sublease, and Landlord shall not in any respect or for any purpose be bound or estopped by the Sublease; or
(iii) constitute a consent to any change, alteration, addition, improvement or repair to the Subleased Premises, including the installation of signage, which must be separately obtained from Landlord by Tenant in accordance with Paragraphs 9.2 or 19.2 (as the case may be) of the Lease;
(b) except as set forth in the Sublease, Subtenant may not further Sublease the Subleased Premises, allow the Subleased Premises to be used by others or assign, transfer, mortgage, encumber, pledge or hypothecate the Sublease or Subtenants interest in the Sublease, in whole or in part, without the prior written consent of Landlord in each instance, which consent may be withheld in accordance with the provisions of the Lease relating to assignment and subleasing of the Lease; this consent is not, and shall not be deemed or construed as, a consent to any future or other Sublease, assignment or transfer, or a consent to a Sublease term beyond the term of the Lease, or a renewal or extension of the Lease or the Sublease;
(c) such consent shall not be deemed or construed to be an assignment or partial assignment of the Lease, or, except to the extent expressly provided by this Agreement, if at all, to create any privity of contract between Landlord and Subtenant with respect to the Lease;
(d) such consent shall not be deemed or construed to modify, amend, waive or affect any term, condition or other provision of the Lease, waive any breach of the Lease or any of the rights or remedies of Landlord, enlarge or increase Landlords obligations or Tenants rights under the Lease, grant to Subtenant rights that are greater than those granted to Tenant under the Lease, or waive or affect Tenants obligations under the Lease, which shall continue to apply to the Premises and the occupants of the Premises as if the Sublease had not been made, with the Sublease remaining in all respects subject and subordinate to the Lease, as the same may be amended; if any conflict exists between the Lease or this Agreement and the Sublease (except, as to Subtenant, as expressly set forth in the Sublease with respect to the amount of rent or security deposit payable), then the Lease or this Agreement, as applicable, shall control and prevail;
(e) notwithstanding any provision of the Sublease to the contrary, Subtenant shall have no right to enforce any of Tenants rights under the Lease directly against Landlord, all of such rights being personal to Tenant;
(f) Tenant and Subtenant shall not amend the Sublease in any respect without the prior written approval of Landlord, and in no event shall any such amendment, whether or not approved by Landlord, affect or modify or be deemed to affect or modify the Lease in any respect;
(g) for the benefit of Landlord, Subtenant agrees that Subtenant will be fully and completely bound by each and every term of the Lease relating to Subtenants occupancy and use of the Subleased Premises, and, except as expressly set forth in the Sublease, Subtenant expressly assumes and agrees to perform and comply with every obligation of Tenant under the Lease as to the Subleased Premises, as if Subtenant were the tenant under the Lease with respect to the Subleased Premises, including, without limitation, Tenants obligation to indemnify Landlord in accordance with Paragraph 11.1 of the Lease and deliver financial statements in accordance with Paragraph 18.2 of the Lease; Subtenant acknowledges that Subtenant has examined and is familiar with all of the provisions of the Lease;
(h) Tenant shall be liable to Landlord for any default under the Lease, whether such default is caused by either or both Tenant and Subtenant or anyone claiming by, through or under either Tenant or Subtenant; subject to the notice and cure provisions given to Tenant and set forth in Paragraph 16.1 of the Lease, Landlord may proceed directly against Tenant without first exhausting Landlords remedies against Subtenant; on a default by Subtenant under the Sublease beyond the expiration of any applicable notice and cure period given to
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Subtenant in the Sublease, Landlord may proceed directly against Subtenant without first exhausting Landlords remedies against Tenant, or Landlord may proceed directly against Tenant and Subtenant simultaneously; therefore, such consent shall not be deemed to restrict or diminish any right that Landlord may have against Tenant pursuant to the Lease or against Subtenant pursuant to the Sublease (Landlord being a third-party beneficiary of the Lease), or at law or in equity for violation of the Lease or otherwise, including, without limitation, the right to enjoin or otherwise restrain any violation of the Lease by Subtenant, and Landlord may at any time enforce the Lease against either or both Tenant and, to the extent Subtenant has assumed the obligations under the Lease with respect to the Subleased Premises, Subtenant; any breach of the Lease by either Tenant or, to the extent Subtenant has assumed the obligations under the Lease with respect to the Subleased Premises, Subtenant will entitle Landlord to avail itself of any remedy set forth in the Lease in the event of such breach, as well as any other remedy available at law to Landlord;
(i) notwithstanding anything to the contrary contained in this Agreement, Landlord shall not be liable at any time for any cost or obligation of any kind arising in connection with the Sublease, including, without limitation, any failure of Tenant or Subtenant to perform any of its obligations under the Sublease, brokerage commissions or other charges or expenses, improvements to the Subleased Premises, or security required to be given by Subtenant under the Sublease; Tenant and Subtenant jointly and severally agree to indemnify, protect, defend and hold harmless Landlord from all claims, losses, liabilities, costs and expenses (including reasonable attorneys fees) that Landlord may incur as a result of any claim to pay any person any commission, finders fee or other charge in connection with the Sublease;
(j) notwithstanding anything to the contrary contained in the Sublease: (i) nothing in the Sublease shall expand the liability or obligations of Landlord, whether to Tenant, Subtenant or any other person, and Landlord withholds consent to anything in the Sublease that does expand or purports to expand the liability or obligations of Landlord; and (ii) Subtenant shall have no right to expand or relocate the Subleased Premises beyond the Premises, to extend or renew the term of the Sublease beyond the existing term of the Lease or to exercise any option to terminate, right of first offer or right of first refusal, regardless of whether Tenant may have any such right under the Lease, and Subtenant shall have no right to exercise Tenants rights thereunder; Subtenants sole remedy for any alleged or actual breach of its rights in connection with the Subleased Premises shall be solely and exclusively against Tenant; and
(k) pursuant and subject to Paragraph 10.3 of the Lease, concurrently with the execution and delivery of this Agreement, Tenant shall pay to Landlord all of Landlords reasonable and customary attorneys fees and costs incurred in connection with the Sublease and this Agreement.
2.2 Representations and Warranties . As an inducement for Landlord to give the foregoing consent, Tenant represents and warrants to Landlord that:
(a) the Lease was duly authorized, executed and delivered by Tenant, is in full force and effect, and constitutes the legal, valid and binding obligation of Tenant, enforceable in accordance with its terms;
(b) any improvements to be constructed on the Premises by Landlord have been completed and accepted by Tenant (subject to any punch list items to be completed by Landlord under the Lease and to any items warranted by Landlord under the Lease), and any tenant improvement allowance due to Tenant has been paid to Tenant in full;
(c) Tenant unconditionally accepts the Premises in their current as is condition and does not have any claim against Landlord for any defect, limitation or deficiency in the Premises (subject to any punch list items to be completed by Landlord under the Lease and to any items warranted by Landlord under the Lease), or any defenses against the enforcement of the Lease;
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(d) to Tenants knowledge, neither Landlord nor Tenant is in default in any manner in the performance of any of their respective obligations under the Lease, and no circumstance exists which, with the passage of time or the giving of notice or both, would constitute such a default; and
(e) except for the Sublease, Tenant has not assigned the Lease or Subleased or otherwise transferred or encumbered its interest under the Lease.
3. Payments under Sublease .
3.1 Payment to Landlord . As additional consideration for Landlords consent to the Sublease, Tenant irrevocably, absolutely and unconditionally conveys, transfers and assigns to Landlord all rent and other amounts due to Tenant under the terms of the Sublease, together with the right, power and authority to collect such rent and other amounts, subject to Paragraph 10.3 of the Lease; provided, however, that such conveyance, transfer and assignment shall not become effective unless and until, and shall automatically become effective on, a Tenant Default under the Lease. Therefore, notwithstanding any Sublease provision to the contrary, on receipt of written notice from Landlord that a Tenant Default has occurred under the Lease, Subtenant covenants to pay directly to Landlord without abatement, deduction, offset, prior notice or demand by Landlord all rent and other amounts payable to Tenant under the Sublease in lawful money of the United States at the address set forth above for Landlord or at such other place as Landlord may designate to Subtenant in writing, on or before the date due. To the extent of all rent and other amounts actually paid by Subtenant and received by Landlord, Tenant shall receive credit under the Lease against current amounts then payable by Tenant to Landlord under the Lease, and Subtenant shall receive credit under the Sublease for those amounts; provided, however, that the receipt by Landlord of any rent or other amounts from Subtenant shall not be deemed or construed as releasing Tenant from Tenants obligations under the Lease (except to the extent of such amounts actually received by Landlord) or the acceptance of Subtenant as a direct tenant; provided further, however, that if the rent actually received by Landlord from Subtenant under the Sublease exceeds the rent payable by Tenant under the Lease (calculated on a per rentable square foot basis if less than all of the Premises is Subleased), Landlord shall promptly remit fifty percent (50%) of such excess to Tenant in accordance with and subject to Paragraph 10.3 of the Lease (meaning that such excess shall be calculated after reimbursing Tenant for reasonable advertising expenses, brokerage commissions, tenant improvement costs and attorneys fees actually incurred by Tenant and payable to non-affiliated third parties in connection with such assignment or subleasing, all of which must be amortized over the applicable assignment or Sublease term). Landlord shall give Tenant prompt written notice if Subtenant fails to pay any monthly rent to Landlord when due under this Agreement, and no late charge or default interest shall be payable by Tenant on such monthly rent payable by Subtenant in such event if Tenant cures such failure within three (3) business days after the receipt of such notice from Landlord.
3.2 Consideration . Tenant and Subtenant each represent and warrant to, and covenant with, Landlord that the rent expressly set forth in the Sublease (which shall be paid to Landlord in accordance with Paragraph 3.1 of this Agreement) is the only rent or other consideration paid or to be paid by Subtenant to Tenant in connection with the Sublease or the Subleased Premises, and that no other rent or consideration has been paid or is to be paid by Subtenant to Tenant, including, without limitation, any money, property, services or anything else of value (including, without limitation, the payment of costs, cancellation of indebtedness, discounts, rebates or any other items). Landlord may, at its expense, following at least five (5) business days written notice to Tenant, audit and review Tenants records and accounts relating to the Sublease and the Subleased Premises at any time or from time to time during normal business hours. If such audit and review reveals that Landlord has received less than the amount owed pursuant to Paragraph 10.3 of the Lease, then Tenant shall pay on demand the reasonable cost of such audit and review and any additional rent or other sums owed to Landlord hereunder.
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4. [Intentionally omitted.]
5. Continuance of Sublease .
5.1 Continuance . Notwithstanding anything to the contrary contained in Paragraph 4 of this Agreement, if at any time prior to the expiration or sooner termination of the Sublease:
(a) the Lease expires or terminates for any reason (other than a termination under the provisions of the Lease relating to damage, destruction or condemnation), including, without limitation, as a result of a Tenant default, a rejection of the Lease in Tenant bankruptcy proceedings, a voluntary termination agreed to by Landlord and Tenant, or the expiration of the term of the Lease; or
(b) Tenants right to possession terminates by surrender, as a result of an unlawful detainer proceeding, or by any other cause, without termination of the Lease, then so long as Subtenant is not in default under its obligations under the Sublease beyond the expiration of any applicable notice and cure period given Subtenant in the Sublease, (i) Landlord and Subtenant agree to continue the Sublease without interruption with the same effect as if Landlord, as landlord, and Subtenant, as tenant, had entered into a lease as of the end of the Lease containing the same provisions as those contained in the Sublease for a term equal to the unexpired term of the Sublease, (ii) Subtenant shall not be made a party in any action or proceeding to terminate the Lease, or to remove or evict Tenant from the Premises, (iii) Subtenant shall have and enjoy, during the term of the Sublease, the quiet and undisturbed possession of the Subleased Premises against all persons claiming by, through or under Landlord, subject to all of the provisions of the Sublease, and (iv) such possession and the rights of Subtenant under the Sublease shall not be adversely affected by any default by Tenant under the Lease or any action taken by Landlord respect to any default by Tenant under the Lease.
5.2 Conditions on Continuance . On continuation of the Sublease:
(a) Subtenant shall attorn to Landlord as tenant, and Landlord shall accept such attornment, and Subtenant shall, within ten (10) days after the request of Landlord, confirm such attornment in writing;
(b) Landlord shall thereafter stand in the place and stead of Tenant under the Sublease, and all rent and other sums payable to Tenant under the Sublease, and all other obligations to be performed by Subtenant under the Sublease, shall continue to be paid and performed when due by Subtenant to Landlord; provided, however, that in no event will Landlord:
(i) be liable for any act, omission or default of Tenant under the Sublease, except to the extent that the act or omission is of a continuing nature that (A) existed as of the date of attornment, and (B) violate the obligations of Sublandlord under the Sublease; provided, however, that Landlord shall not be liable for any monetary damages accruing as a result of acts or omissions which occurred prior to the termination of the Lease;
(ii) be subject to any claims, offsets or defenses that Subtenant had or might have against Tenant, except to the extent that the act or omission is of a continuing nature that (A) existed as of the date of attornment, and (B) violate the obligations of Sublandlord under the Sublease; provided, however, that Landlord shall not be liable for any monetary damages accruing as a result of acts or omissions which occurred prior to the termination of the Lease;
(iii) be obligated to cure any default of Tenant that occurred prior to the time that Landlord succeeded to the interest of Tenant under the Sublease, to perform any obligation under the Sublease to have been paid or performed by Tenant prior to the giving of such notice, or for any construction, improvement or repair that is not the obligation of Landlord under the Lease;
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(iv) be bound by any payment of rent or other payment made by Subtenant to Tenant in advance of any periods reserved for that payment in the Sublease;
(v) be bound by any modification or amendment of the Sublease made without the written consent of Landlord; or
(vi) be liable for the return of any security deposit not actually received by Landlord;
(c) neither Landlords election under this Paragraph 5 nor its acceptance of any rent from Subtenant will be deemed a waiver by Landlord of any provisions of the Lease or this Agreement; and
(d) Landlord shall have the same remedies against Subtenant for the nonperformance of any agreement contained in the Sublease.
6. Services . Landlord may furnish services to the Subleased Premises requested by Subtenant other than or in addition to those to be provided under the Lease, and bill Subtenant directly for such services for the convenience of, and without notice to, Tenant. Subtenant shall pay to Landlord all amounts that may become due for such services on the due dates therefor. If a separate submeter is installed to measure any utility furnished to the Subleased Premises, then payment for the utility so furnished will be made by Subtenant directly to Landlord as and when billed, and the furnishing of such utility will be in accordance with and subject to all of the applicable provisions of the Lease. If Subtenant fails to pay any of the foregoing amounts in a timely manner, then Tenant shall pay such amount to Landlord on written demand as additional rent under the Lease, and the failure of Tenant to pay such amount in a timely manner shall be a default under the Lease. Therefore, both Tenant and Subtenant shall be and continue to be jointly and severally liable for all bills rendered by Landlord for charges incurred by or imposed on Subtenant for services rendered and materials supplied to the Subleased Premises.
7. Insurance . Subtenant shall, with respect to Subtenant and the Subleased Premises, carry the insurance policies required to be carried by Tenant pursuant to Paragraph 12 of the Lease and shall deliver evidence of such policies to Landlord prior to occupancy of the Subleased Premises by Subtenant. The insurance shall name Landlord as an additional insured or as a loss payee, as applicable, and provide that the policy will not be subject to cancellation or change except after at least thirty (30) days prior written notice to Landlord and Tenant.
8. No Modifications to Sublease . Neither Subtenant nor its successors or assigns shall enter into any agreement that modifies, surrenders or merges the Sublease without the prior written consent of Landlord. Any agreement made in contravention of the immediately preceding sentence shall not affect or be binding on Landlord.
9. Sale of Subleased Premises . The term Landlord as used in this Agreement means only the owner of the Subleased Premises during the term of such owners ownership, so that in the event of any sale or other transfer of Landlords interest in the Subleased Premises, Landlord will be relieved of all covenants and obligations of Landlord thereafter arising under this Agreement. The provisions of this Agreement, however, shall bind any subsequent owner of the Subleased Premises.
10. Estoppel Certificate . Subtenant shall, within ten (10) days after Landlords request, execute and deliver to Landlord an estoppel certificate in favor of Landlord and such other persons as Landlord shall reasonably request setting forth the following: (a) a ratification of the Sublease; (b) the commencement date and expiration date of the Sublease; (c) that the Sublease is in full force and effect and has not been assigned, modified, supplemented or amended (except by such writing as shall be stated); (d) that, to the current, actual knowledge of Subtenant, all conditions under the Sublease to be performed by Tenant have been satisfied or, in the alternative, those claimed by Subtenant to be unsatisfied; (e) that, to the current, actual knowledge of Subtenant, no defenses or offsets exist against the enforcement of the Sublease or, in the alternative, those claimed by Subtenant to exist; (f) the amount of advance rent, if any (or none if such is the case), paid by Subtenant; (g) the date to which rent has been paid; (h) the amount of any security deposit under the Sublease; and (i) such other factual information regarding the status of the Sublease as Landlord may reasonably request.
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11. Notices . Any notice or demand to be given by one Party to another under this Agreement shall be given in writing by personal service, telecopy (provided that a hard copy of any such notice has been dispatched by one of the other means for giving notice within twenty-four (24) hours after telecopying), express mail, Federal Express or any other similar form of courier or delivery service, or mailing in the United States mail, postage prepaid, certified and return receipt requested, and addressed to such Party as set forth at the outset of this Agreement. Any Party may change the address at which such Party desires to receive notice on written notice of such change to the other Party. Any such notice shall be deemed to have been given, and shall be effective, on delivery to the notice address then applicable for the Party to which the notice is directed; provided, however, that refusal to accept delivery of a notice or the inability to deliver a notice because of an address change that was not properly communicated shall not defeat or delay the giving of a notice. Notwithstanding any provision of the Sublease to the contrary, Landlord shall have no obligation to deliver to Subtenant any notice or copy of any notice given under the Lease, and no obligation to accept, consider or respond to any request, inquiry, demand or other communication from Subtenant, whether of a type described in the Lease, the Sublease or otherwise, except as expressly set forth in this Agreement. Tenant and Subtenant shall each, concurrently with the mailing of any default notice to the other under the Sublease, provide a copy of such notice to Landlord in accordance with this Paragraph.
12. Attorneys Fees . If any Party brings suit to enforce or interpret this Agreement, the prevailing Party shall be entitled to recover from the other Party or Parties the prevailing Partys reasonable attorneys fees and costs incurred in any such action or in any appeal from such action, in addition to the other relief to which the prevailing Party is entitled.
13. Waiver of Subrogation .
(a) Subtenant waives (with the intent that the waiver be effective against Subtenant itself and against any third party claiming by, through or under Subtenant, including any insurance company claiming by way of subrogation) all rights that Subtenant may have now or in the future against Landlord for compensation for any damage to or destruction of Subtenants property caused by fire or other casualty to the extent that Subtenant is or will be compensated by property insurance or would be but for a failure of Subtenant to maintain property insurance for the full replacement cost of Subtenants property (excluding a reasonable deductible) that is required to be carried by Subtenant pursuant to the Sublease; and
(b) Landlord waives (with the intent that the waiver be effective against Landlord itself and against any third party claiming by, through or under Landlord, including any insurance company claiming by way of subrogation) all rights that Landlord may have now or in the future against Subtenant for compensation for any damage to or destruction of the Building caused by fire or other casualty to the extent that Landlord is or will be compensated by property insurance or would be but for a failure of Landlord to maintain property insurance for the full replacement cost of the Building (excluding a reasonable deductible) that is required to be carried by Landlord pursuant to Paragraph 12.2(b) of the Lease.
14. Miscellaneous . This Agreement shall inure to the benefit of, and be binding on, the Parties and their respective successors and assigns, subject to the other provisions of this Agreement. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws (excluding the choice of laws rules) of the state of Utah. This Agreement may be executed in any number of duplicate originals or counterparts, each of which when so executed shall constitute in the aggregate but one and the same document. Each individual executing this Agreement represents and warrants that such individual has been duly authorized to execute and deliver this Agreement in the capacity and for the entity set forth where such individual signs. A modification of, or amendment to, any provision contained in this Agreement shall be effective only if the modification or amendment is in writing and signed by all of the Parties. Any oral representation or modification concerning this Agreement shall be of no force or effect. Each exhibit referred to in, and attached to, this Agreement is an integral part of this Agreement and is incorporated in this Agreement by this reference.
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THE PARTIES have executed this Agreement on the respective dates set forth below, to be effective as of the date first set forth above.
LANDLORD: | ||
SOJO STATION NORTH, LLC, | ||
a Utah limited liability company | ||
By |
/s/ Andrew Bybee |
|
Print or Type Name of Signatory: | ||
Andrew Bybee |
||
Its Manager | ||
Date 9/27/2017 |
Sublease Consent Agreement
Signatures-1
TENANT: | ||
LUCID SOFTWARE INC., | ||
a Delaware corporation | ||
By |
/s/ Karl Sun |
|
Print or Type Name of Signatory: | ||
Karl Sun |
||
Its CEO | ||
Date 9/26/2017 |
Sublease Consent Agreement
Signatures-2
SUBTENANT: | ||
PLURALSIGHT, LLC | ||
a Nevada limited liability company | ||
By |
/s/ James Budge |
|
Print or Type Name of Signatory: | ||
James Budge |
||
Its CFO | ||
Date 9/25/2017 |
Sublease Consent Agreement
Signatures-3
EXHIBIT A
to
SUBLEASE CONSENT AGREEMENT
LEASE
(See attached)
Sublease Consent Agreement
Exhibit A-1
EXHIBIT B
to
SUBLEASE CONSENT AGREEMENT
SUBLEASE
(See attached)
Sublease Consent Agreement
Exhibit B-1
EXHIBIT C
to
SUBLEASE CONSENT AGREEMENT
SUBLEASED PREMISES
(See attached)
Sublease Consent Agreement
Exhibit C-1
Sublease Consent Agreement
Exhibit C-2
Sublease Consent Agreement
Exhibit C-3
Exhibit 10.20
Execution Version
CREDIT AGREEMENT
dated as of
June 12, 2017
among
PLURALSIGHT HOLDINGS, LLC ,
as Holdings,
PLURALSIGHT, LLC,
as Borrower,
the Lenders Party Hereto,
GUGGENHEIM CORPORATE FUNDING, LLC,
as Administrative Agent and as Collateral Agent
and
GUGGENHEIM CORPORATE FUNDING, LLC,
as Sole Lead Arranger and as Sole Bookrunner
TABLE OF CONTENTS
Page | ||||||
ARTICLE I DEFINITIONS | 1 | |||||
Section 1.01 |
Defined Terms | 1 | ||||
Section 1.02 |
Classification of Loans and Borrowings | 56 | ||||
Section 1.03 |
Terms Generally | 56 | ||||
Section 1.04 |
Accounting Terms; GAAP | 56 | ||||
Section 1.05 |
Effectuation of Transactions | 57 | ||||
Section 1.06 |
Limited Conditionality Acquisition | 57 | ||||
Section 1.07 |
Certain Determinations | 58 | ||||
ARTICLE II THE CREDITS | 58 | |||||
Section 2.01 |
Commitments | 58 | ||||
Section 2.02 |
Loans and Borrowings | 58 | ||||
Section 2.03 |
Requests for Borrowings | 59 | ||||
Section 2.04 |
[Reserved] | 60 | ||||
Section 2.05 |
[Reserved] | 60 | ||||
Section 2.06 |
Funding of Borrowings | 60 | ||||
Section 2.07 |
Interest Elections | 61 | ||||
Section 2.08 |
Termination and Reduction of Commitments | 62 | ||||
Section 2.09 |
Repayment of Loans; Evidence of Debt | 62 | ||||
Section 2.10 |
Repayment of Term Loans | 63 | ||||
Section 2.11 |
Prepayment of Loans | 63 | ||||
Section 2.12 |
Fees | 74 | ||||
Section 2.13 |
Interest | 74 | ||||
Section 2.14 |
Alternate Rate of Interest | 75 | ||||
Section 2.15 |
Increased Costs | 76 | ||||
Section 2.16 |
Break Funding Payments | 77 | ||||
Section 2.17 |
Taxes | 77 | ||||
Section 2.18 |
Payments Generally; Pro Rata Treatment; Sharing of Setoffs | 81 | ||||
Section 2.19 |
Mitigation Obligations; Replacement of Lenders | 82 | ||||
Section 2.20 |
[Reserved] | 83 | ||||
Section 2.21 |
[Reserved] | 83 | ||||
Section 2.22 |
Defaulting Lenders | 83 | ||||
Section 2.23 |
Illegality | 84 |
TABLE OF CONTENTS
(Continued)
Page | ||||||
Section 2.24 |
Loan Modification Offers | 85 | ||||
ARTICLE III REPRESENTATIONS AND WARRANTIES | 86 | |||||
Section 3.01 |
Organization; Powers | 86 | ||||
Section 3.02 |
Authorization; Enforceability | 86 | ||||
Section 3.03 |
Governmental Approvals; No Conflicts | 86 | ||||
Section 3.04 |
Financial Condition; No Material Adverse Effect | 87 | ||||
Section 3.05 |
Properties | 87 | ||||
Section 3.06 |
Litigation and Environmental Matters | 87 | ||||
Section 3.07 |
Compliance with Laws | 88 | ||||
Section 3.08 |
Investment Company Status | 88 | ||||
Section 3.09 |
Taxes | 88 | ||||
Section 3.10 |
ERISA | 88 | ||||
Section 3.11 |
Disclosure | 89 | ||||
Section 3.12 |
Subsidiaries | 89 | ||||
Section 3.13 |
Intellectual Property; Licenses, Etc. | 89 | ||||
Section 3.14 |
Solvency | 90 | ||||
Section 3.15 |
Federal Reserve Regulations | 90 | ||||
Section 3.16 |
Use of Proceeds | 90 | ||||
Section 3.17 |
Anti-Corruption Laws and Sanctions | 90 | ||||
Section 3.18 |
Senior Indebtedness | 91 | ||||
Section 3.19 |
Security Documents | 91 | ||||
Section 3.20 |
Insurance | 92 | ||||
ARTICLE IV CONDITIONS | 92 | |||||
Section 4.01 |
Effective Date | 92 | ||||
Section 4.02 |
Each Credit Event | 93 | ||||
ARTICLE V AFFIRMATIVE COVENANTS | 94 | |||||
Section 5.01 |
Financial Statements and Other Information | 94 | ||||
Section 5.02 |
Notices of Material Events | 97 | ||||
Section 5.03 |
Information Regarding Collateral | 98 | ||||
Section 5.04 |
Existence; Conduct of Business | 98 | ||||
Section 5.05 |
Payment of Taxes, etc. | 98 | ||||
Section 5.06 |
Maintenance of Properties | 99 |
TABLE OF CONTENTS
(Continued)
Page | ||||||
Section 5.07 |
Insurance | 99 | ||||
Section 5.08 |
Books and Records; Inspection and Audit Rights | 99 | ||||
Section 5.09 |
Compliance with Laws | 100 | ||||
Section 5.10 |
Use of Proceeds | 100 | ||||
Section 5.11 |
Additional Subsidiaries | 100 | ||||
Section 5.12 |
Further Assurances | 101 | ||||
Section 5.13 |
Designation of Subsidiaries | 101 | ||||
Section 5.14 |
Certain Post-Closing Obligations | 102 | ||||
Section 5.15 |
Lines of Business | 102 | ||||
Section 5.16 |
Lenders Meetings | 102 | ||||
Section 5.17 |
Changes in Fiscal Periods | 103 | ||||
ARTICLE VI NEGATIVE COVENANTS | 103 | |||||
Section 6.01 |
Indebtedness; Certain Equity Securities | 103 | ||||
Section 6.02 |
Liens | 107 | ||||
Section 6.03 |
Fundamental Changes; Holdings Covenant | 109 | ||||
Section 6.04 |
Investments, Loans, Advances, Guarantees and Acquisitions | 111 | ||||
Section 6.05 |
Asset Sales | 113 | ||||
Section 6.06 |
Sale and Leaseback Transactions | 116 | ||||
Section 6.07 |
Restricted Payments; Certain Payments of Indebtedness | 116 | ||||
Section 6.08 |
Transactions with Affiliates | 120 | ||||
Section 6.09 |
Restrictive Agreements | 121 | ||||
Section 6.10 |
Financial Performance Covenants | 122 | ||||
ARTICLE VII EVENTS OF DEFAULT | 123 | |||||
Section 7.01 |
Events of Default | 123 | ||||
Section 7.02 |
Right to Cure | 126 | ||||
Section 7.03 |
Application of Proceeds | 127 | ||||
ARTICLE VIII ADMINISTRATIVE AGENT | 127 | |||||
Section 8.01 |
Appointment and Authority | 127 | ||||
Section 8.02 |
Rights as a Lender | 128 | ||||
Section 8.03 |
Exculpatory Provisions | 128 | ||||
Section 8.04 |
Reliance by Administrative Agent | 129 | ||||
Section 8.05 |
Delegation of Duties | 129 |
TABLE OF CONTENTS
(Continued)
Page | ||||||
Section 8.06 |
Resignation and Removal of Agents | 130 | ||||
Section 8.07 |
Non-Reliance on Administrative Agent and Other Lenders | 131 | ||||
Section 8.08 |
No Other Duties, Etc. | 131 | ||||
Section 8.09 |
Administrative Agent May File Proofs of Claim | 131 | ||||
Section 8.10 |
No Waiver; Cumulative Remedies; Enforcement | 132 | ||||
Section 8.11 |
Withholding Taxes | 133 | ||||
ARTICLE IX MISCELLANEOUS |
133 | |||||
Section 9.01 |
Notices | 133 | ||||
Section 9.02 |
Waivers; Amendments | 135 | ||||
Section 9.03 |
Expenses; Indemnity; Damage Waiver | 139 | ||||
Section 9.04 |
Successors and Assigns | 141 | ||||
Section 9.05 |
Survival | 148 | ||||
Section 9.06 |
Counterparts; Integration; Effectiveness | 148 | ||||
Section 9.07 |
Severability | 149 | ||||
Section 9.08 |
Right of Setoff | 149 | ||||
Section 9.09 |
Governing Law; Jurisdiction; Consent to Service of Process | 149 | ||||
Section 9.10 |
WAIVER OF JURY TRIAL | 150 | ||||
Section 9.11 |
Headings | 150 | ||||
Section 9.12 |
Confidentiality | 150 | ||||
Section 9.13 |
USA PATRIOT Act | 152 | ||||
Section 9.14 |
Release of Liens and Guarantees | 152 | ||||
Section 9.15 |
No Advisory or Fiduciary Responsibility | 153 | ||||
Section 9.16 |
Interest Rate Limitation | 154 |
SCHEDULES: | ||||
Schedule 2.01 |
| Commitments and Loans | ||
Schedule 3.03 |
| Government Approvals; No Conflicts | ||
Schedule 3.06 |
| Litigation and Environmental Matters | ||
Schedule 3.12 |
| Subsidiaries | ||
Schedule 3.20 |
| Insurance | ||
Schedule 5.14 |
| Certain Post-Closing Obligations | ||
Schedule 6.01 |
| Existing Indebtedness | ||
Schedule 6.02 |
| Existing Liens | ||
Schedule 6.04(e) |
| Existing Investments | ||
Schedule 6.08 |
| Existing Affiliate Transactions | ||
Schedule 6.09 |
| Existing Restrictions | ||
Schedule 9.01 |
| Notices | ||
EXHIBITS: | ||||
Exhibit A | | Form of Assignment and Assumption | ||
Exhibit B | | Form of Guarantee Agreement | ||
Exhibit C | | Form of Perfection Certificate | ||
Exhibit D | | Form of Collateral Agreement | ||
Exhibit E | | Form of Master Intercompany Note | ||
Exhibit F | | Form of Compliance Certificate | ||
Exhibit G | | Form of Solvency Certificate | ||
Exhibit H | | Form of Closing Certificate | ||
Exhibit I | | Form of Specified Discount Prepayment Notice | ||
Exhibit J | | Form of Specified Discount Prepayment Response | ||
Exhibit K | | Form of Discount Range Prepayment Notice | ||
Exhibit L | | Form of Discount Range Prepayment Offer | ||
Exhibit M | | Form of Solicited Discounted Prepayment Notice | ||
Exhibit N | | Form of Solicited Discounted Prepayment Offer | ||
Exhibit O | | Form of Acceptance and Prepayment Notice | ||
Exhibit P-1 | | Form of United States Tax Compliance Certificate 1 | ||
Exhibit P-2 | | Form of United States Tax Compliance Certificate 2 | ||
Exhibit P-3 | | Form of United States Tax Compliance Certificate 3 | ||
Exhibit P-4 | | Form of United States Tax Compliance Certificate 4 | ||
Exhibit Q | | Form of Note | ||
Exhibit R | | Form of Borrowing Request |
CREDIT AGREEMENT dated as of June 12, 2017 (this Agreement ), among PLURALSIGHT HOLDINGS , LLC , a Delaware limited liability company ( Pluralsight Holdings ), PLURALSIGHT , LLC , a Nevada limited liability company (the Borrower ), the Lenders party hereto and GUGGENHEIM CORPORATE FUNDING , LLC ( Guggenheim ), as Administrative Agent and Collateral Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms .
As used in this Agreement, the following terms have the meanings specified below:
ABR when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
Acceptable Discount has the meaning assigned to such term in Section 2.11(a)(ii)(D)(2).
Acceptable Prepayment Amount has the meaning assigned to such term in Section 2.11(a)(ii)(D)(3).
Acceptance and Prepayment Notice means an irrevocable written notice from the Borrower pursuant to Section 2.11(a)(ii)(D)(2) substantially in the form of Exhibit O.
Acceptance Date has the meaning specified in Section 2.11(a)(ii)(D)(2).
Accepting Lenders has the meaning specified in Section 2.24(a).
Acquired EBITDA means, with respect to any Acquired Entity or Business or any Converted Restricted Subsidiary (any of the foregoing, a Pro Forma Entity ) for any period as the amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined as if references to Holdings, the Borrower and its Restricted Subsidiaries in the definition of Consolidated EBITDA were references to such Pro Forma Entity and its subsidiaries that will become Restricted Subsidiaries), all as determined on a consolidated basis for such Pro Forma Entity.
Acquired Entity or Business has the meaning given such term in the definition of Consolidated EBITDA.
Adjusted LIBO Rate means, with respect to any Eurodollar Borrowing for any Interest Period, the greater of (a) (i) an interest rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the LIBO Rate for such Eurodollar Borrowing in effect for such Interest Period divided by (ii) 1 minus the Statutory Reserves (if any) for such Eurodollar Borrowing for such Interest Period and (b) with regard to Term Loans only, 1.00%.
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Administrative Agent means Guggenheim, in its capacity as administrative agent hereunder and under the other Loan Documents, and its successors in such capacity as provided in Article VIII.
Administrative Questionnaire means an administrative questionnaire in a form supplied by the Administrative Agent.
Affected Class has the meaning specified in Section 2.24(a).
Affiliate means, with respect to a specified Person, another Person that directly or indirectly Controls or is Controlled by or is under common Control with the Person specified; provided that, for purposes of clause (b) in the proviso in the definition of Required Lenders and Required Revolving Lenders, Affiliates includes Guggenheim Partners Investment Management LLC and any of its Affiliates or managed funds or accounts.
Affiliated Debt Fund means any Affiliated Lender that is a bona fide diversified debt fund primarily engaged in, or that advises funds or other investment vehicles that are primarily engaged in, making, purchasing, holding or otherwise investing in commercial loans, bonds and similar extensions of credit or securities in the ordinary course.
Affiliated Lender means, at any time, any Lender that is the Sponsor or an Affiliate of the Sponsor (other than Holdings, the Borrower or any of their respective Subsidiaries) at such time.
Agent means the Administrative Agent, the Collateral Agent, the Lead Arranger, the Bookrunner and any permitted successors and assigns in such capacity, and Agents means two or more of them.
Agent Parties has the meaning given to such term in Section 8.01(c).
Alternate Base Rate means, for any day, a rate per annum equal to the highest of (a) the per annum rate publicly quoted from time to time by The Wall Street Journal as the Prime Rate in the United States (or, if The Wall Street Journal ceases quoting a prime rate of the type described, either (i) the per annum rate quoted as the base rate on such corporate loans in a different national publication (as selected by the Administrative Agent) or (ii) the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled Selected Interest Rates as the bank prime loan rate or its equivalent), (b) the Federal Funds Effective Rate (but not less than zero) in effect on such day plus 1/2 of 1.00%, and (c) the Adjusted LIBO Rate (taking into account the 1.00% floor therein solely as it applies to Term Loans) for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.00%. Any change in the Alternate Base Rate due to a change in such Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective on the effective date of such change in the Alternate Base Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, as the case may be.
Anti-Corruption Laws means all laws, rules, and regulations of any jurisdiction applicable to Holdings, the Borrower or any of their respective Subsidiaries from time to time concerning or relating to bribery or corruption, including without limitation the United States Foreign Corrupt Practices Act of 1977, as amended, the UK Bribery Act 2010 and other similar legislation in any other jurisdictions.
2
Applicable Account means, with respect to any payment to be made to the Administrative Agent hereunder, the account specified by the Administrative Agent from time to time for the purpose of receiving payments of such type.
Applicable Discount has the meaning assigned to such term in Section 2.11(a)(ii)(C)(2).
Applicable Percentage means, at any time with respect to any Revolving Lender, the percentage of the aggregate Revolving Commitments represented by such Lenders Revolving Commitment at such time (or, if the Revolving Commitments have terminated or expired, such Lenders share of the total Revolving Exposure at that time); provided that, at any time any Revolving Lender shall be a Defaulting Lender, Applicable Percentage shall mean the percentage of the total Revolving Commitments (disregarding any such Defaulting Lenders Revolving Commitment) represented by such Lenders Revolving Commitment. If the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, giving effect to any assignments pursuant to this Agreement and to any Lenders status as a Defaulting Lender at the time of determination.
Applicable Rate means, for any day, (a) 7.50% per annum, in the case of an ABR Loan, or (b) 8.50% per annum, in the case of a Eurodollar Loan, a portion of which, in each case, may be payable-in-kind as set forth in Section 2.13(d).
Approved Bank has the meaning assigned to such term in the definition of the term Permitted Investments.
Approved Foreign Bank has the meaning assigned to such term in the definition of Permitted Investments.
Approved Fund means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or investing in commercial loans and similar extensions of credit in the ordinary course of its activities and that is administered, advised or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages a Lender.
Assignment and Assumption means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any Person whose consent is required by Section 8.04), substantially in the form of Exhibit A or any other form reasonably approved by the Administrative Agent.
Auction Agent means (a) the Administrative Agent or (b) any other financial institution or advisor employed by the Borrower (whether or not an Affiliate of the Administrative Agent) to act as an arranger in connection with any Discounted Term Loan Prepayment pursuant to Section 2.11(a)(ii)(A); provided that the Borrower shall not designate the Administrative Agent as the Auction Agent without the written consent of the Administrative Agent (it being understood that the Administrative Agent shall be under no obligation to agree to act as the Auction Agent).
Available Amount means, as of any date of determination, a cumulative amount equal to (without duplication):
(a) (x) prior to September 30, 2019, $0 and (y) on or after September 30, 2019, $10,000,000 (the Starter Basket ), plus
3
(b) the sum of an amount (which amount shall not be less than zero) equal to the sum of Excess Cash Flow (but not less than zero in any period) for the fiscal year of Holdings ending on December 31, 2019 and Excess Cash Flow for each succeeding completed fiscal year as of such date, in each case, that was not required to be offered to prepay Term Loan Borrowings pursuant to Section 2.11(d), without giving effect to any reduction set forth in the proviso to such Section (the Retained ECF Builder Basket ), plus
(c) without duplication with clause (e) below and to the extent not already included in the calculation of the Consolidated Net Income of Holdings, returns, profits, distributions and similar amounts received in cash or Permitted Investments by the Borrower and its Restricted Subsidiaries on Investments made using the Available Amount (not to exceed the original amount of such Investments made using the Available Amount), plus
(d) Investments of the Borrower or any of its Restricted Subsidiaries in any Unrestricted Subsidiary made using the Available Amount that has been re-designated as a Restricted Subsidiary or that has been merged or consolidated with or into a Loan Party or any of its Restricted Subsidiaries (up to the lesser of (i) the fair market value determined in good faith by the Borrower of the Investments of the Borrower and its Restricted Subsidiaries in such Unrestricted Subsidiary at the time of such re-designation or merger or consolidation and (ii) the fair market value determined in good faith by the Borrower of the original Investment by the Borrower and its Restricted Subsidiaries in such Unrestricted Subsidiary made using the Available Amount), plus
(e) without duplication with clause (c) above and to the extent not already included in the calculation of the Consolidated Net Income of Holdings, the Net Proceeds of a sale or other Disposition of (i) any Unrestricted Subsidiary (including from the issuance of stock of an Unrestricted Subsidiary) received by Holdings, the Borrower or any Restricted Subsidiary or (ii) Investments made using the Available Amount (not to exceed the original amount of such Investments made using the Available Amount), plus
(f) [reserved], plus
(g) [reserved], plus
(h) the aggregate amount of any Retained Declined Proceeds.
Available Equity Amount means a cumulative amount equal to (without duplication of any amount included in the Available Amount):
(a) the Net Proceeds of new public or private issuances of Qualified Equity Interests (excluding Qualified Equity Interest the proceeds of which will be applied as Cure Amounts) of any parent of the Borrower which are contributed in cash to the Borrower, to the extent Not Otherwise Applied, plus
(b) capital contributions received by the Borrower after the Effective Date in cash, plus
(c) [reserved], plus
(d) returns, profits, distributions and similar amounts received in cash or Permitted Investments by the Borrower or any Restricted Subsidiary on Investments made using the Available Equity Amount (not to exceed the original amount of such Investments made using the Available Equity Amount).
4
Bankruptcy Code means Title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors.
Board of Directors means, with respect to any Person, (a) in the case of any corporation, the board of directors of such Person or any committee thereof duly authorized to act on behalf of such board, (b) in the case of any limited liability company, the board of managers, board of directors, manager or managing member of such Person or the functional equivalent of the foregoing or any committee thereof duly authorized to act on behalf of such board, manager or managing member, (c) in the case of any partnership, the board of directors or board of managers of the general partner of such Person and (d) in any other case, the functional equivalent of the foregoing.
Board of Governors means the Board of Governors of the Federal Reserve System of the United States of America.
Bookrunner means Guggenheim and any permitted successors and assigns.
Borrower has the meaning assigned to such term in the preliminary statements hereto.
Borrower Materials has the meaning assigned to such term in Section 5.01.
Borrower Offer of Specified Discount Prepayment means the offer by the Borrower to make a voluntary prepayment of Term Loans at a Specified Discount to par pursuant to Section 2.11(a)(ii)(B).
Borrower Solicitation of Discounted Prepayment Offers means the solicitation by the Borrower of offers for, and the subsequent acceptance, if any, by a Term Lender of, a voluntary prepayment of Term Loans at a discount to par pursuant to Section 2.11(a)(ii)(D).
Borrower Solicitation of Discount Range Prepayment Offers means the solicitation by the Borrower of offers for, and the corresponding acceptance by a Term Lender of, a voluntary prepayment of Term Loans at a specified range at a discount to par pursuant to Section 2.11(a)(ii)(C).
Borrowing means Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.
Borrowing Minimum means $250,000.
Borrowing Multiple means $250,000.
Borrowing Request means a request by the Borrower for a Borrowing in accordance with Section 2.03.
Business Day means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by Requirements of Law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term Business Day shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
5
Capital Lease Obligations of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP; provided , that all obligations of any Person that are or would be characterized as an operating lease as determined in accordance with GAAP as in effect on the Effective Date (whether or not such operating lease was in effect on such date) shall continue to be accounted for as an operating lease (and not as a Capitalized Lease or Capital Lease Obligation) for purposes of this Agreement regardless of any change in GAAP following the Effective Date that would otherwise require such obligation to be recharacterized as a Capital Lease Obligation, to the extent that financial reporting shall not be affected hereby. For purposes of Section 6.02, a Capital Lease Obligation shall be deemed to be secured by a Lien on the property being leased and such property shall be deemed to be owned by the lessee.
Capitalized Leases means all leases that have been or should be, in accordance with GAAP as in effect on the Effective Date, recorded as capitalized leases; provided that for all purposes hereunder the amount of obligations under any Capitalized Lease shall be the amount thereof accounted for as a liability in accordance with GAAP.
Capitalized Software Expenditures means, for any period, the aggregate amount of all expenditures (whether paid in cash or accrued as liabilities) by Holdings, the Borrower and its Restricted Subsidiaries during such period in respect of purchased software or internally developed software and software enhancements that, in conformity with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of Holdings, the Borrower and its Restricted Subsidiaries.
Cash Management Obligations means (a) obligations of Holdings, the Borrower or any Subsidiary in respect of any overdraft and related liabilities arising from treasury, depository, cash pooling arrangements and cash management services or any automated clearing house transfers of funds and (b) other obligations in respect of netting services, employee credit or purchase card programs and similar arrangements.
Casualty Event means any event that gives rise to the receipt by the Borrower or any Subsidiary of any insurance proceeds or condemnation awards in respect of any equipment, fixed assets or real property (including any improvements thereon) to replace or repair such equipment, fixed assets or real property.
CFC means a controlled foreign corporation within the meaning of Section 957 of the Code.
CFC Holding Company means shall mean any Domestic Subsidiary (including a disregarded entity for U.S. federal income tax purposes) that owns no material assets (held directly or through Subsidiaries) other than Equity Interests of one or more CFCs or Indebtedness of such CFCs.
Change in Law means: (a) the adoption of any rule, regulation, treaty or other law after the date of this Agreement, (b) any change in any rule, regulation, treaty or other law or in the administration, interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement, including, for the avoidance of doubt (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all rules, regulations, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank of International Settlements, the Basel
6
Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall, in each case, be deemed to be a Change in Law, to the extent enacted, adopted, promulgated or issued after the date of this Agreement, but only to the extent such rules, regulations, or published interpretations or directives are applied to Holdings and its Subsidiaries by the Administrative Agent or any Lender in substantially the same manner as applied to other similarly situated borrowers under comparable syndicated credit facilities, including, without limitation, for purposes of Section 2.15.
Change of Control means (a) prior to an IPO, Insight shall cease to (i) own securities representing at least 15% (determined on a fully diluted basis), in the aggregate, of economic interests of Holdings or (ii) maintain control of the approval rights of the Requisite Investors (as defined in the Holdings LLC Agreement), (b)(i) the failure of Holdings and/or Pluralsight Management, to own, collectively, all of the Equity Interests of the Borrower or (ii) so long as Pluralsight Management owns any Equity Interests in the Borrower, the failure of Holdings to own all of the Equity Interests of Pluralsight Management, (c) prior to an IPO, the failure by the Permitted Holders to own, directly or indirectly through one or more holding companies, beneficially and of record, Equity Interests in Holdings representing at least a majority of the aggregate ordinary voting power for the election of members of the Board of Directors of Holdings represented by the issued and outstanding Equity Interests in Holdings, unless the Permitted Holders (directly or indirectly, including through one of more holding companies) otherwise have the right (pursuant to contract, proxy, ownership of Equity Interests or otherwise), directly or indirectly, to designate, nominate or appoint (and do so designate, nominate or appoint) a majority of the Board of Directors of Holdings, (d) after an IPO, the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group, other than the Permitted Holders (directly or indirectly, including through one or more holding companies), of Equity Interests representing 35% or more of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests in Holdings and the percentage of the aggregate ordinary voting power so held is greater than the percentage of the aggregate ordinary voting power represented by the Equity Interests in Holdings or any other Loan Party held by the Permitted Holders, unless the Permitted Holders (directly or indirectly, including through one of more holding companies) otherwise have the right (pursuant to contract, proxy or otherwise), directly or indirectly, to designate, nominate or appoint (and do so designate, nominate or appoint) a majority of the Board of Directors of Holdings, or (e) the occurrence of a Change of Control (or similar event, however denominated), as defined in the documentation governing any Junior Financing that is Material Indebtedness.
For purposes of this definition, (i) beneficial ownership shall be as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act, (ii) the phrase Person or group is within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such Person or group and its subsidiaries and any Person acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and (iii) if any Person or group includes one or more Permitted Holders, the issued and outstanding Equity Interests of Holdings or the Borrower, as applicable, directly or indirectly owned by the Permitted Holders that are part of such Person or group shall not be treated as being owned by such Person or group for purposes of determining whether clause (d) of this definition is triggered).
Class when used in reference to (a) any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Other Revolving Loans, Initial Term Loans or Other Term Loans, (b) any Commitment, refers to whether such Commitment is a Revolving Commitment, Other Revolving Commitment or Other Term Commitment and (c) any Lender, refers to whether such Lender has a Loan or Commitment with respect to a particular Class of Loans or Commitments. Other Term Commitments, Other Term Loans and Other Revolving Commitments (and the Other Revolving Loans made pursuant thereto) that have different terms and conditions shall be construed to be in different Classes.
7
Code means the Internal Revenue Code of 1986, as amended from time to time.
Collateral means any and all assets, whether real or personal, tangible or intangible, on which Liens are purported to be granted pursuant to the Security Documents as security for the Secured Obligations.
Collateral Agent has the meaning given to such term in Section 8.01(b) and its successors in such capacity as provided in Article VIII.
Collateral Agreement means the Collateral Agreement among the Borrower, each other Loan Party and the Collateral Agent, substantially in the form of Exhibit D.
Collateral and Guarantee Requirement means, at any time, the requirement that:
(a) the Administrative Agent shall have received from (i) Holdings, the Borrower and each of the Restricted Subsidiaries (other than any Excluded Subsidiary) either (x) a counterpart of the Guarantee Agreement duly executed and delivered on behalf of such Person or (y) in the case of any Person that becomes a Loan Party after the Effective Date (including by ceasing to be an Excluded Subsidiary), a supplement to the Guarantee Agreement, in substantially the form specified therein, duly executed and delivered on behalf of such Person and (ii) Holdings, the Borrower and each Subsidiary Loan Party either (x) a counterpart of the Collateral Agreement duly executed and delivered on behalf of such Person or (y) in the case of any Person that becomes a Subsidiary Loan Party after the Effective Date (including by ceasing to be an Excluded Subsidiary), a supplement to the Collateral Agreement and any other documents or certificates required by the terms thereof by the dates required pursuant to the terms thereof, in each case, in substantially the form specified therein, duly executed and delivered on behalf of such Person, in each case under this clause (a) together with, in the case of any such Loan Documents executed and delivered after the Effective Date, to the extent reasonably requested by the Administrative Agent, opinions and documents of the type referred to in Sections 4.01(b) and 4.01(d);
(b) all outstanding Equity Interests of the Borrower and each Restricted Subsidiary (other than any Equity Interests constituting Excluded Assets) owned by or on behalf of any Loan Party, shall have been pledged pursuant to the Collateral Agreement, and the Administrative Agent shall have received certificates, if any, or other instruments, if any, representing all such Equity Interests to the extent constituting Certificated Securities (other than such Equity Interests constituting Excluded Assets), together with undated stock powers or other instruments of transfer with respect thereto endorsed in blank;
(c) if any Indebtedness for borrowed money of Holdings, the Borrower or any Subsidiary in a principal amount of $500,000 or more is owing by such obligor to any Loan Party and such Indebtedness shall be evidenced by a promissory note, such promissory note shall be pledged pursuant to the Collateral Agreement, and the Administrative Agent shall have received all such promissory notes, together with undated instruments of transfer with respect thereto endorsed in blank; provided , however , that the foregoing delivery requirement with respect to any intercompany indebtedness may be satisfied by delivery of an omnibus or global intercompany note executed by all Loan Parties as payees and all such obligors as payors in the form of the Master Intercompany Note;
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(d) all certificates, agreements, documents and instruments, including Uniform Commercial Code financing statements and Intellectual Property Security Agreements required by this Agreement, the Security Documents, Requirements of Law and reasonably requested by the Administrative Agent to be filed, delivered, registered or recorded to create the Liens intended to be created by the Security Documents and perfect such Liens to the extent required by, and with the priority required by, this Agreement, the Security Documents and the other provisions of the term Collateral and Guarantee Requirement, shall have been filed, registered or recorded or delivered to the Administrative Agent for filing, registration or recording;
(e) the Administrative Agent shall have received (i) counterparts of a Mortgage with respect to each Material Real Property duly executed and delivered by the record owner of such Mortgaged Property (if the Mortgaged Property is in a jurisdiction that imposes a mortgage recording or similar tax is imposed on the amount secured by such Mortgage, then the amount secured by such Mortgage shall be limited to the book value of such Mortgaged Property, as reasonably determined by the Borrower), (ii) a policy or policies of title insurance (or marked unconditional commitment to issue such policy or policies) issued by a nationally recognized title insurance company insuring the Lien of each such Mortgage as a first priority Lien on the Mortgaged Property described therein, free of any other Liens except as expressly permitted by Section 6.02, together with such customary lenders endorsements (other than a creditors rights endorsement) as the Administrative Agent may reasonably request to the extent available in the applicable jurisdiction at commercially reasonable rates (it being agreed that the Administrative Agent shall accept zoning reports from a nationally recognized zoning company in lieu of zoning endorsements to such title insurance policies), in an amount equal to the fair market value of such Mortgaged Property or as otherwise reasonably agreed by the parties; provided that in no event will the Borrower be required to obtain independent appraisals of such Mortgaged Properties, unless required by FIRREA, (iii) a completed Life-of-Loan Federal Emergency Management Agency standard flood hazard determination with respect to each Mortgaged Property, and if any Mortgaged Property is located in an area determined by the Federal Emergency Management Agency (or any successor agency) to be located in special flood hazard area, a duly executed notice about special flood hazard area status and flood disaster assistance and evidence of such flood insurance as provided in Section 5.07(b), (iv) opinions, addressed to the Administrative Agent and the Secured Parties, from counsel qualified to opine in each jurisdiction where a Mortgaged Property is located regarding the enforceability of the Mortgage such other matters as may be in form and substance satisfactory to the Administrative Agent, (v) a survey or existing survey together with a no change affidavit of such Mortgaged Property, in compliance with the 2011 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys and otherwise satisfactory to the Administrative Agent, and (vi) evidence of payment of title insurance premiums and expenses and all recording, mortgage, transfer and stamp taxes and fees payable in connection with recording the Mortgage, any amendments thereto and any fixture filings in appropriate county land office(s); and
(f) each of the Loan Parties shall have entered into Control Agreements with respect to each deposit, securities, commodity or similar account maintained by such Person (other than (x) any payroll account so long as such payroll account operates or is treated as a zero balance account, (y) petty cash accounts, amounts on deposit in which do not exceed $250,000 in the aggregate at any one time (determined at the close of any Business Day) and (z) withholding tax and fiduciary accounts (such excluded accounts enumerated in clauses (x) through (z), Excluded Accounts )) as of and after the Effective Date. It is agreed and understood that the Loan Parties shall have until the date that is (i) ninety (90) days following the Effective Date (or such later date as may be agreed to by the Administrative Agent in its sole discretion) to comply with the provisions of this clause (f) with regard to accounts (other than Excluded Accounts) of the Loan
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Parties existing on the Effective Date and (ii) ninety (90) days following the closing date of a Permitted Acquisition (or such later date as may be agreed to by the Administrative Agent in its sole discretion) to comply with the provisions hereof with regard to accounts (other than Excluded Accounts) acquired by the Loan Parties in connection with any such Permitted Acquisition.
Notwithstanding the foregoing provisions of this definition or anything in this Agreement or any other Loan Document to the contrary, (a) the foregoing provisions of this definition shall not require the creation or perfection of pledges of or security interests in, or the obtaining of title insurance, legal opinions or other deliverables with respect to, particular assets of the Loan Parties, or the provision of Guarantees by any Subsidiary, if the Administrative Agent and the Borrower agree in writing that the cost, burden, difficulty or consequence of creating or perfecting such pledges or security interests in such assets, or obtaining such title insurance, legal opinions or other deliverables in respect of such assets, or providing such Guarantees (taking into account any material adverse tax consequences to Holdings and its Affiliates (including the imposition of withholding or other material taxes)), outweighs the benefits to be obtained by the Lenders therefrom; (b) Liens required to be granted from time to time pursuant to the term Collateral and Guarantee Requirement shall be subject to exceptions and limitations set forth in the Security Documents; (c) in no event shall any Loan Party be required to complete any filings or other action with respect to the perfection of security interests in any jurisdiction outside of the United States, and no actions in any non-U.S. jurisdiction or required by the laws of any non-U.S. jurisdiction shall be required to be taken to create any security interests in assets located or titled outside of the United States (including any Intellectual Property governed by or arising or existing under the laws of any jurisdiction other than the United States of America, any State thereof or the District of Columbia) or to perfect or make enforceable any security interests in any such assets (it being understood that there shall be no security agreements or pledge agreements governed under the laws of any non-U.S. jurisdiction); (d) in no event shall any Loan Party be required to complete any filings or other action with respect to perfection of security interests in assets subject to certificates of title beyond the filing of UCC financing statements; (e) other than the filing of UCC financing statements and the delivery of the Master Intercompany Note, no perfection shall be required with respect to promissory notes evidencing debt for borrowed money in a principal amount of less than $500,000; (f) in no event shall any Loan Party be required to complete any filings or other action with respect to security interests in Intellectual Property beyond the filing of UCC financing statements and the filing of Intellectual Property Security Agreements with the United States Patent and Trademark Office or the United States Copyright Office; (g) no actions shall be required to perfect a security interest in letter of credit rights (other than the filing of UCC financing statements); and (h) in no event shall the Collateral include any Excluded Assets. The Administrative Agent may grant extensions of time for the creation and perfection of security interests in or the obtaining of title insurance, legal opinions or other deliverables with respect to particular assets or the provision of any Guarantee by any Subsidiary (including extensions beyond the Effective Date or in connection with assets acquired, or Subsidiaries formed or acquired, after the Effective Date) and any other obligations under this definition where it determines that such action cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required to be accomplished by this Agreement or the Security Documents.
Commitment means with respect to any Lender, its Revolving Commitment, Other Revolving Commitment of any Class, Initial Term Commitment, Other Term Commitment of any Class or any combination thereof (as the context requires).
Commitment Fee Percentage means, for any day, 0.50% per annum.
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
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Compliance Certificate means the certificate required to be delivered pursuant to Section 5.01(e).
Consolidated EBITDA means, for any period, Consolidated Net Income for such period, plus :
(a) without duplication and to the extent already deducted (and not added back) in arriving at such Consolidated Net Income, the sum of the following amounts for such period:
(i) total interest expense and, to the extent not reflected in such total interest expense, the sum of (A) premium payments, debt discount, fees, charges and related expenses incurred in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets plus (B) the portion of rent expense with respect to such period under Capitalized Leases that is treated as interest expense in accordance with GAAP plus (C) the implied interest component of synthetic leases with respect to such period plus (D) any losses on hedging obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of interest income and gains on such hedging obligations or such derivative instruments plus (E) bank and letter of credit fees and costs of surety bonds in connection with financing activities, plus (F) amortization or write-off of deferred financing fees, debt issuance costs, debt discount or premium, terminated hedging obligations and other commissions, financing fees and expenses and, adjusted, to the extent included, to exclude any refunds or similar credits received in connection with the purchasing or procurement of goods or services under any purchasing card or similar program;
(ii) provision for taxes based on income, profits or capital and sales taxes, including federal, foreign, state, franchise, excise, and similar taxes paid or accrued during such period (including in respect of repatriated funds) including penalties and interest related to such taxes or arising from any tax examinations, tax distributions, and, without duplication of any other tax distributions permitted hereunder, cash payments made pursuant to any tax receivables agreements entered into in connection with an up-C IPO structure that are permitted pursuant to Section 6.07(a)(xi)(B);
(iii) Non-Cash Charges;
(iv) operating expenses incurred on or prior to the Effective Date attributable to (A) salary obligations paid to employees terminated prior to the Effective Date and (B) wages paid to executives in excess of the amounts the Borrower and/or any of its Restricted Subsidiaries are required to pay pursuant to their respective employment agreements;
(v) extraordinary (as defined by GAAP prior to the issuance of FASB Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items) losses or charges in any LTM Period or Test Period, as applicable;
(vi) unusual or non-recurring expenses, losses or charges; provided that any unusual expenses, losses or charges shall not to exceed the greater of (x) $1,000,000 and (y) 5% of Consolidated EBITDA (determined before giving effect to such amounts), in each case in any LTM Period or Test Period, as applicable;
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(vii) severance, relocation costs, recruiting fees, signing costs, retention or completion bonuses and curtailments or modifications to pension and post-retirement employee benefit plans (including any settlement of pension liabilities), charges related to deferred stock compensation plans, contract terminations and professional and consulting fees incurred in connection with any of the foregoing;
(viii) restructuring charges, accruals or reserves (including restructuring and integration costs related to acquisitions and adjustments to existing reserves), integration and facilities opening costs and other business optimization expenses and operating improvements (including related to new product introductions and any operating expenses, losses or charges directly attributable to the implementation of cost savings initiatives), transition costs, costs related to the discontinuance of any portion of the business or operations, internal costs in respect of strategic initiatives and costs related to closure/consolidation of facilities, in each case whether or not classified as restructuring expense on the consolidated financial statements, when aggregated with the amounts in clause (b) below not to exceed the greater of (x) $2,000,000 and (y) 20% of Consolidated EBITDA (determined before giving effect to such amounts), in each case in any LTM Period or Test Period, as applicable;
(ix) the amount of any non-controlling interest consisting of income attributable to non-controlling interests of third parties in any Non-Wholly Owned Subsidiary deducted (and not added back in such period) in calculating Consolidated Net Income;
(x) (A) the amount of board of directors, management, monitoring, consulting and advisory fees, indemnities and related expenses paid or accrued in such period to (or on behalf of) the Sponsor (including any termination fees payable in connection with the early termination of management and monitoring agreements) and (B) the amount of expenses relating to payments made to option holders of Holdings or any of its direct or indirect parent companies in connection with, or as a result of, any distribution being made to shareholders of such Person or its direct or indirect parent companies, which payments are being made to compensate such option holders as though they were shareholders at the time of, and entitled to share in, such distribution, in each case to the extent permitted in the Loan Documents;
(xi) losses on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business) in an aggregate amount not to exceed $1,500,000 in any LTM Period or Test Period, as applicable;
(xii) any non-cash loss attributable to the mark to market movement in the valuation of any Equity Interests, and hedging obligations or other derivative instruments (in each case, including pursuant to Financial Accounting Standards Codification No. 815Derivatives and Hedging but only to the extent the cash impact resulting from such loss has not been realized);
(xiii) any loss relating to amounts paid in cash prior to the stated settlement date of any hedging obligation that has been reflected in Consolidated Net Income for such period;
(xiv) any gain relating to hedging obligations associated with transactions realized in the current period that has been reflected in Consolidated Net Income in prior periods and excluded from Consolidated EBITDA pursuant to clauses (c)(vi) and (c)(vii) below;
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(xv) any costs or expenses incurred by Holdings, the Borrower or any Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, any severance agreement or any stock subscription or shareholder agreement, to the extent that such costs or expenses are non-cash or otherwise funded with cash proceeds contributed to the capital of Holdings or Net Proceeds of an issuance of Equity Interests of Holdings (other than Disqualified Equity Interests);
(xvi) any net pension or other post-employment benefit costs representing amortization of unrecognized prior service costs, actuarial losses, including amortization of such amounts arising in prior periods, amortization of the unrecognized net obligation (and loss or cost) existing at the date of initial application of FASB Accounting Standards Codification 715, and any other items of a similar nature;
(xvii) charges, losses, lost profits, expenses (including litigation expenses, fee and charges) or write-offs to the extent indemnified or insured by a third party, including expenses or losses covered by indemnification provisions or by any insurance provider in connection with the Transactions, a Permitted Acquisition or any other acquisition or Investment, disposition or any Casualty Event, in each case, to the extent that coverage has not been denied and so long as such amounts are actually reimbursed in cash within one year after the related amount is first added to Consolidated EBITDA pursuant to this clause (xviii) (and if not so reimbursed within one year, such amount shall be deducted from Consolidated EBITDA during the next measurement period);
(xviii) cash receipts (or any netting arrangements resulting in reduced cash expenses) not included in Consolidated EBITDA in any period to the extent non-cash gains relating to such receipts were deducted in the calculation of Consolidated EBITDA pursuant to clause (c) below for any previous period and not added back;
(xix) earn-out and contingent consideration obligations (including to the extent accounted for as bonuses or otherwise) and adjustments thereof and purchase price adjustments, in each case in connection with acquisitions or Investments permitted hereunder in an aggregate amount not to exceed $10,000,000 in any LTM Period or Test Period, as applicable, in each case, for such amounts payable in cash and reducing Consolidated Net Income during the applicable period; and
(xx) Initial Public Company Costs; plus
(b) without duplication, the amount of run rate cost savings, operating expense reductions and synergies related to any Specified Transaction, any restructuring, cost saving initiative or other action taken, committed to be taken or with respect to which substantial steps have been taken, committed to be taken or planned to be taken that are projected by the Borrower in good faith to be realized (in the good faith determination of the Borrower) within 12 months after the end of the relevant LTM Period or Test Period, as applicable (including actions initiated prior to the Effective Date) (which cost savings, operating expense reductions and synergies shall be added to Consolidated EBITDA until fully realized and calculated on a pro forma basis as though such cost savings, operating expense reductions and synergies had been realized on the first day of the relevant period), net of the amount of actual benefits realized from such
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actions; provided that (A) such cost savings, operating expense reductions and synergies are reasonably identifiable and factually supportable and (B) no cost savings, operating expense reductions or synergies shall be added pursuant to this clause (b) to the extent duplicative of any expenses or charges relating to such cost savings, operating expense reductions, other operating improvements or synergies that are included above or in the definition of Pro Forma Adjustment or Pro Forma Basis (it being understood and agreed that run rate shall mean the full recurring benefit that is associated with any action taken); provided , further , that the amounts in this clause (b) and clause (a)(viii) above shall not exceed the greater of (x) $2,000,000 and (y) 20% of Consolidated EBITDA (determined before giving effect to any such amounts), in each case in any LTM Period or Test Period, as applicable; less
(c) without duplication and to the extent included in arriving at such Consolidated Net Income, the sum of the following amounts for such period:
(i) extraordinary (as defined by GAAP prior to the issuance of FASB Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items) gains and unusual or non-recurring gains;
(ii) non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Consolidated Net Income or Consolidated EBITDA in any prior period);
(iii) gains on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business);
(iv) any non-cash gain attributable to the mark to market movement in the valuation of any Equity Interests, and hedging obligations or other derivative instruments (in each case, including pursuant to Financial Accounting Standards Codification No. 815Derivatives and Hedging but only to the extent the cash impact resulting from such gain has not been realized);
(v) any gain relating to amounts received in cash prior to the stated settlement date of any hedging obligation that has been reflected in Consolidated Net Income in such period;
(vi) any loss relating to hedging obligations associated with transactions realized in the current period that has been reflected in Consolidated Net Income in prior periods and excluded from Consolidated EBITDA pursuant to clauses (a)(xiii) and (a)(xiv) above; and
(vii) the amount of any non-controlling interest consisting of loss attributable to non-controlling interests of third parties in any Non-Wholly Owned Subsidiary added (and not deducted in such period) to Consolidated Net Income; plus
(d) any income from investments recorded using the equity method of accounting or the cost method of accounting, without duplication and to the extent not included in arriving at Consolidated Net Income, except to the extent such income was attributable to income that would be deducted pursuant to clause (c) if it were income of Holdings, the Borrower or its Restricted Subsidiaries; minus
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(e) any losses from investments recorded using the equity method of accounting or the cost method of accounting, without duplication and to the extent not deducted in arriving at Consolidated Net Income, except to the extent such loss was attributable to losses that would be added back pursuant to clauses (a) and (b) above if it were a loss of Holdings, the Borrower or a Restricted Subsidiary; plus
(f) an amount, with respect to investments recorded using the equity method of accounting or the cost method of accounting and without duplication of any amounts added pursuant to clause (d) above, equal to the amount attributable to each such investment that would be added to Consolidated EBITDA pursuant to clauses (a) and (b) above if instead attributable to Holdings, the Borrower or a Restricted Subsidiary, pro-rated according to Holdings, the Borrower or the applicable Subsidiarys percentage ownership in such investment; minus
(g) an amount, with respect to investments recorded using the equity method of accounting or the cost method of accounting and without duplication of any amounts deducted pursuant to clause (e) above, equal to the amount attributable to each such investment that would be deducted from Consolidated EBITDA pursuant to clause (c) above if instead attributable to Holdings, the Borrower or a Restricted Subsidiary, pro-rated according to Holdings, the Borrower or the applicable Subsidiarys percentage ownership in such investment, in each case, as determined on a consolidated basis for the Borrower and the Subsidiaries in accordance with GAAP; minus
(h) the amount of any Capitalized Software Expenditures for such period, in each case, as determined on a consolidated basis for Holdings, the Borrower and its Restricted Subsidiaries in accordance with GAAP; provided that:
(I) to the extent included in Consolidated Net Income, there shall be excluded in determining Consolidated EBITDA currency translation gains and losses related to currency remeasurements of assets or liabilities (including the net loss or gain resulting from hedging agreements for currency exchange risk and revaluations of intercompany balances),
(II) to the extent included in Consolidated Net Income, there shall be excluded in determining Consolidated EBITDA for any period any adjustments resulting from the application of Financial Accounting Standards Codification No. 815Derivatives and Hedging,
(III) there shall be included in determining Consolidated EBITDA for any period, without duplication, (A) to the extent not included in Consolidated Net Income, the Acquired EBITDA of any Person, property, business or asset acquired by Holdings, the Borrower or any Restricted Subsidiary during such period (other than any Unrestricted Subsidiary) to the extent not subsequently sold, transferred or otherwise disposed of (but not including the Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired) (each such Person, property, business or asset acquired, including pursuant to the Transactions or pursuant to a transaction consummated prior to the Effective Date, and not subsequently so disposed of, an Acquired Entity or Business ), and the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during such period (each, a Converted Restricted Subsidiary ), in each case based on the Acquired EBITDA of such Pro Forma Entity for such period (including the portion thereof occurring prior to such acquisition or conversion) determined on a historical Pro Forma Basis and (B) an adjustment in respect of each Pro Forma Entity equal to the amount of the Pro Forma Adjustment with respect to such Pro Forma Entity for such period (including the portion thereof occurring prior to such acquisition or conversion) as specified in the Pro Forma Adjustment certificate delivered to the Administrative Agent (for further delivery to the Lenders);
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(IV) there shall be (A) to the extent included in Consolidated Net Income, excluded in determining Consolidated EBITDA for any period the Disposed EBITDA of any Person, property, business or asset (other than any Unrestricted Subsidiary) sold, transferred or otherwise disposed of, closed or classified as discontinued operations in accordance with GAAP (other than (x) if so classified on the basis that it is being held for sale unless such sale has actually occurred during such period and (y) for periods prior to the applicable sale, transfer or other disposition, if the Disposed EBITDA of such Person, property, business or asset is positive (i.e., if such Disposed EBITDA is negative, it shall be added back in determining Consolidated EBITDA for any period)) by Holdings, the Borrower or any Restricted Subsidiary during such period (each such Person, property, business or asset so sold, transferred or otherwise disposed of, closed or classified, a Sold Entity or Business ), and the Disposed EBITDA of any Restricted Subsidiary that is converted into an Unrestricted Subsidiary during such period (each, a Converted Unrestricted Subsidiary ), in each case based on the Disposed EBITDA of such Sold Entity or Business or Converted Unrestricted Subsidiary for such period (including the portion thereof occurring prior to such sale, transfer, disposition, closure, classification or conversion) determined on a historical Pro Forma Basis and (B) to the extent not included in Consolidated Net Income, included in determining Consolidated EBITDA for any period in which a Sold Entity or Business is disposed, an adjustment equal to the Pro Forma Disposal Adjustment with respect to such Sold Entity or Business (including the portion thereof occurring prior to such disposal) as specified in the Pro Forma Disposal Adjustment certificate delivered to the Administrative Agent (for further delivery to the Lenders); and
(V) to the extent included in Consolidated Net Income, there shall be excluded in determining Consolidated EBITDA any expense (or income) as a result of adjustments recorded to contingent consideration liabilities relating to the Transaction or any Permitted Acquisition (or other Investment permitted hereunder); plus (increases) or minus (decreases);
(i) changes in short term deferred revenue.
Consolidated Net Income means, for any period, the net income (loss) of Holdings, the Borrower and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, excluding, without duplication,
(a) extraordinary (as defined by GAAP prior to the issuance of FASB Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items) items for such period,
(b) the cumulative effect of a change in accounting principles during such period;
(c) any Transaction Costs incurred during such period ,
(d) any fees and expenses (including any transaction or retention bonus or similar payment) incurred during such period, or any amortization thereof for such period, in connection with any acquisition (including any acquisition of a franchisee), non-recurring costs to acquire equipment to the extent not capitalized in accordance with GAAP, Investment, recapitalization, asset disposition, non-competition agreement, issuance or repayment of debt, issuance of equity securities, refinancing transaction or amendment or other modification of or waiver or consent relating to any debt instrument (in each case, including the Transaction Costs and any such
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transaction consummated prior to the Effective Date and any such transaction undertaken but not completed) and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case whether or not successful (including, for the avoidance of doubt, the effects of expensing all transaction-related expenses in accordance with FASB Accounting Standards Codification 805 and gains or losses associated with FASB Accounting Standards Codification 460),
(e) any income (loss) (and all fees and expenses or charges relating thereto) for such period attributable to the early extinguishment of Indebtedness, hedging agreements or other derivative instruments,
(f) accruals and reserves that are established or adjusted as a result of the Transactions or any Permitted Acquisition or other Investment not prohibited under this Agreement in accordance with GAAP (including any adjustment of estimated payouts on Earn-Outs) or changes as a result of the adoption or modification of accounting policies during such period,
(g) stock-based award compensation expenses,
(h) any income (loss) attributable to deferred compensation plans or trusts,
(i) any income (loss) from Investments recorded using the equity method,
(j) the amount of any expense required to be recorded as compensation expense related to contingent transaction consideration,
(k) any unrealized or realized gain or loss due solely to fluctuations in currency values and the related tax effects, determined in accordance with GAAP, and
(l) (i) the net income of any Person that is not a Subsidiary of such Person or is an Unrestricted Subsidiary or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the Borrower or a Restricted Subsidiary thereof in respect of such period and (ii) the net income shall include any ordinary course dividend distribution or other payment in cash received from any Person in excess of the amounts included in clause (i) above.
There shall be included in Consolidated Net Income, without duplication, the amount of any cash tax benefits of Holdings, the Borrower or its Subsidiaries related to the tax amortization of intangible assets in such period. There shall be excluded from Consolidated Net Income for any period the effects from applying acquisition method accounting, including applying acquisition method accounting to inventory, property and equipment, loans and leases, software and other intangible assets and deferred rent required or permitted by GAAP and related authoritative pronouncements (including the effects of such adjustments pushed down to Holdings, the Borrower and its Restricted Subsidiaries), as a result of any Permitted Acquisitions (or other Investment not prohibited hereunder) or the amortization or write-off of any amounts thereof.
In addition, to the extent not already included in Consolidated Net Income, Consolidated Net Income shall include the amount of (i) any proceeds received or due from business interruption insurance or reimbursement of expenses and charges that are covered by indemnification and other reimbursement provisions in connection with any acquisition or other Investment or any disposition of
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any asset permitted hereunder, (ii) any Restricted Payments made during any applicable period in reliance on Section 6.07(a)(vi)(B) to allow any direct or indirect parent of Holdings to pay the items set forth in Section 6.07(a)(vi)(B) during any such period and (iii) any Restricted Payments made during any applicable period in reliance on Section 6.07(a)(vi)(F) to pay the items set forth in Section 6.07(a)(vi)(F) to officers and employees of any direct or indirect parent company of Holdings during any such period.
Consolidated Total Indebtedness means, as of any date of determination, the aggregate amount of Indebtedness of Holdings, the Borrower and its Restricted Subsidiaries outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding the effects of any discounting of Indebtedness resulting from the application of the acquisition method accounting in connection with any Permitted Acquisition (or other Investment not prohibited hereunder)) consisting only of Indebtedness for borrowed money, drawn but unreimbursed obligations under letters of credit, letters of guaranty and bankers acceptances, obligations in respect of Capitalized Leases, debt obligations evidenced by promissory notes or similar instruments, earn-outs or similar obligations and all Purchase Money Obligations; provided that earn-outs or similar obligations shall be included to the extent such outstanding earn-outs and similar obligations become a liability on the balance sheet of such Person in accordance with GAAP; provided, further , that the first $5,000,000 in the aggregate of such Earn-Outs and other similar obligations shall be excluded from such calculation, unless such Earn-Outs or other obligations not in excess of $5,000,000 are earned, unpaid and past due.
Consolidated Working Capital means, at any date, the excess of (a) the sum of all amounts (other than cash and Permitted Investments) that would, in conformity with GAAP, be set forth opposite the caption total current assets (or any like caption) on a consolidated balance sheet of Holdings, the Borrower and its Restricted Subsidiaries at such date, excluding the current portion of current and deferred income taxes over (b) the sum of all amounts that would, in conformity with GAAP, be set forth opposite the caption total current liabilities (or any like caption) on a consolidated balance sheet of Holdings, the Borrower and its Restricted Subsidiaries on such date, but excluding, without duplication, (i) the current portion of any Funded Debt, (ii) all Indebtedness consisting of Loans to the extent otherwise included therein, (iii) the current portion of interest, (iv) the current portion of current and deferred income taxes and (v) deferred revenue; provided that, for purposes of calculating Excess Cash Flow, increases or decreases in working capital (A) arising from acquisitions or dispositions by Holdings, the Borrower and its Restricted Subsidiaries shall be measured from the date on which such acquisition or disposition occurred until the first anniversary of such acquisition or disposition with respect to the Person subject to such acquisition or disposition and (B) shall exclude (I) the impact of non-cash adjustments contemplated in the Excess Cash Flow calculation, (II) the impact of adjusting items in the definition of Consolidated Net Income and (III) any changes in current assets or current liabilities as a result of (x) the effect of fluctuations in the amount of accrued or contingent obligations, assets or liabilities under hedging agreements or other derivative obligations, (y) any reclassification in accordance with GAAP of assets or liabilities, as applicable, between current and noncurrent or (z) the effects of acquisition method accounting.
Contract Consideration has the meaning assigned to such term in the definition of Excess Cash Flow.
Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, or the dismissal or appointment of the management, of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
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Control Agreement means, with respect to any deposit account, securities account, commodity account, securities entitlement or commodity contract, an agreement (in form and substance satisfactory to the Collateral Agent), among the Collateral Agent, the financial institution or other Person at which such account is maintained or with which such entitlement or contract is carried and the Loan Party maintaining such account or owning such entitlement or contract, effective to grant control (within the meaning of Articles 8 and 9 under the applicable UCC) over such account to the Collateral Agent.
Controlled Investment Affiliate means, with respect to Sponsor, any other investment fund or similar Person that (i) is organized for the purpose of making equity investments in one or more companies and (ii) is controlled by, or is under common control with, Sponsor. For purposes of this definition control means the power to direct or cause the direction of management and policies of a Person, whether by contract or otherwise.
Converted Restricted Subsidiary has the meaning given such term in the definition of Consolidated EBITDA.
Converted Unrestricted Subsidiary has the meaning given such term in the definition of Consolidated EBITDA.
Cure Amount has the meaning assigned to such term in Section 7.02(a).
Cure Period has the meaning assigned to such term in Section 7.02(a).
Cure Right has the meaning assigned to such term in Section 7.02(a).
Debtor Relief Laws means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
Default means any event or condition that constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
Defaulting Lender means, subject to Section 2.22(b), any Lender that (a) has failed to perform any of its funding obligations hereunder, within one (1) Business Day of the date required to be funded by it hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lenders determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, (b) has notified the Borrower, the Administrative Agent or any Lender that it does not intend or expect to comply with its funding obligations or has made a public statement or provided any written notification to any Person to that effect with respect to its funding obligations hereunder or under other agreements in which it commits to extend credit (unless such writing or public statement relates to such Lenders obligation to fund a Loan hereunder and states that such position is based on such Lenders determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after request by the Administrative Agent (whether acting on its own behalf or at the reasonable request of the Borrower (it being understood that the Administrative Agent shall comply with any such reasonable request)), to confirm in a manner satisfactory to the Administrative Agent and the Borrower that it will comply with its funding obligations (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, other than in connection with an Undisclosed
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Administration, (i) become or is insolvent, (ii) become the subject of a proceeding under any Debtor Relief Law, (iii) had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or a custodian appointed for it, (iv) taken any action in furtherance of, or indicated its consent to, approval of or acquiescence in any such proceeding or appointment, (v) made a general assignment for the benefit of creditors or is otherwise adjudicated as, or determined by any Governmental Authority having regulatory authority over such person or its assets to be, insolvent or bankrupt; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority.
Designated Non-Cash Consideration means the fair market value of non-cash consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition pursuant to Section 6.05(k) that is designated as Designated Non-Cash Consideration pursuant to a certificate of a Responsible Officer of the Borrower, setting forth the basis of such valuation (which amount will be reduced by the fair market value of the portion of the non-cash consideration converted to cash within 180 days following the consummation of the applicable Disposition).
Discount Prepayment Accepting Lender has the meaning assigned to such term in Section 2.11(a)(ii)(B)(2).
Discount Range has the meaning assigned to such term in Section 2.11(a)(ii)(1).
Discount Range Prepayment Amount has the meaning assigned to such term in Section 2.11(a)(ii)(C)(1).
Discount Range Prepayment Notice means a written notice by the Borrower pursuant to Section 2.11(a)(ii)(C)(1) substantially in the form of Exhibit K.
Discount Range Prepayment Offer means the irrevocable written offer by a Term Lender pursuant to Section 2.11(a)(ii)(C)(1) substantially in the form of Exhibit L.
Discount Range Prepayment Response Date has the meaning assigned to such term in Section 2.11(a)(ii)(C)(1).
Discount Range Proration has the meaning assigned to such term in Section 2.11(a)(ii)(C)(3).
Discounted Prepayment Determination Date has the meaning assigned to such term in Section 2.11(a)(ii)(D)(3).
Discounted Prepayment Effective Date means five (5) Business Days (unless a shorter period is agreed to between the Borrower and the Auction Agent) following the receipt by each relevant Term Lender of notice from the Auction Agent in accordance with Section 2.11(a)(ii)(B), Section 2.11(a)(ii)(C) or Section 2.11(a)(ii)(D), as applicable.
Discounted Term Loan Prepayment has the meaning assigned to such term in Section 2.11(a)(ii)(A).
Dispose and Disposition each has the meaning assigned to such term in Section 6.05.
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Disposed EBITDA means, with respect to any Sold Entity or Business or Converted Unrestricted Subsidiary for any period through (but not after) the date of such disposition, the amount for such period of Consolidated EBITDA of such Sold Entity or Business or Converted Unrestricted Subsidiary (determined as if references to Holdings, the Borrower and its Restricted Subsidiaries in the definition of the term Consolidated EBITDA (and in the component financial definitions used therein) were references to such Sold Entity or Business and its subsidiaries or to such Converted Unrestricted Subsidiary and its subsidiaries), all as determined on a consolidated basis for such Sold Entity or Business or Converted Unrestricted Subsidiary.
Disqualified Equity Interest means, with respect to any Person, any Equity Interest in such Person that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, either mandatorily or at the option of the holder thereof), or upon the happening of any event or condition:
(a) matures or is mandatorily redeemable (other than (i) solely for Equity Interests in such Person that do not constitute Disqualified Equity Interests and (ii) cash in lieu of fractional shares of such Equity Interests), whether pursuant to a sinking fund obligation or otherwise;
(b) is convertible or exchangeable, either mandatorily or at the option of the holder thereof, for Indebtedness or Equity Interests (other than (i) solely for Equity Interests in such Person that do not constitute Disqualified Equity Interests and (ii) cash in lieu of fractional shares of such Equity Interests); or
(c) is redeemable (other than (i) solely for Equity Interests in such Person that do not constitute Disqualified Equity Interests and (ii) cash in lieu of fractional shares of such Equity Interests) or is required to be repurchased by such Person or any of its Affiliates, in whole or in part, at the option of the holder thereof;
in each case, on or prior to the date ninety-one (91) days after the Latest Maturity Date; provided , however , that (i) an Equity Interest in any Person that would not constitute a Disqualified Equity Interest but for terms thereof giving holders thereof the right to require such Person to redeem or purchase such Equity Interest upon the occurrence of an asset sale or a change of control or similar event shall not constitute a Disqualified Equity Interest if any such requirement becomes operative only after repayment in full of all the Loans and all other Loan Document Obligations that are accrued and payable and the termination of the Commitments and (ii) if an Equity Interest in any Person is issued pursuant to any plan for the benefit of employees of Holdings (or any direct or indirect parent thereof) or any of its subsidiaries or by any such plan to such employees, such Equity Interest shall not constitute a Disqualified Equity Interest solely because it may be required to be repurchased by Holdings (or any direct or indirect parent company thereof) or any of its subsidiaries in order to satisfy applicable statutory or regulatory obligations of such Person.
Disqualified Lenders means (i) those Persons that have been separately identified by the Borrower to the Administrative Agent in writing prior to the Effective Date as being Disqualified Lenders (or, if after such date, that are acceptable to the Administrative Agent in its sole discretion), (ii) those Persons who are competitors of the Borrower and its Subsidiaries that are separately identified in writing by the Sponsor or the Borrower to the Administrative Agent from time to time, but which shall not apply retroactively to disqualify any persons that have previously acquired an assignment or participation interest in the Loans and (iii) in the case of each Person identified pursuant to clauses (i) and (ii) above, any of their Affiliates that are either (x) identified in writing by the Sponsor or the Borrower from time to time, but which shall not apply retroactively to disqualify any persons that have previously acquired an assignment or participation interest in the Loans or (y) clearly identifiable as Affiliates on the
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basis of such Affiliates name; provided that, unless identified under clause (i) above, any bona fide debt funds, investment vehicles, regulated bank entities or non-regulated lending entities that are primarily engaged in making, purchasing, holding or otherwise investing in commercial loans or bonds and/or similar extensions of credit in the ordinary course of business shall not be classified as a Disqualified Lender. Such list of Disqualified Lenders shall be available for inspection upon request by any Lender with the Borrowers consent; provided that, upon inquiry by any Lender to the Administrative Agent as to whether a potential assignee or prospective participant is on the list of Disqualified Lenders, the Administrative Agent shall be permitted to disclose to such Lender, without Borrowers consent, whether such potential assignee or prospective participant is on the list of Disqualified Lenders.
dollars or $ refers to lawful money of the United States of America.
Domestic Subsidiary means any Subsidiary that is organized under the law of the United States, any state thereof or the District of Columbia.
Earn-Outs means, with respect to any Person, obligations of such Person arising from a Permitted Acquisition or other Investment permitted hereunder consummated after the Effective Date which are payable to the sellers thereunder in their capacity as such based on the achievement of specified financial results or other criteria or milestones over time.
ECF Percentage means, with respect to the prepayment required by Section 2.11(d) with respect to any fiscal year of Holdings, if the Total Net Leverage Ratio (prior to giving effect to the applicable prepayment pursuant to Section 2.11(d), but after giving effect to any voluntary prepayments made pursuant to Section 2.11(a) prior to the date of such prepayment) as of the end of such fiscal year is (a) greater than 4.00 to 1.00, 50% of Excess Cash Flow for such fiscal year, (b) greater than 3.00 to 1.00 but less than or equal to 4.00 to 1.00, 25% of Excess Cash Flow for such fiscal year and (c) less than or equal to 3.00 to 1.00, 0% of Excess Cash Flow for such fiscal year.
Effective Date means the date the conditions in Section 4.01 are satisfied or waived which date is June 12, 2017.
Eligible Assignee means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund and (d) any other Person (other than Holdings, the Borrower or any of their respective Affiliates), other than, in each case, (i) a natural person, (ii) a Defaulting Lender or (iii) subject to Section 11.04(b), a Disqualified Lender. Notwithstanding the foregoing, each Loan Party and each Lender acknowledges and agrees that the Administrative Agent shall have no liability with respect to any assignment made to a Disqualified Lender.
Environmental Laws means all applicable treaties, rules, regulations, codes, ordinances, judgments, orders, decrees and other applicable Requirements of Law, and all applicable injunctions or binding agreements issued, promulgated or entered into by or with any Governmental Authority, in each instance relating to the protection of the environment, to preservation or reclamation of natural resources, to Release or threatened Release of any Hazardous Material or to the extent relating to exposure to Hazardous Materials, to health or safety matters.
Environmental Liability means any liability, obligation, loss, claim, action, order or cost, contingent or otherwise (including any liability for damages, costs of medical monitoring, costs of environmental remediation or restoration, administrative oversight costs, consultants fees, fines, penalties and indemnities) directly or indirectly resulting from or based upon (a) any actual or alleged violation of any Environmental Law or permit, license or approval issued thereunder, (b) the generation, use, handling, transportation, storage, or treatment of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
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Equity Interests means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person.
ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.
ERISA Affiliate means any trade or business (whether or not incorporated) that, together with any Loan Party, is treated as a single employer under Section 414(b) or 414(c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
ERISA Event means (a) any reportable event, as defined in Section 4043(c) of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) any failure by any Plan to satisfy the minimum funding standard (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Plan, in each case whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA, of an application for a waiver of the minimum funding standard with respect to any Plan; (d) a determination that any Plan is, or is expected to be, in at-risk status (as defined in Section 303(i)(4) of ERISA or Section 430(i)(4) of the Code); (e) the incurrence by a Loan Party or any ERISA Affiliate of any liability under Title IV of ERISA (other than premiums due and not delinquent under Section 4007 of ERISA) with respect to the termination of any Plan or by application of Section 4069 of ERISA with respect to any terminated plan; (f) the receipt by a Loan Party or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan, or to an intention to terminate or to appoint a trustee to administer any plan or plans in respect of which such Loan Party or ERISA Affiliate would be deemed to be an employer under Section 4069 of ERISA; (g) the incurrence by a Loan Party or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Multiemployer Plan; (h) the receipt by a Loan Party or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from a Loan Party or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability, or the failure of a Loan Party or any ERISA Affiliate to pay when due, after the expiration of any applicable grace period, any installment payment with respect to any Withdrawal Liability; or (i) the withdrawal of a Loan Party or any ERISA Affiliate from a Plan subject to Section 4063 of ERISA during a plan year in which such entity was a substantial employer as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA.
Eurodollar when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
Event of Default has the meaning assigned to such term in Section 7.01.
Excess Cash Flow means, for any period, an amount equal to the excess of:
(a) the sum, without duplication, of:
(i) Consolidated Net Income for such period,
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(ii) an amount equal to the amount of all Non-Cash Charges to the extent deducted in arriving at such Consolidated Net Income,
(iii) decreases in Consolidated Working Capital and long-term account receivables for such period ,
(iv) an amount equal to the aggregate net non-cash loss on dispositions by the Borrower and its Restricted Subsidiaries during such period (other than dispositions in the ordinary course of business) to the extent deducted in arriving at such Consolidated Net Income, and
(v) to the extent not included in Consolidated Net Income, dividends or other distributions or returns on capital received in cash by the Borrower or any Restricted Subsidiary from an Unrestricted Subsidiary, less :
(b) the sum, without duplication, of:
(i) an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income (including any amounts included in Consolidated Net Income of proceeds received or due from business interruption insurance or reimbursement of expenses and charges that are covered by indemnification and other reimbursement provisions in connection with any acquisition or other Investment or any disposition of any asset permitted under this Agreement to the extent such amounts are due but not received during such period) and cash charges included in clauses (a) through (j) of the definition of Consolidated Net Income (other than cash charges in respect of Transaction Costs paid on or about the Effective Date to the extent financed with the proceeds of Indebtedness incurred on the Effective Date or an equity investment on the Effective Date),
(ii) the amount of capital expenditures made in cash or accrued during such period, except to the extent that such capital expenditures were financed with the proceeds of (x) Indebtedness of Holdings, the Borrower or its Restricted Subsidiaries (other than Revolving Loans) or (y) the proceeds of the issuance of Equity Interests (other than Disqualified Equity Interests),
(iii) the aggregate amount of all principal payments of Indebtedness (including (1) the principal component of payments in respect of Capitalized Leases and (2) the amount of any mandatory prepayment of Term Loans to the extent required due to a Disposition that resulted in an increase to Consolidated Net Income and not in excess of the amount of such increase, but excluding (x) all other prepayments of Term Loans and (y) all prepayments of revolving loans (including Revolving Loans) except, in respect of revolving loans other than the Revolving Loans, to the extent there is an equivalent permanent reduction in commitments thereunder),
(iv) an amount equal to the aggregate net non-cash gain on dispositions by the Borrower and its Restricted Subsidiaries during such period (other than dispositions in the ordinary course of business) to the extent included in arriving at such Consolidated Net Income,
(v) increases in Consolidated Working Capital and long-term account receivables for such period,
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(vi) cash payments by Holdings, the Borrower and its Restricted Subsidiaries during such period in respect of long-term liabilities of Holdings, the Borrower and its Restricted Subsidiaries other than Indebtedness,
(vii) the amount of Investments (other than Investments in Permitted Investments) and acquisitions not prohibited by this Agreement to the extent that (and limited to the amount of) such Investments and acquisitions were financed with Revolving Loans or made with internally generated cash flow of Holdings, the Borrower and its Restricted Subsidiaries,
(viii) the amount of dividends and other Restricted Payments, other than Restricted Payments that reduce Consolidated Net Income in accordance with clauses (ii) and (iii) of the final paragraph of the definition thereof, in each case, to the extent that (and limited to the amount of) such dividends and Restricted Payments were financed with Revolving Loans or made with internally generated cash flow of Holdings, the Borrower and its Restricted Subsidiaries,
(ix) the aggregate amount of payments and expenditures actually made by Holdings, the Borrower and its Restricted Subsidiaries in cash during such period (including expenditures for the payment of financing fees) to the extent that such payments and expenditures are not expensed during such period, in each case to the extent not financed with the proceeds of the issuance of Equity Interests or other long term Indebtedness (excluding Revolving Loans) of Holdings, the Borrower and its Restricted Subsidiaries,
(x) cash payments by Holdings, the Borrower and its Restricted Subsidiaries during such period in respect of Non-Cash Charges included in the calculation of Consolidated Net Income in any prior period, in each case to the extent not financed with the proceeds of the issuance of Equity Interests or other long term Indebtedness (excluding Revolving Loans) of Holdings, the Borrower and its Restricted Subsidiaries,
(xi) the aggregate amount of any premium, make-whole or penalty payments actually paid in cash by Holdings, the Borrower and its Restricted Subsidiaries during such period that are required to be made in connection with any prepayment of Indebtedness,
(xii) at the option of the Borrower, and without duplication of amounts deducted from Excess Cash Flow in prior periods, the aggregate consideration required to be paid in cash by Holdings, the Borrower or any of the Restricted Subsidiaries pursuant to binding contracts, commitments or purchase orders (the Contract Consideration ), in each case, entered into prior to or during such period, relating to Permitted Acquisitions, other Investments (other than Investments in Permitted Investments) or capital expenditures to be consummated or made during a subsequent Test Period (and in the case of Planned Expenditures, the subsequent Test Period); provided , that to the extent the aggregate amount of internally generated cash actually utilized to finance such Permitted Acquisitions, Investments or capital expenditures during such Test Period is less than the Contract Consideration and Planned Expenditures, the amount of such shortfall shall be added to the calculation of Excess Cash Flow at the end of such Test Period; provided , further , that to the extent deducted from Excess Cash Flow in any Test Period, such Contract Consideration and/or Planned Expenditure is not deducted again in any subsequent Test Period,
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(xiii) the amount of cash rent payments made in such period to the extent they exceed the amount of rent payments deducted in determining Consolidated Net Income for such period, and
(xiv) the amount of taxes (including penalties and interest) paid in cash, the amount of dividends and other restricted payments that Holdings, the Borrower and/or the Restricted Subsidiaries may make pursuant to Section 6.07(a)(vi)(A) or (B) as a result of such event, and/or tax reserves set aside or payable (without duplication) in such period to the extent they exceed the amount of tax expense deducted in determining Consolidated Net Income for such period.
Exchange Act means the United States Securities Exchange Act of 1934, as amended from time to time.
Excluded Account has the meaning assigned to such term in the definition of Collateral and Guarantee Requirement.
Excluded Assets has the meaning assigned to such term in the Collateral Agreement.
Excluded Information has the meaning assigned to such term in Section 2.11(a)(ii)(A).
Excluded Subsidiary means (a) any Subsidiary that is not a Wholly Owned Subsidiary of Holdings, (b) any Subsidiary that is prohibited by applicable law, rule or regulation or contractual obligation existing on the Effective Date or, if later, the date such Subsidiary first becomes a Restricted Subsidiary (so long as in the case of an acquisition of such Subsidiary, any such prohibition was not incurred in contemplation of such acquisition), from guaranteeing the Secured Obligations or which would require any governmental or regulatory consent, approval, license or authorization to do so, unless such consent, approval, license or authorization has been obtained, (c) any Foreign Subsidiary that is a CFC, (d) any CFC Holding Company, (e) any direct or indirect Subsidiary of a CFC, (f) any Immaterial Subsidiary, (g) any other Subsidiary with respect to which, in the reasonable judgment of the Administrative Agent and the Borrower (as agreed in writing), the cost or other consequences (including any adverse tax consequences) of providing the Guarantee shall be excessive in view of the benefits to be obtained by the Lenders therefrom, (h) any other Subsidiary excused from becoming a Loan Party pursuant to the last paragraph of the definition of the term Collateral and Guarantee Requirement, (i) any Subsidiary that is (or, if it were a Loan Party, would be) an investment company under the Investment Company Act of 1940, as amended, (j) any not-for profit Subsidiaries, captive insurance companies or other special purpose subsidiaries, (k) any special purpose securitization vehicle (or similar entity) and (l) each Unrestricted Subsidiary; provided , that any Immaterial Subsidiary that is a signatory to the Collateral Agreement and the Guarantee Agreement shall be deemed not to be an Excluded Subsidiary for purposes of this Agreement and the other Loan Documents unless the Borrower has otherwise notified the Administrative Agent; provided , further , that the Borrower may at any time and in its sole discretion, upon notice to the Administrative Agent, deem that any Restricted Subsidiary shall not be an Excluded Subsidiary for purposes of this Agreement and the other Loan Documents.
Excluded Swap Obligation means, with respect to any Loan Party at any time, any Secured Swap Obligation under any agreement, contract or transaction that constitutes a swap within the meaning of Section 1a(47) of the Commodity Exchange Act, if, and to the extent that, all or a portion of the guarantee of such Loan Party of, or the grant by such Loan Party of a security interest to secure, such Secured Swap Obligation (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Loan Partys failure for any reason
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to constitute an eligible contract participant, as defined in the Commodity Exchange Act (determined after giving effect to any Keepwell, support or other agreement for the benefit of such Loan Party, at the time such guarantee or grant of a security interest becomes effective with respect to such related Secured Swap Obligation. If a Secured Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Secured Swap Obligation that is attributable to swaps that are or would be rendered illegal due to such guarantee or security interest.
Excluded Taxes means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder or under any other Loan Document, (a) Taxes imposed on (or measured by) such recipients net income (however denominated) and franchise Taxes imposed on it (in lieu of net income Taxes) by a jurisdiction (i) as a result of such recipient being organized or having its principal office or, in the case of any Lender, its applicable lending office in such jurisdiction, or (ii) as a result of any other present or former connection between such recipient and the jurisdiction imposing such Tax (other than a connection arising solely from such recipient having executed, delivered, become a party to, performed its obligations or received payments under, received or perfected a security interest under or enforced any Loan Documents or engaged in any other transaction pursuant to this Agreement or having sold or assigned an interest in any Loan Documents), (b) any branch profits tax imposed under Section 884(a) of the Code, or any similar Tax, imposed by any jurisdiction described in clause (a) above, (c) any U.S. federal withholding Tax imposed pursuant to FATCA, (d) any withholding Tax that is attributable to a Lenders failure to comply with Section 2.17(f) and (e) any U.S. federal withholding Taxes imposed on amounts payable to a Lender pursuant to a Requirement of Law in effect at the time such Lender becomes a party hereto (other than pursuant to an assignment request by the Borrower under Section 2.19(b)) or designates a new lending office, except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts with respect to such withholding Tax under Section 2.17(a).
Existing Credit Agreement means that certain Second Amended and Restated Credit Agreement, dated as of November 17, 2014, among the Borrower and PL Studios, LLC, as Borrowers, the other parties designated as Loan Parties from time to time party thereto, the lenders from time to time party thereto, and Silicon Valley Bank, as administrative agent for the several financial institutions from time to time party thereto, as amended, restated, supplemented or otherwise modified from time to time prior to the Effective Date.
FATCA means Sections 1471 through 1474 of the Code as of the date of this Agreement (or any amended or successor version that is substantively comparable thereto and not materially more onerous to comply with), any current or future Treasury regulations thereunder or other official administrative interpretations thereof, any agreements entered into pursuant to current Section 1471(b)(1) of the Code as of the date of this Agreement (or any amended or successor version described above) and any intergovernmental agreements implementing the foregoing.
Federal Funds Effective Rate means, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System of the United States, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary to the next 1/100 th of 1.00%) of the quotations for the day for such transactions received by the Administrative Agent.
Fee Letter means that certain Fee Letter by and between the Borrower and Guggenheim, dated as of June 12, 2017, as the same may be amended, restated, supplemented or otherwise modified from time to time.
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Financial Officer means the chief financial officer, principal accounting officer, treasurer or corporate controller of Holdings.
Financial Performance Covenants means the covenants set forth in Section 6.10 and Financial Performance Covenant means any such covenant.
Financing Transactions means (a) the execution, delivery and performance by each Loan Party of the Loan Documents to which it is to be a party and (b) the borrowing of Loans hereunder on the Effective Date and the use of the proceeds thereof.
FIRREA means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended.
Fixed Amounts has the meaning assigned to such term in Section 1.07(b).
Flood Insurance Laws means, collectively, (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statue thereto, (iii) the National Flood Insurance Reform Act of 1994 as now or hereafter in effect or any successor statute thereto, (iv) the Flood Insurance Reform Act of 2004 as now or hereafter in effect or any successor statute thereto and (v) the Biggert-Waters Flood Insurance Reform Act of 2012 as now or hereafter in effect or any successor statute thereto.
Foreign Prepayment Event has the meaning assigned to such term in Section 2.11(g).
Foreign Subsidiary means any Subsidiary that is organized under the laws of a jurisdiction other than the United States, any state thereof or the District of Columbia.
Funded Debt means all Indebtedness of Holdings, the Borrower and its Restricted Subsidiaries for borrowed money that matures more than one year from the date of its creation or matures within one year from such date that is renewable or extendable, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including Indebtedness in respect of the Loans.
GAAP means generally accepted accounting principles in the United States of America, as in effect from time to time; provided , however , that if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Effective Date in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any other provision contained herein, (a) all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under FASB Accounting Standards Codification 825-Financial Instruments, or any successor thereto (including pursuant to the FASB Accounting Standards Codification), to value any Indebtedness of any subsidiary at fair value, as defined therein and (b) the amount of any Indebtedness under GAAP with respect to Capital Lease Obligations shall be determined in accordance with the definition of Capital Lease Obligations.
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Governmental Approvals means all authorizations, consents, approvals, permits, licenses and exemptions of, registrations and filings with, and reports to, Governmental Authorities.
Governmental Authority means the government of the United States of America, any other nation or any political subdivision thereof, whether federal, state, provincial, territorial, local or otherwise, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra national bodies such as the European Union or the European Central Bank).
Guarantee of or by any Person (the guarantor ) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the primary obligor ) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business or customary and reasonable indemnity obligations in effect on the Effective Date or entered into in connection with any acquisition or disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined in good faith by a Financial Officer. The term Guarantee as a verb has a corresponding meaning.
Guarantee Agreement means the Guarantee Agreement among the Loan Parties and the Administrative Agent, substantially in the form of Exhibit B.
Guggenheim has the meaning assigned to such term in the preliminary statements hereto.
Hazardous Materials means all explosive, radioactive, hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum by-products or distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances, wastes, chemicals, pollutants, contaminants of any nature and in any form regulated pursuant to any Environmental Law.
Holdings means Pluralsight Holdings.
Holdings LLC Agreement means that certain Second Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC, dated as of June 9, 2017.
Iconiq means Iconiq Strategic Partners, L.P. and its Controlled Investment Affiliates.
Identified Participating Lenders has the meaning assigned to such term in Section 2.11(a)(ii)(C)(3).
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Identified Qualifying Lenders has the meaning specified in Section 2.11(a)(ii)(D)(3).
Immaterial Subsidiary means any Subsidiary other than a Material Subsidiary; provided , that no Subsidiary that holds Material Intellectual Property may be designated or re-designated as an Immaterial Subsidiary during the time when it holds such material Intellectual Property.
Impacted Loans has the meaning assigned to such term in Section 2.14(b).
Incurrence Based Amounts has the meaning assigned to such term in Section 1.07(b).
Indebtedness of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding (x) trade accounts payable in the ordinary course of business, (y) any Earn-Out or similar obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and if not paid after being due and payable (provided that, for purposes of determining Consolidated Total Indebtedness, Earn-Outs and similar obligations shall constitute Indebtedness as provided for in such definitions) and (z) expenses accrued in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers acceptances; provided that the term Indebtedness shall not include (i) deferred or prepaid revenue, (ii) purchase price holdbacks in respect of a portion of the purchase price of an asset to satisfy warranty, indemnity or other unperformed obligations of the seller, (iii) any obligations attributable to the exercise of appraisal rights and the settlement of any claims or actions (whether actual, contingent or potential) with respect thereto, (iv) Indebtedness of any Person that is a direct or indirect parent of Holdings appearing on the balance sheet of Holdings or the Borrower, or solely by reason of push down accounting under GAAP, (v) any non-compete or consulting obligations incurred in connection with a Permitted Acquisition, or (vi) any reimbursement obligations under pre-paid contracts entered into with clients in the ordinary course of business, (vii) for the avoidance of doubt, any Qualified Equity Interests issued by Holdings or the Borrower. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. The amount of Indebtedness of any Person for purposes of clause (e) above shall (unless such Indebtedness has been assumed by such Person) be deemed to be equal to the lesser of (A) the aggregate unpaid amount of such Indebtedness and (B) the fair market value of the property encumbered thereby as determined by such Person in good faith. For all purposes hereof, the Indebtedness of the Borrower and its Restricted Subsidiaries shall (x) exclude intercompany liabilities arising from their cash management, tax, and accounting operations and (y) intercompany loans, advances or Indebtedness, in each case, between Loan Parties and having a term not exceeding 364 days (inclusive of any rollover or extensions of terms).
Indemnified Taxes means (a) Taxes, other than Excluded Taxes and (b) to the extent not otherwise described in (a), Other Taxes.
Indemnitee has the meaning assigned to such term in Section 9.03(b).
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Information has the meaning assigned to such term in Section 8.12.
Initial Public Company Costs means, as to any Person, in each case solely to the extent such costs relate to an IPO and any IPO Reorganization Transactions, the non-recurring or one-time out-of-pocket costs associated with, or in anticipation of, or preparation for, compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith and costs relating to compliance with the provisions of the Securities Act and the Exchange Act or any other comparable body of laws, rules or regulations, as companies with listed equity, directors compensation, fees and expense reimbursement, costs relating to investor relations, shareholder meetings and reports to shareholders, directors and officers insurance and other executive costs, legal and other professional fees, and listing fees, in each case to the extent arising solely by virtue of the initial listing of such Persons equity securities on a national securities exchange in connection with such IPO.
Initial Term Commitment means, with respect to each Lender, the commitment, if any, of such Lender to make an Initial Term Loan hereunder on the Effective Date, expressed as an amount representing the maximum principal amount of the Initial Term Loan to be made by such Lender hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to (i) assignments by or to such Lender pursuant to an Assignment and Assumption or (ii) a Loan Modification Agreement. The amount of each Lenders Initial Term Commitment as of the Effective Date is set forth on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Initial Term Commitment or Loan Modification Agreement, as the case may be. As of the Effective Date, the total Initial Term Commitment is $115,000,000.
Initial Term Loans means the Loans made pursuant to Section 2.01(a).
Insight means Insight Venture Partners and its Controlled Investment Affiliates.
Intellectual Property has the meaning assigned to such term in the Collateral Agreement.
Intellectual Property Security Agreement means short-form security agreements, suitable for filing with the United States Patent and Trademark Office or the United States Copyright Office (as applicable), with respect to any Intellectual Property that is registered, issued or applied for in the United States and that constitute Collateral.
Interest Election Request means a request by the Borrower to convert or continue a Revolving Loan Borrowing or Term Loan Borrowing in accordance with Section 2.07.
Interest Payment Date means (a) with respect to any ABR Loan, the last Business Day of each March, June, September and December and (b) with respect to any Eurodollar Loan, the last Business Day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months duration, each day prior to the last day of such Interest Period that occurs at intervals of three months duration after the first day of such Interest Period.
Interest Period means, with respect to any Eurodollar Borrowing, the period commencing on the date such Borrowing is disbursed or converted to or continued as a Eurodollar Borrowing and ending on the date that is one, two, three or six months thereafter as selected by the Borrower in its Borrowing Request (or, if agreed to by each Lender participating therein, twelve months or such other period less than one month thereafter as the Borrower may elect); provided that (a) if any
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Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the immediately preceding Business Day, (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month at the end of such Interest Period and (c) no Interest Period shall extend beyond (i) in the case of Term Loans, the Term Maturity Date and (ii) in the case of Revolving Loans, the Revolving Maturity Date. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
Investment means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests or debt or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of Indebtedness of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person (excluding, in the case of the Borrower and its Restricted Subsidiaries (i) intercompany advances arising from their cash management, tax, and accounting operations and (ii) intercompany loans, advances or Indebtedness, in each case, between Loan Parties and having a term not exceeding 364 days (inclusive of any roll-over or extensions of terms) and made in the ordinary course of business) or (c) the purchase or other acquisition (in one transaction or a series of transactions) of all or substantially all of the property and assets or business of another Person or assets constituting a business unit, line of business or division of such Person. The amount, as of any date of determination, of (a) any Investment in the form of a loan or an advance shall be the principal amount thereof outstanding on such date, minus any cash payments actually received by such investor representing interest in respect of such Investment (to the extent any such payment to be deducted does not exceed the remaining principal amount of such Investment and without duplication of amounts increasing the Available Amount or the Available Equity Amount), but without any adjustment for write-downs or write-offs (including as a result of forgiveness of any portion thereof) with respect to such loan or advance after the date thereof, (b) any Investment in the form of a Guarantee shall be equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof, as determined in good faith by a Financial Officer, (c) any Investment in the form of a transfer of Equity Interests or other non-cash property by the investor to the investee, including any such transfer in the form of a capital contribution, shall be the fair market value (as determined in good faith by a Financial Officer) of such Equity Interests or other property as of the time of the transfer, minus any payments actually received by such investor representing a return of capital of, or dividends or other distributions in respect of, such Investment (to the extent such payments do not exceed, in the aggregate, the original amount of such Investment and without duplication of amounts increasing the Available Amount or the Available Equity Amount), but without any other adjustment for increases or decreases in value of, or write-ups, write-downs or write-offs with respect to, such Investment after the date of such Investment, and (d) any Investment (other than any Investment referred to in clause (a), (b) or (c) above) by the specified Person in the form of a purchase or other acquisition for value of any Equity Interests, evidences of Indebtedness or other securities of any other Person shall be the original cost of such Investment (including any Indebtedness assumed in connection therewith), plus (i) the cost of all additions thereto and minus (ii) the amount of any portion of such Investment that has been repaid to the investor in cash as a repayment of principal or a return of capital, and of any cash payments actually received by such investor representing interest, dividends or other distributions in respect of such Investment (to the extent the amounts referred to in clause (ii) do not, in the aggregate, exceed the original cost of such Investment plus the costs of additions thereto and without duplication of amounts increasing the Available Amount or the Available Equity Amount), but without any other adjustment for increases or decreases in value of, or write-ups, write-downs or write-offs with
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respect to, such Investment after the date of such Investment. For purposes of Section 6.04, if an Investment involves the acquisition of more than one Person, the amount of such Investment shall be allocated among the acquired Persons in accordance with GAAP; provided that pending the final determination of the amounts to be so allocated in accordance with GAAP, such allocation shall be as reasonably determined by a Financial Officer.
Investor means a holder of Equity Interests in Holdings (or any direct or indirect parent thereof).
IPO means the initial underwritten public offering (other than a public offering pursuant to a registration statement on Form S-8) of common Equity Interests in the IPO Entity.
IPO Entity means, at any time upon and after an IPO, a parent entity of Holdings, or IPO Listco, as the case may be, the Equity Interests of which were issued or otherwise sold pursuant to the IPO. The Borrower shall, promptly following its formation, notify the Administrative Agent of the formation of the IPO Entity.
IPO Listco means an entity organized under the laws of the United States or a State thereof and formed in contemplation of an IPO to become the entity that issues Equity Interests in the IPO. The Borrower shall, promptly following its formation, notify the Administrative Agent of the formation of the IPO Listco.
IPO Reorganization Transactions means, collectively, the following transactions occurring prior to an IPO that are, in each case, taken in connection with and reasonably related to consummating an IPO: (a) the formation and ownership of IPO Shell Companies, (b) entry into, and performance of, (i) a reorganization agreement implementing the IPO Reorganization Transactions and certain other reorganization transactions in connection with an IPO; provided that after giving effect to any such activities, the interests of the Lenders (including, without limitation, the security interests of the Secured Parties in the Collateral), taken as a whole, would not be impaired, and (ii) customary underwriting agreements in connection with an IPO and any future follow-on underwritten public offerings of common Equity Interests in the IPO Entity, including the provision by IPO Listco and Holdings of customary representations, warranties, covenants and indemnification to the underwriters thereunder, (c) the merger of one or more IPO Subsidiaries with one or more direct or indirect holders of Equity Interests in Holdings; provided that, excluding Equity Interests in Holdings, the IPO Subsidiary has only immaterial assets and liabilities immediately prior to such merger, (d) the amendment of organization documents of Holdings and any IPO Subsidiaries; provided that after giving effect to any such activities, the interests of the Lenders (including, without limitation, the security interests of the Secured Parties in the Collateral), taken as a whole, would not be impaired, (e) the issuance of Equity Interests of IPO Shell Companies to holders of Equity Interests of Holdings in connection with any IPO Reorganization Transactions; provided that, excluding Equity Interests in Holdings and IPO Subsidiary, the IPO Shell Companies have only immaterial assets and liabilities immediately prior to such issuance, (f) the making of Restricted Payments to (or Investments in) Holdings to permit Holdings to make distributions, directly or indirectly, to IPO Listco, in each case solely for the purpose of paying, and solely in the amounts necessary for IPO Listco to pay, bona fide IPO-related out-of-pocket expenses to unaffiliated third-parties and the making of such distributions by Holdings, (g) the repurchase by IPO Listco of its Equity Interests from Holdings, the Borrower or any Subsidiary of the foregoing; (h) the entry into an exchange agreement, pursuant to which holders of Equity Interests in Holdings or any of its subsidiaries and certain non-economic/voting Equity Interests in IPO Listco will be permitted to exchange such interests for certain economic/voting Equity Interests in IPO Listco, (i) any issuance, dividend or distribution of the Equity Interests of the IPO Shell Companies or other Disposition of ownership thereof to the IPO Shell Companies and/or the direct or indirect holders of Equity Interests of Holdings; provided
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that, excluding Equity Interests in Holdings and IPO Subsidiary, the IPO Shell Companies have only immaterial assets and liabilities immediately prior to such issuance, dividend or distribution and/or the direct or indirect holders of Equity Interests of Holdings, (j) the entry into, and performance of, any tax receivables agreements by any IPO Entity or its subsidiaries and/or other contracts reasonably necessary to implement an Up-C IPO, and (k) all other transactions reasonably incidental to, or necessary for the consummation of, the foregoing; provided that after giving effect to any such transactions the interests of the Lenders (including, without limitation, the security interests of the Secured Parties in the Collateral), taken as a whole, would not be impaired.
IPO Shell Company means each of IPO Listco and IPO Subsidiary.
IPO Subsidiary means a Wholly Owned Subsidiary of IPO Listco organized under the laws of the United States or a State thereof and formed in contemplation of, and to facilitate, the IPO Reorganization Transactions and an IPO. The Borrower shall, promptly following its formation, notify the Administrative Agent of the formation of any IPO Subsidiary.
Junior Financing means (a) any unsecured Indebtedness for borrowed money and (b) any Permitted Refinancing in respect of the foregoing.
Latest Maturity Date means, at any date of determination, the latest maturity or expiration date applicable to any Loan or Commitment hereunder at such time, including the latest maturity or expiration date of any Other Term Loan, any Other Term Commitment, any Other Revolving Loan or any Other Revolving Commitment, in each case as extended in accordance with this Agreement from time to time.
LCA Election has the meaning assigned to such term in Section 1.06.
LCA Test Date has the meaning assigned to such term in Section 1.06.
Lead Arranger means Guggenheim and any of its permitted successors and assigns, in its capacity as sole Lead Arranger in connection with this Agreement.
Lenders means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption or a Loan Modification Agreement, in each case, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.
LIBO Rate means, the rate per annum appearing on Bloomberg L.P.s service (the Service ) (or on any successor to or substitute for such Service) for ICE LIBO USD interest rates two (2) Business Days prior to the commencement of the requested Interest Period, for a term and in an amount comparable to the Interest Period and the amount of the Eurodollar Borrowing requested (whether as an initial Eurodollar Borrowing or as a continuation of a Eurodollar Borrowing or as a conversion of an ABR Borrowing to a Eurodollar Borrowing) by the Borrower in accordance with this Agreement, which determination shall be conclusive in the absence of manifest error; provided that if the ICE LIBOR USD Service shall not be available for such Interest Period (an Impacted Interest Period ) then the LIBO Rate shall be the Interpolated Rate (as defined below); provided , that (i) if no comparable term for an Interest Period is available, the LIBO Rate shall be determined using the weighted average of the offered rates for the two terms most nearly corresponding to such Interest Period and (ii) if the Service shall no longer report ICE LIBO USD interest rates, or such interest rates cease to exist, Administrative Agent shall be permitted to select an alternate service that quotes, or alternate interest rates that reasonably approximate, the rates of interest per annum at which deposits of dollars in immediately available funds are offered by
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major financial institutions satisfactory to Administrative Agent in the London interbank market (and relating to the relevant Interest Period for the applicable principal amount on any applicable date of determination). The Interpolated Rate shall mean the rate per annum determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the ICE LIBO USD interest rate for the longest period for which the Service is available that is shorter than the Impacted Interest Period; and (b) the ICE LIBO USD interest rate for the shortest period (for which the applicable Bloomberg page is available) that exceeds the Impacted Interest Period, in each case, at such time. Notwithstanding the foregoing, the LIBO Rate shall not be less than 0%.
Lien means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the interest of a vendor or a lessor under any conditional sale agreement, ground lease, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset.
Limited Condition Acquisition means any investment or acquisition, including by way of merger, by the Borrower or one or more of its Restricted Subsidiaries permitted pursuant to this Agreement whose consummation is not conditioned upon the availability of, or on obtaining, third-party financing.
Liquidity means, as of any date of determination, the sum of (a) all amounts of Revolving Loans available to be drawn on such date of determination pursuant to the terms of this Agreement plus (b) the amount of Qualified Cash as of such date.
Loan Document Obligations means (a) the due and punctual payment in cash by the Borrower of (i) the principal of the Loans, and all accrued and unpaid interest, including the PIK Interest thereon at the rates provided in this Agreement and the Prepayment Premium in respect thereof in the amounts provided in this Agreement (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations of the Borrower under or pursuant to this Agreement and each of the other Loan Documents to which it is a party, including obligations to pay fees, expenses, reimbursement obligations and indemnification obligations and obligations to provide cash collateral, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), (b) the due and punctual payment in cash and performance of all other obligations of the Borrower under or pursuant to each of the Loan Documents to which it is a party and (c) the due and punctual payment and performance of all the obligations of each other Loan Party under or pursuant to this Agreement and each of the other Loan Documents to which it is a party (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding).
Loan Documents means this Agreement, any Loan Modification Agreement, the Guarantee Agreement, the Collateral Agreement, the other Security Documents and, except for purposes of Section 9.02, any Note delivered pursuant to Section 2.09(e).
Loan Modification Agreement means a Loan Modification Agreement, in form reasonably satisfactory to the Administrative Agent, among the Borrower, the Administrative Agent and one or more Accepting Lenders, effecting one or more Permitted Amendments and such other amendments hereto and to the other Loan Documents as are contemplated by Section 2.24.
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Loan Modification Offer has the meaning specified in Section 2.24(a).
Loan Parties means Holdings, the Borrower and any Subsidiary Loan Parties.
Loans means the loans made by the Lenders to the Borrower pursuant to this Agreement, including, for the avoidance of doubt, all Revolving Loans and all Term Loans.
LTM Period means the most recent period of twelve consecutive fiscal months of Holdings for which financial statements have been delivered, or were required to have been delivered, pursuant to Sections 5.01(a), 5.01(b) or 5.01(c), but subject to the historical amounts set forth in the last paragraph of the definition of Recurring Revenues.
Majority in Interest when used in reference to Lenders of any Class, means, at any time, (a) in the case of the Revolving Lenders, Lenders having Revolving Exposures and unused Revolving Commitments representing more than 50% of the sum of the aggregate Revolving Exposures and the unused aggregate Revolving Commitments at such time and (b) in the case of the Term Lenders of any Class, Lenders holding outstanding Term Loans of such Class representing more than 50% of all Term Loans of such Class outstanding at such time; provided that whenever there are one or more Defaulting Lenders, the total outstanding Term Loans and Revolving Exposures of, and the unused Revolving Commitments of, each Defaulting Lender shall be excluded for purposes of making a determination of the Majority in Interest.
Master Agreement has the meaning assigned to such term in the definition of Swap Agreement.
Master Intercompany Note means the Master Intercompany Note substantially in the form of Exhibit E.
Material Adverse Effect means a circumstance or condition affecting the business, financial condition, or results of operations of Holdings the Borrower and its Restricted Subsidiaries, taken as a whole, that, individually or in the aggregate, would materially adversely affect or would reasonably be expected to materially adversely affect (a) the ability of Holdings, the Borrower and the other Loan Parties, taken as a whole, to perform their payment obligations under the Loan Documents or (b) the rights and remedies of the Administrative Agent and the Lenders under the Loan Documents (except as a result of acts or omissions of the Administrative Agent or any Secured Party (other than actions or omissions taken as a direct result of the advice of or at the direction of Holdings, the Borrower or any Subsidiary)).
Material Indebtedness means Indebtedness for borrowed money (other than the Loan Document Obligations), Capital Lease Obligations, unreimbursed obligations for letter of credit drawings and financial guarantees (other than ordinary course of business contingent reimbursement obligations) or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Restricted Subsidiaries in an aggregate principal amount exceeding $2,000,000. For purposes of determining Material Indebtedness, the principal amount of the obligations in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Restricted Subsidiary would be required to pay if such Swap Agreement were terminated at such time.
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Material Intellectual Property means, collectively, any Intellectual Property owned by Holdings, the Borrower or any of its Restricted Subsidiaries that is material to the ability of the Borrower and its Subsidiaries to generate revenue, or otherwise material to the operation of their businesses.
Material Non-Public Information means (a) if the Borrower is a public reporting company, material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing for purposes of United States Federal and state securities laws, and (b) if the Borrower is not a public reporting company, information that is (i) of the type that would be required to be made publicly available if the Borrower were a public reporting company and (ii) material with respect to the Borrower and its Subsidiaries or any of their respective securities for purposes of United States Federal and state securities laws.
Material Real Property means real property (including fixtures) located in the United States and owned (but not leased or ground-leased) by any Loan Party with a book value, as reasonably determined by the Borrower in good faith, greater than or equal to $1,500,000 (it being understood that no real property owned by any Loan Party as of the date of this Agreement shall be deemed to be Material Real Property).
Material Subsidiary means (i) each Wholly Owned Restricted Subsidiary that, as of the last day of the fiscal quarter of Holdings most recently ended, had net revenues or total assets for such quarter in excess of 2.50% of the consolidated net revenues or total assets, as applicable, of the Borrower and its Restricted Subsidiaries for such quarter; provided that in the event that the Immaterial Subsidiaries, taken together, had as of the last day of the fiscal quarter of Holdings most recently ended net revenues or total assets in excess of 5.00% of the consolidated revenues or total assets, as applicable, of the Borrower and its Restricted Subsidiaries for such quarter, the Borrower shall designate at its sole discretion one or more Immaterial Subsidiaries to be a Material Subsidiary as may be necessary such that the foregoing 5.00 % limit shall not be exceeded, and any such Subsidiary shall thereafter be deemed to be an Material Subsidiary hereunder; provided , further , that the Borrower may re-designate Material Subsidiaries as Immaterial Subsidiaries so long as Borrower is in compliance with the foregoing.
Maximum Rate has the meaning assigned to such term in Section 8.16.
Moodys means Moodys Investors Service, Inc. and any successor to its rating agency business.
Mortgage means a mortgage, deed of trust, assignment of leases and rents or other security document granting a Lien on any Mortgaged Property in favor of the Administrative Agent for the benefit of the Secured Parties to secure the Secured Obligations, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time. Each Mortgage shall be in form and substance satisfactory to the Administrative Agent and the Borrower.
Mortgaged Property means each parcel of Material Real Property with respect to which a Mortgage is granted pursuant to the Collateral and Guarantee Requirement, Section 5.11, Section 5.12 or Section 5.14 (if any).
Multiemployer Plan means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
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Net Proceeds means, with respect to any event, (a) the proceeds received in respect of such event in cash or Permitted Investments, including (i) any cash or Permitted Investments received in respect of any non-cash proceeds (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment or Earn-Out, but excluding any interest payments), but only as and when received, (ii) in the case of a casualty, insurance proceeds that are actually received, and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments that are actually received, minus (b) the sum of (i) all fees and out-of-pocket expenses paid by Holdings, the Borrower and its Restricted Subsidiaries in connection with such event (including attorneys fees, investment banking fees, survey costs, title insurance premiums, and related search and recording charges, transfer taxes, deed or mortgage recording taxes, underwriting discounts and commissions, other customary expenses and brokerage, consultant, accountant and other customary fees), (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a sale and leaseback transaction or a casualty or a condemnation or similar proceeding), (x) the amount of all payments that are permitted hereunder and are made by Holdings, the Borrower and its Restricted Subsidiaries as a result of such event to repay Indebtedness (other than the Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event, (y) the pro rata portion of net cash proceeds thereof (calculated without regard to this clause (y)) attributable to minority interests and not available for distribution to or for the account of Holdings, the Borrower or its Restricted Subsidiaries as a result thereof and (z) the amount of any liabilities directly associated with such asset and retained by the Borrower or any Restricted Subsidiary and (iii) the amount of all taxes paid (or reasonably estimated to be payable), the amount of dividends and other restricted payments that Holdings, the Borrower and/or the Restricted Subsidiaries may make pursuant to Section 6.07(a)(vi)(A) or (B) as a result of such event, and the amount of any reserves established by Holdings, the Borrower and its Restricted Subsidiaries to fund contingent liabilities reasonably estimated to be payable, that are directly attributable to such event, provided that any reduction at any time in the amount of any such reserves (other than as a result of payments made in respect thereof) shall be deemed to constitute the receipt by the Borrower at such time of Net Proceeds in the amount of such reduction.
Non-Accepting Lender has the meaning assigned to such term in Section 2.24(c).
Non-Cash Charges means (a) any impairment charge or asset write-off or write-down, including impairment charges or asset write-offs or write-downs related to intangible assets (including goodwill), long-lived assets, and Investments in debt and equity securities or as a result of a change in law or regulation, in each case pursuant to GAAP, and the amortization of intangibles pursuant to GAAP (which, without limiting the foregoing, shall include any impairment charges resulting from the application of FASB Statements No. 142 and 144 and the amortization of intangibles arising pursuant to No. 141), (b) all losses from Investments recorded using the equity method, (c) all Non-Cash Compensation Expenses, (d) the non-cash impact of acquisition method accounting, (e) depreciation and amortization (including, without limitation, as they relate to acquisition accounting, amortization of deferred financing fees or costs, Capitalized Software Expenditures and amortization of unrecognized prior service costs and actuarial gains and losses related to pension and other post-employment benefits) and (f) other non-cash charges (including non-cash charges related to deferred rent) ( provided , in each case, that if any non-cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from Consolidated EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period).
Non-Cash Compensation Expense means any non-cash expenses and costs that result from the issuance of stock-based awards, partnership interest-based awards and similar incentive based compensation awards or arrangements.
Non-Consenting Lender has the meaning assigned to such term in Section 9.02(c).
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Non-Wholly Owned Subsidiary of any Person means any Subsidiary of such Person other than a Wholly Owned Subsidiary.
Not Otherwise Applied means, subject to the proviso in the definition of Qualified Cash, that such amount was not previously applied pursuant to Section 6.04(m).
Note means a promissory note of the Borrower, in substantially the form of Exhibit Q, payable to a Lender or its registered assigns in a principal amount equal to the principal amount of the Revolving Commitment or Term Loans, as applicable, of such Lender.
Offered Amount has the meaning assigned to such term in Section 2.11(a)(ii)(D)(1).
Offered Discount has the meaning assigned to such term in Section 2.11(a)(ii)(D)(1).
Organizational Documents means, with respect to any Person, the charter, articles or certificate of organization or incorporation and bylaws or other organizational or governing documents of such Person.
Other Revolving Commitments means one or more extended Revolving Commitments that result from a Loan Modification Agreement.
Other Revolving Loans means the Revolving Loans made pursuant to a Loan Modification Agreement.
Other Taxes means any and all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document, except any such Taxes that are Taxes described in clause (a)(ii) of the definition of Excluded Taxes imposed with respect to an assignment (other than an assignment made pursuant to a request by Borrower under Section 2.19 ).
Other Term Commitments means one or more Classes of term loan commitments hereunder that result from a Loan Modification Agreement.
Other Term Loans means one or more Classes of Term Loans that result from a Loan Modification Agreement.
Participant has the meaning assigned to such term in Section 8.04(c)(i).
Participant Register has the meaning assigned to such term in Section 8.04(c)(ii).
Participating Lender has the meaning assigned to such term in Section 2.11(a)(ii)(C)(2).
PBGC means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
Perfection Certificate means a certificate substantially in the form of Exhibit C.
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Permitted Acquisition means the purchase or other acquisition, by merger, consolidation or otherwise, by the Borrower or any Subsidiary of any Equity Interests in, or all or substantially all the assets of (or all or substantially all the assets constituting a business unit, division, product line or line of business of), any Person; provided that (a) in the case of any purchase or other acquisition of Equity Interests in a Person, (i) such Person, upon the consummation of such purchase or acquisition, will be a Subsidiary (including as a result of a merger or consolidation between any Subsidiary and such Person), or (ii) such Person is merged into or consolidated with a Subsidiary and such Subsidiary is the surviving entity of such merger or consolidation, (b) the business of such Person, or such assets, as the case may be, constitute a business permitted by Section 6.03(b), (c) with respect to each such purchase or other acquisition, all actions required to be taken with respect to such newly created or acquired Subsidiary (including each subsidiary thereof) or assets in order to satisfy the requirements set forth in clauses (a), (b), (c) and (d) of the definition of the term Collateral and Guarantee Requirement to the extent applicable shall have been taken to the extent required by Sections 5.11 or 5.12 (or arrangements for the taking of such actions after the consummation of the Permitted Acquisition shall have been made that are satisfactory to the Administrative Agent) (unless such newly created or acquired Subsidiary is designated as an Unrestricted Subsidiary pursuant to Section 5.13 or is otherwise an Excluded Subsidiary), (d) after giving effect to any such purchase or other acquisition (i) (at a time of consummation of such purchase or acquisition), no Event of Default shall have occurred and be continuing or (ii) in respect of a Limited Condition Acquisition (A) (on the date the agreement for such purchase or acquisition is executed), no Event of Default shall have occurred and be continuing and (B) (on the closing date of such Limited Condition Acquisition), no Event of Default under Section 7.01(a), (b), (h) or (i) shall have occurred and be continuing, (e) such acquisition shall not be hostile and shall have been approved by the Board of Directors and/or the stockholders or other equityholders of such Person, as applicable, (f) at the time of consummation of such purchase or acquisition (or in respect of a Limited Condition Acquisition, on the date the definitive agreements for such Limited Condition Acquisition are entered into), the Borrower is in Pro Forma Compliance with the Financial Performance Covenants then in effect as of the end of the most recently completed Test Period, (g) the Borrower shall have delivered to the Administrative Agent customary due diligence materials to the extent available and definitive acquisition documents, and with respect to any such purchase or acquisition the total consideration for which equals or exceeds $10,000,000 a quality of earnings report, in each case at least under this clause (g), at least five Business Days prior to the consummation of such purchase or acquisition and (h) the aggregate cash consideration for all Permitted Acquisitions shall not exceed the sum of $20,000,000 plus the Net Proceeds from the issuance of Qualified Equity Interests of Holdings that are contributed to the Borrower (which Qualified Equity Interests shall not increase the Available Equity Amount or constitute any Cure Amount that are Not Otherwise Applied).
Permitted Amendment means an amendment to this Agreement and, if applicable the other Loan Documents, effected in connection with a Loan Modification Offer pursuant to Section 2.24, providing for an extension of a maturity date applicable to the Loans and/or Commitments of the Accepting Lenders and, in connection therewith, (a) a change in the Applicable Rate with respect to the Loans and/or Commitments of the Accepting Lenders and/or (b) a change in the fees payable to, or the inclusion of new fees to be payable to, the Accepting Lenders and/or (c) additional covenants or other provisions applicable only to periods after the Latest Maturity Date at the time of such Loan Modification Offer (it being understood that to the extent that any financial maintenance covenant is added for the benefit of any such Loans and/or Commitments, no consent shall be required by the Administrative Agent or any of the Lenders if such financial maintenance covenant is either (i) also added for the benefit of any corresponding Loans remaining outstanding after the issuance or incurrence of such Loans and/or Commitments, (ii) with respect to any springing financial maintenance covenant or other covenant only applicable to, or for the benefit of, a revolving credit facility, also added for the benefit of each revolving credit facility hereunder (and not for the benefit of any term loan facility hereunder) or (iii) only applicable after the Latest Maturity Date at the time of such Loan Modification Offer).
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Permitted Encumbrances means:
(a) Liens for Taxes, assessments or governmental charges that are not overdue for a period of more than thirty (30) days or that are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
(b) Liens with respect to outstanding motor vehicle fines and Liens imposed by law, such as carriers, warehousemens, mechanics, materialmens, repairmens or construction contractors Liens and other similar Liens arising in the ordinary course of business that secure amounts not overdue for a period of more than 30 days or, if more than 30 days overdue, are unfiled and no other action has been taken to enforce such Lien or that are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP, in each case so long as such Liens do not individually or in the aggregate have a Material Adverse Effect;
(c) Liens incurred or deposits made in the ordinary course of business (i) in connection with workers compensation, unemployment insurance and other social security legislation or (ii) securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees or similar instrument for the benefit of) insurance carriers providing property, casualty or liability insurance to the Borrower or any Restricted Subsidiary or otherwise supporting the payment of items set forth in the foregoing clause (i);
(d) Liens incurred or deposits made to secure the performance of bids, trade contracts, governmental contracts and leases, statutory obligations, surety, stay, customs and appeal bonds, performance bonds, bankers acceptance facilities and other obligations of a like nature (including those to secure health, safety and environmental obligations) and obligations in respect of letters of credit, bank guarantees or similar instruments that have been posted to support the same, in each case incurred in the ordinary course of business or consistent with past practices;
(e) easements, licenses, servitudes, restrictive covenants, rights-of-way, restrictions, encroachments, protrusions, zoning restrictions and other similar encumbrances and title defects affecting real property that, in the aggregate, do not materially interfere with the ordinary conduct of the business of the Borrower and its Restricted Subsidiaries taken as a whole;
(f) leases or subleases of real or personal property granted to other Persons (as lessee thereof) that do not materially interfere with the ordinary conduct of the business of the Borrower and its Restricted Subsidiaries taken as a whole;
(g) rights of future tenants pursuant to written leases entered into in accordance with the terms hereof;
(h) Liens securing, or otherwise arising from, judgments not constituting an Event of Default under Section 7.01(j);
(i) Liens on (i) goods the purchase price of which is financed by a documentary letter of credit issued for the account of Holdings or any of its Subsidiaries or Liens on bills of lading, drafts or other documents of title arising by operation of law or pursuant to the standard terms of agreements relating to letters of credit, bank guarantees and other similar instruments;
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provided that such Lien secures only the obligations of the Borrower or such Subsidiaries in respect of such letter of credit to the extent such obligations are permitted by Section 6.01 and (ii) specific items of inventory or other goods and proceeds of any Person securing such Persons obligations in respect of bankers acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(j) Liens arising from precautionary Uniform Commercial Code financing statements or similar filings made in respect of operating leases entered into by the Borrower or any of its Subsidiaries;
(k) rights of recapture of unused real property (other than any Mortgaged Property) in favor of the seller of such property set forth in customary purchase agreements and related arrangements with any Governmental Authority;
(l) Liens in favor of deposit banks or securities intermediaries securing customary fees, expenses or charges in connection with the establishment, operation or maintenance of deposit accounts or securities accounts;
(m) liens in favor of obligations in respect of performance, bid, appeal and surety bonds and performance and completion guarantees and similar obligations provided by the Borrower or any of the Restricted Subsidiaries or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case in the ordinary course of business or consistent with past practice;
(n) Liens arising from grants of non-exclusive licenses or non-exclusive sublicenses of Intellectual Property made in the ordinary course of business;
(o) rights of setoff, bankers lien, netting agreements and other Liens arising by operation of law or by of the terms of documents of banks or other financial institutions in relation to the maintenance of administration of deposit accounts, securities accounts, cash management arrangements or in connection with the issuance of letters of credit, bank guarantees or other similar instruments;
(p) Liens arising from the right of distress enjoyed by landlords or Liens otherwise granted to landlords, in either case, to secure the payment of arrears of rent or performance of other obligations in respect of leased properties, so long as such Liens are not exercised or except where the exercise of such Liens would not reasonably be expected to have a Material Adverse Effect;
(q) Liens or security given to public utilities or to any municipality or Governmental Authority when required by the utility, municipality or Governmental Authority in connection with the supply of services or utilities to the Borrower and any other Restricted Subsidiaries;
(r) servicing agreements, development agreements, site plan agreements, subdivision agreements, facilities sharing agreements, cost sharing agreements and other agreements pertaining to the use or development of any of the assets of the Person, provided the same do not result in (i) a substantial and prolonged interruption or disruption of the business activities of the Borrower and its Restricted Subsidiaries, taken as a whole, or (ii) a Material Adverse Effect; and
(s) [reserved];
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provided that the term Permitted Encumbrances shall not include any Lien securing Indebtedness for borrowed money other than Liens referred to in clauses (d) and (k) above securing obligations under letters of credit or bank guarantees or similar instruments related thereto and in clause (g) above, in each case to the extent any such Lien would constitute a Lien securing Indebtedness for borrowed money.
Permitted Holders means, collectively, (a)(i) Aaron Skonnard or (ii) Skonnard Consulting, Inc. so long as the majority of voting stock of such Person is Controlled by Aaron Skonnard and his spouse or by a trust or other estate planning vehicle under the Control of Aaron Skonnard and his spouse; (b)(i) Fredrick Onion or (ii) Onion Consulting, Inc. so long as the majority of voting stock of such Person is Controlled by Fredrick Onion and his spouse or by a trust or other estate planning vehicle under the Control of Fredrick Onion and his spouse; (c)(i) Keith Sparkjoy or (ii) Wyecliff Associates, Inc. so long as the majority of voting stock of such Person is Controlled by Keith Sparkjoy and his spouse or by a trust or other estate planning vehicle under the Control of Keith Sparkjoy and his spouse; and (d) the Sponsor.
Permitted Investments means any of the following, to the extent owned by the Borrower or any Restricted Subsidiary:
(a) dollars, euros, Canadian dollars or such other currencies held by it from time to time in the ordinary course of business;
(b) readily marketable obligations issued or directly and fully guaranteed or insured by the government or any agency or instrumentality of (i) the United States, (ii) the United Kingdom, (iii) Canada, (iv) Switzerland or (v) any member nation of the European Union rated A (or the equivalent thereof) or better by S&P and A2 (or the equivalent thereof) or better by Moodys, having average maturities of not more than 24 months from the date of acquisition thereof; provided that the full faith and credit of such country or such member nation of the European Union is pledged in support thereof;
(c) time deposits with, or certificates of deposit or bankers acceptances of, any commercial bank that (i) is a Lender or (ii) has combined capital and surplus of at least $250,000,000 in the case of U.S. banks and $100,000,000 (or the U.S. dollar equivalent as of the date of determination) in the case of foreign banks (any such bank in the foregoing clauses (i) or (ii) being an Approved Bank ), in each case with average maturities of not more than 12 months from the date of acquisition thereof;
(d) commercial paper and variable or fixed rate notes issued by an Approved Bank (or by the parent company thereof) or any variable or fixed rate note issued by, or guaranteed by, a corporation rated A-2 (or the equivalent thereof) or better by S&P or P-2 (or the equivalent thereof) or better by Moodys, in each case with average maturities of not more than 12 months from the date of acquisition thereof;
(e) repurchase agreements entered into by any Person with an Approved Bank, a bank or trust company (including any of the Lenders) or recognized securities dealer covering securities described in clauses (b) and (c) above;
(f) marketable short-term money market and similar highly liquid funds substantially all of the assets of which are comprised of securities of the types described in clauses (b) through (e) above;
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(g) securities with average maturities of 12 months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, the United Kingdom, Canada, Switzerland, a member of the European Union or by any political subdivision or taxing authority of any such state, member, commonwealth or territory having an investment grade rating from either S&P or Moodys (or the equivalent thereof);
(h) investments with average maturities of 12 months or less from the date of acquisition in mutual funds rated AA- (or the equivalent thereof) or better by S&P or Aa3 (or the equivalent thereof) or better by Moodys;
(i) instruments equivalent to those referred to in clauses (a) through (h) above denominated in euros or any other foreign currency comparable in credit quality and tenor to those referred to above and customarily used by corporations for cash management purposes in any jurisdiction outside the United States to the extent reasonably required in connection with any business conducted by any Subsidiary organized in such jurisdiction;
(j) investments, classified in accordance with GAAP as current assets of the Borrower or any Subsidiary, in money market investment programs that are registered under the Investment Company Act of 1940 or that are administered by financial institutions having capital of at least $250,000,000 or its equivalent, and, in either case, the portfolios of which are limited such that substantially all of such investments are of the character, quality and maturity described in clauses (a) through (i) of this definition;
(k) with respect to any Subsidiary that is organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia: (i) obligations of the national government of the country in which such Subsidiary maintains its chief executive office and principal place of business; provided such country is a member of the Organization for Economic Cooperation and Development, in each case maturing within one year after the date of investment therein, (ii) certificates of deposit of, bankers acceptances of, or time deposits with, any commercial bank which is organized and existing under the laws of the country in which such Subsidiary maintains its chief executive office and principal place of business; provided such country is a member of the Organization for Economic Cooperation and Development, and whose short-term commercial paper rating from S&P is at least A-2 or the equivalent thereof or from Moodys is at least P-2 or the equivalent thereof (any such bank being an Approved Foreign Bank ), and in each case with maturities of not more than 24 months from the date of acquisition and (iii) the equivalent of demand deposit accounts which are maintained with an Approved Foreign Bank; and
(l) investment funds investing at least 90% of their assets in securities of the types described in clauses (a) through (k) above.
Permitted Refinancing means, with respect to any Person, any modification, refinancing, refunding, renewal or extension of any Indebtedness of such Person; provided that (a) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so modified, refinanced, refunded, renewed or extended except by an amount equal to unpaid accrued interest and premium thereon plus other amounts paid, and fees and expenses incurred, in connection with such modification, refinancing, refunding, renewal or extension and by an amount equal to the amount of any existing commitments unutilized thereunder so long as such unutilized commitments, immediately prior to giving effect to such Permitted Refinancing, would have been permitted to be fully drawn, (b) other than with respect to a Permitted Refinancing in respect of Indebtedness permitted pursuant to Section 6.01(a)(v), Indebtedness resulting from such
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modification, refinancing, refunding, renewal or extension has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being modified, refinanced, refunded, renewed or extended, (c) if the Indebtedness being modified, refinanced, refunded, renewed or extended is subordinated in right of payment to the Loan Document Obligations, Indebtedness resulting from such modification, refinancing, refunding, renewal or extension is subordinated in right of payment to the Loan Document Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being modified, refinanced, refunded, renewed or extended, (d) if the Indebtedness being modified, refinanced, refunded, renewed or extended is permitted pursuant to Section 6.01(a)(viii) or (a)(xiii), such Indebtedness complies with the Required Additional Debt Terms, (e) if the Indebtedness being modified, refinanced, refunded, renewed or extended is permitted pursuant to Section 6.01(a)(ii), (i) the other terms and conditions of any such Permitted Refinancing shall be as agreed between the Borrower and the lenders providing any such Permitted Refinancing and (ii) the primary obligor in respect of, and/or the Persons (if any) that Guarantee, the Indebtedness resulting from such modification, refinancing, refunding, renewal or extension are the primary obligor in respect of, and/or Persons (if any) that guaranteed the Indebtedness being modified, refinanced, refunded, renewed or extended and (f) if the Indebtedness being modified, refinanced, refunded, renewed or extended is permitted pursuant to Section 6.01(a)(viii) or (a)(xiii), the Indebtedness resulting from such modification, refinancing, refunding, renewal or extension is (x) unsecured if the Indebtedness being modified, refinanced, refunded, renewed or extended is unsecured or (y) not secured on a more favorable basis than the Indebtedness being modified, refinanced, refunded, renewed or extended if such Indebtedness being modified, refinanced, refunded, renewed or extended is secured. For the avoidance of doubt, it is understood that a Permitted Refinancing may constitute a portion of an issuance of Indebtedness in excess of the amount of such Permitted Refinancing; provided that such excess amount is otherwise permitted to be incurred under Section 6.01. For the avoidance of doubt, it is understood and agreed that a Permitted Refinancing includes successive Permitted Refinancings of the same Indebtedness.
Person means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity, whether existing as of the Effective Date or subsequently created or coming to exist.
PIK Interest has the meaning assigned to such term in Section 2.13(d).
Plan means any employee pension benefit plan as such term is defined in Section 3(2) of ERISA (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which a Loan Party or any ERISA Affiliate is an employer as defined in Section 3(5) of ERISA.
Planned Expenditures has the meaning assigned to such term in clause (b) of the definition of Excess Cash Flow.
Platform has the meaning assigned to such term in Section 5.01.
Pledged Equity Interests has the meaning set forth in the Collateral Agreement.
Pluralsight Holdings has the meaning assigned to such term in the preliminary statements hereto.
Pluralsight Management means Pluralsight Management, Inc., a Delaware corporation.
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Post-Transaction Period means, with respect to any Specified Transaction, the period beginning on the date such Specified Transaction is consummated and ending on the last day of the full twelve-month period following the date on which such Specified Transaction is consummated.
Prepayment Event means:
(a) (i) any non-ordinary course sale, transfer or other disposition of any property or asset of the Borrower or any of its Restricted Subsidiaries permitted by (A) Section 6.05(k) other than dispositions resulting in aggregate Net Proceeds not exceeding (1) $1,500,000 in the case of any single transaction or series of related transactions and (2) $3,000,000 for all such transactions during any fiscal year of Holdings or (B) Section 6.05(f) other than dispositions constituting a sale-leaseback to the extent consummated substantially contemporaneously with the acquisition by the Borrower or such Restricted Subsidiary of the property subject to such sale-leaseback transaction or (ii) any Casualty Event other than Casualty Events resulting in aggregate Net Proceeds not exceeding (A) $1,500,000 in the case of any single transaction or series of related transactions and (B) $3,000,000 for all such transactions during any fiscal year of Holdings;
(b) the incurrence by the Borrower or any of its Restricted Subsidiaries of any Indebtedness, other than Indebtedness permitted under Section 6.01 or permitted by the Required Lenders pursuant to Section 9.02; or
(c) the issuance or sale of Qualified Equity Interests by Holdings or any of its Subsidiaries to be contributed to the Borrower as cash common equity for the purpose of curing a breach of any Financial Performance Covenant pursuant to Section 7.02.
Prepayment Premium has the meaning assigned to such term in Section 2.11(h)(i).
Prepayment Premium Event has the meaning assigned to such term in Section 2.11(h)(i).
Pro Forma Adjustment means, for any LTM Period or Test Period, as applicable, that includes all or any part of a fiscal quarter included in any Post-Transaction Period with respect to the Acquired EBITDA of the applicable Pro Forma Entity or the Consolidated EBITDA of the Borrower, the pro forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, projected by the Borrower in good faith as a result of (a) actions taken, prior to or during such Post-Transaction Period, for the purposes of realizing reasonably identifiable and quantifiable cost savings, or (b) any additional costs incurred prior to or during such Post-Transaction Period in connection with the combination of the operations of such Pro Forma Entity with the operations of the Borrower and its Restricted Subsidiaries; provided that (A) so long as such actions are taken prior to or during such Post-Transaction Period or such costs are incurred prior to or during such Post-Transaction Period it may be assumed, for purposes of projecting such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, that such cost savings will be realizable during the entirety of such LTM Period or Test Period, as applicable, or such additional costs will be incurred during the entirety of such LTM Period or Test Period, as applicable, (B) any Pro Forma Adjustment to Consolidated EBITDA shall be certified by a Financial Officer, the chief executive officer or president of Holdings and (C) any such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without duplication for cost savings or additional costs already included in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, for such LTM Period or Test Period, as applicable; provided that the foregoing pro forma adjustments may be applied to any such test or covenant solely to the extent that such adjustments are consistent with the definition of Consolidated EBITDA and are subject to the limitations set forth therein (including any limitations on adjustments set forth in clauses (a)(viii) and (b) therein).
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Pro Forma Basis , Pro Forma Compliance and Pro Forma Effect mean, with respect to compliance with any test, financial ratio or covenant hereunder required by the terms of this Agreement to be made on a Pro Forma Basis, that (a) to the extent applicable, the Pro Forma Adjustment shall have been made and (b) all Specified Transactions and the following transactions in connection therewith that have been made during the applicable period of measurement or subsequent to such period and prior to or simultaneously with the event for which the calculation is made shall be deemed to have occurred as of the first day of the applicable period of measurement in such test, financial ratio or covenant: (i) income statement items (whether positive or negative) attributable to the property or Person subject to such Specified Transaction, (A) in the case of a Disposition of all or substantially all Equity Interests in any subsidiary of Holdings or any division, product line, or facility used for operations of Holdings, the Borrower or any of its Subsidiaries, shall be excluded and (B) in the case of a Permitted Acquisition or Investment described in the definition of Specified Transaction, shall be included, (ii) any retirement of Indebtedness, and (iii) any Indebtedness incurred or assumed by Holdings, the Borrower or any of its Subsidiaries in connection therewith and if such Indebtedness has a floating or formula rate, shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate that is or would be in effect with respect to such Indebtedness as at the relevant date of determination and interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period; provided that, without limiting the application of the Pro Forma Adjustment pursuant to clause (a) above, the foregoing pro forma adjustments may be applied to any such test or covenant solely to the extent that such adjustments are consistent with the definition of Consolidated EBITDA (including any limitations on adjustments set forth in clauses (a)(viii) and (b) therein) and give effect to operating expense reductions that are (i) (x) directly attributable to such transaction, (y) expected to have a continuing impact on Holdings, the Borrower or any of its Subsidiaries and (z) factually supportable or (ii) otherwise consistent with the definition of Pro Forma Adjustment, provided , further , that (1) any determination of Pro Forma Compliance with the Financial Performance Covenant set forth in Section 6.10(a) required at any time prior to September 30, 2017, shall be made assuming that compliance with such Financial Performance Covenant for the Test Period ending on September 30, 2017 is required with respect to the most recent LTM Period prior to such time, and (2) all pro forma adjustments made pursuant to this definition (including the Pro Forma Adjustment) with respect to the Transactions shall be consistent in character and amount with the adjustments reflected in the Pro Forma Financial Statements. References herein to Pro Forma Compliance or compliance on a pro forma basis with any Financial Performance Covenant shall mean Pro Forma Compliance with such Financial Performance Covenant.
Pro Forma Disposal Adjustment means, for any LTM Period or Test Period, as applicable, that includes all or a portion of a fiscal quarter included in any Post-Transaction Period with respect to any Sold Entity or Business, the pro forma increase or decrease in Consolidated EBITDA projected by the Borrower in good faith as a result of contractual arrangements between the Borrower or any Restricted Subsidiary entered into with such Sold Entity or Business at the time of its disposal or within the Post-Transaction Period and which represent an increase or decrease in Consolidated EBITDA which is incremental to the Disposed EBITDA of such Sold Entity or Business for the most recent LTM Period or Test Period, as applicable, prior to its disposal.
Pro Forma Entity has the meaning given to such term in the definition of Acquired EBITDA.
Pro Forma Financial Statements has the meaning assigned to such term in Section 3.04(b).
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Proposed Change has the meaning assigned to such term in Section 9.02(c).
Public Lender has the meaning assigned to such term in Section 5.01.
Purchase Accounting Differences means the excess, if any, of (a) the amount of deferred revenue and customer deposits reflected on the balance sheet of the Borrower and its Restricted Subsidiaries prepared immediately prior to the consummation of any Permitted Acquisition over (b) the amount of deferred revenue and customer deposits reflected on the balance sheet of the Borrower and its Restricted Subsidiaries prepared immediately after the consummation of such Permitted Acquisition, as the case may be, due to adjustments associated with purchase accounting in accordance with GAAP. Such excess, if any, shall be allocated to periods after the applicable Permitted Acquisition closing date in the amounts and in the manner set forth in writing provided to the Administrative Agent, which schedule shall be mutually agreed to in good faith by the Borrower and the Administrative Agent within sixty (60) days after the applicable Permitted Acquisition closing date (or such later date as may be agreed to by the Administrative Agent in its sole discretion).
Purchase Money Obligation means, for any Person, the obligations of such Person in respect of Indebtedness incurred for the purpose of financing all or any part of the purchase price of any fixed or capital assets or the cost of installation, construction or improvement of any fixed or capital assets.
Qualified Cash means, as of any date of determination, the amount of Unrestricted Cash of the Borrower and its Domestic Subsidiaries on such date that is in deposit accounts or in securities accounts, or any combination thereof, and which such deposit account or securities account is the subject of a Control Agreement in favor of the Collateral Agent and is maintained by a branch office of the bank or securities intermediary located, in each case, within the United States; provided that such deposit account or securities account shall not be required to be subject to a Control Agreement until ninety (90) days following the Closing Date; provided , further , that amounts used in the determination of Qualified Cash as of any date of determination shall not constitute amounts Not Otherwise Applied pursuant to the definition thereof.
Qualified Equity Interests means Equity Interests of Holdings or the Borrower other than Disqualified Equity Interests.
Qualifying Lender has the meaning assigned to such term in Section 2.11(a)(ii)(D)(3).
Recurring Revenues means, with respect to any period, all recurring maintenance and subscription revenues, all contractually recurring software revenues, and any other recurring revenues sold by the Borrower or any of Restricted Subsidiaries in the ordinary course of business, which recurring revenues are earned during such period net of any discounts; provided, that Recurring Revenues will be adjusted by the applicable allocation of Purchase Accounting Differences. Notwithstanding anything to the contrary, it is agreed, that for the purpose of calculating the Total Net Recurring Revenue Leverage Ratio for any period that includes the fiscal months ended on May 31, 2016, June 30, 2016, July 31, 2016, August 31, 2016, September 30, 2016, October 31, 2016, November 30, 2016, December 31, 2016, January 31, 2017, February 28, 2017, March 31, 2017, April 30, 2017 and May 31, 2017 shall be deemed to be $11,359,871, $10,780,307, $11,146,202, $11,303,663, $10,792,428, $11,461,924, $11,147,178, $11,670,357, $11,982,842, $11,098,215, $14,157,482, $12,328,960 and $13,054,583, respectively.
Register has the meaning assigned to such term in Section 8.04(b)(iv).
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Regulation D means Regulation D of the Board of Governors as from time to time in effect and all official rulings and interpretations thereunder or thereof.
Related Parties means, with respect to any specified Person, such Persons Affiliates and the partners, directors, officers, employees, trustees, agents, controlling persons, advisors and other representatives of such Person and of each of such Persons Affiliates and permitted successors and assigns of each of the foregoing.
Release means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) and including the environment within any building, or any occupied structure, facility or fixture.
Removal Effective Date has the meaning assigned to such term in Section 7.06.
Required Additional Debt Terms means with respect to any Indebtedness, (a) such Indebtedness does not mature earlier than the Latest Maturity Date (except in the case of customary bridge loans which, subject to customary conditions (including no payment or bankruptcy event of default), would either automatically be converted into or required to be exchanged for permanent refinancing which does not mature earlier than 91st day after to the Latest Maturity Date)) or have a Weighted Average Life to Maturity shorter than the remaining Weighted Average Life to Maturity of the Term Loans, (b) such Indebtedness does not have mandatory redemption features (other than customary asset sale, insurance and condemnation proceeds events, change of control offers or events of default or, if term loans, excess cash flow prepayments applicable to periods before the Latest Maturity Date) that could result in redemptions of such Indebtedness prior to the 91 st day after the Latest Maturity Date in any mandatory repayments or prepayments in respect of the Initial Term Loans), (c) such Indebtedness is not guaranteed by any entity that is not a Loan Party and such Indebtedness that is not secured, (d) the covenants and events of default, shall not be more restrictive to the Borrower, when taken as a whole, than the terms of the Initial Term Loans or Revolving Loans, as applicable, unless (1) the Lenders under the Initial Term Loans or Revolving Loans, as applicable, (it being acknowledged that with respect to any springing financial maintenance covenant or other covenant or provision only applicable to, or for the benefit of, a revolving credit facility, shall also be added solely for the benefit of each revolving credit facility hereunder (and not for the benefit of any term loan facility hereunder)), also receive the benefit of such more restrictive terms (together with, at the election of the Borrower, any applicable equity cure provisions with respect to any financial maintenance covenant) (it being understood and agreed that to the extent any covenant is added for the benefit of any such Indebtedness, no consent shall be required from the Administrative Agent or any Lender to the extent that such covenant is also added for the benefit of any corresponding existing Term Loans or Revolving Loans, as applicable), (2) any such provisions apply after the Latest Maturity Date existing at such time, or (3) such terms shall be satisfactory to the Administrative Agent and the Borrower; provided that a certificate of a Responsible Officer delivered to the Administrative Agent in connection with the incurrence of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such resulting Indebtedness and copies of the principal documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement, shall be conclusive evidence that such terms and conditions satisfy the foregoing requirement unless the Administrative Agent notifies the Borrower within fifteen (15) Business Days that it disagrees with such determination (including a reasonable description of the basis upon which it disagrees).
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Required Lenders means, at any time, Lenders having Revolving Exposures, Term Loans and unused Commitments representing more than 50% of the aggregate Revolving Exposures, outstanding Term Loans and unused Commitments at such time; provided that (a) whenever there are one or more Defaulting Lenders, the total outstanding Term Loans and Revolving Exposures of, and the unused Revolving Commitments of, each Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders; and (b) in no event shall Required Lenders include fewer than two (2) Lenders who are not Affiliates of one another at any time when there are two (2) or more Lenders who are not Affiliates of one another.
Required Revolving Lenders means, at any time, Lenders having Revolving Exposures and unused Revolving Commitments representing more than 50% of the aggregate Revolving Exposures and unused Revolving Commitments at such time; provided that (a) whenever there are one or more Defaulting Lenders, the Revolving Exposures of, and the unused Revolving Commitments of, each Defaulting Lender shall be excluded for purposes of making a determination of Required Revolving Lenders; and (b) in no event shall Required Revolving Lenders include fewer than two (2) Revolving Lenders who are not Affiliates of one another at any time when there are two (2) or more Revolving Lenders who are not Affiliates of one another.
Requirements of Law means, with respect to any Person, any statutes, laws, treaties, rules, regulations, orders, decrees, writs, injunctions or determinations of any arbitrator or court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
Resignation Effective Date has the meaning assigned to such term in Section 7.06.
Responsible Officer means the chief executive officer, president, vice president, chief financial officer, treasurer or assistant treasurer, secretary or assistant secretary, or other similar officer, manager or a member of the Board of Directors of a Loan Party and with respect to certain limited liability companies or partnerships that do not have officers, any manager, sole member, managing member or general partner thereof, and as to any document delivered on the Effective Date or thereafter pursuant to paragraph (a)(i) of the definition of the term Collateral and Guarantee Requirement, any secretary or assistant secretary of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
Restricted Payment means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Restricted Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Equity Interests in the Borrower or any Restricted Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any Restricted Subsidiary.
Restricted Subsidiary means any Subsidiary of the Borrower other than an Unrestricted Subsidiary.
Retained Declined Proceeds has the meaning assigned to such term in Section 2.11(e).
Retained ECF Builder Basket has the meaning assigned to such term in the definition of Available Amount.
Revolving Availability Period means the period from and including the Effective Date to (but excluding) the earlier of the Revolving Maturity Date and the date of termination of the Revolving Commitments.
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Revolving Commitment means, with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans hereunder, expressed as an amount representing the maximum possible aggregate amount of such Lenders Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to (i) assignments by or to such Lender pursuant to an Assignment and Assumption or (ii) a Loan Modification Agreement. The initial amount of each Lenders Revolving Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption or Loan Modification Agreement pursuant to which such Lender shall have assumed its Revolving Commitment, as the case may be. The initial aggregate amount of the Lenders Revolving Commitments is $5,000,000.
Revolving Exposure means, with respect to any Revolving Lender at any time, the sum of the outstanding principal amount of such Revolving Lenders Revolving Loans at such time.
Revolving Lender means a Lender with a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Exposure.
Revolving Loan means a Loan made pursuant to clause (b) of Section 2.01.
Revolving Maturity Date means (i) June 12, 2022 (or if such day is not a Business Day, the immediately preceding Business Day) or (ii) with respect to any Revolving Lender that has extended its Revolving Commitment pursuant to a Permitted Amendment, the extended maturity date set forth in any such Loan Modification Agreement.
Sanctioned Country means, at any time, a country or territory which is itself the subject or target of any Sanctions (at the time of this Agreement, the Crimea region of Ukraine, Cuba, Iran, North Korea, Syria and Sudan).
Sanctions means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, or Her Majestys Treasury of the United Kingdom.
S&P means Standard & Poors Ratings Services, a Standard & Poors Financial Services LLC business, and any successor to its rating agency business.
SEC means the Securities and Exchange Commission or any Governmental Authority succeeding to any of its principal functions.
Secured Obligations means (a) the Loan Document Obligations and (b) the Secured Swap Obligations (excluding (i) with respect to any Loan Party, Excluded Swap Obligations of such Loan Party and (ii) Secured Swap Obligations in excess of $4,000,000).
Secured Parties has the meaning assigned to such term in the Collateral Agreement.
Secured Swap Obligations means the due and punctual payment and performance of all obligations of the Borrower or any Subsidiary Loan Party under each Swap Agreement that (a) is with a counterparty that is the Administrative Agent or any of its Affiliates, (b) is in effect on the Effective Date with a counterparty that is a Lender, an Agent or an Affiliate of a Lender or an Agent as of the Effective Date, (c) is entered into after the Effective Date with any counterparty that is a Lender, an Agent or an Affiliate of a Lender or an Agent at the time such Swap Agreement is entered into or (d) is with any other Person in connection with an arrangement entered into in the ordinary course of business and not for speculative purposes for the purpose of hedging the foreign currency, interest rate or commodity risk associated with the operations of the Borrower and its Restricted Subsidiaries.
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Security Documents means the Collateral Agreement, the Mortgages, each Control Agreement and each other security agreement or pledge agreement executed and delivered pursuant to the Collateral and Guarantee Requirement, Sections 5.11, 5.12 or 5.14 to secure any of the Secured Obligations.
Sold Entity or Business has the meaning assigned to such term in the definition of the term Consolidated EBITDA.
Solicited Discount Proration has the meaning assigned to such term in Section 2.11(a)(ii)(D)(3).
Solicited Discounted Prepayment Amount has the meaning assigned to such term in Section 2.11(a)(ii)(D)(1).
Solicited Discounted Prepayment Notice means an irrevocable written notice by the Borrower pursuant to Section 2.11(a)(ii)(D) substantially in the form of Exhibit M.
Solicited Discounted Prepayment Offer means an irrevocable written by each Term Lender pursuant to Section 2.11(a)(ii)(D) substantially in the form of Exhibit N.
Solicited Discounted Prepayment Response Date has the meaning assigned to such term in Section 2.11(a)(ii)(D)(1).
Specified Discount has the meaning assigned to such term in Section 2.11(a)(ii)(B)(1).
Specified Discount Prepayment Amount has the meaning assigned to such term in Section 2.11(a)(ii)(B)(1).
Specified Discount Prepayment Notice means an irrevocable written notice by the Borrower pursuant to Section 2.11(a)(ii)(B) substantially in the form of Exhibit I.
Specified Discount Prepayment Response means an irrevocable written response by each Term Lender pursuant to Section 2.11(a)(ii)(B) substantially in the form of Exhibit J.
Specified Discount Prepayment Response Date has the meaning assigned to such term in Section 2.11(a)(ii)(B)(1).
Specified Discount Proration has the meaning assigned to such term in Section 2.11(a)(ii)(B)(3).
Specified Transaction means, with respect to any period, any Investment, sale, transfer or other disposition of assets, incurrence or repayment of Indebtedness, Restricted Payment, subsidiary designation or other event that by the terms of the Loan Documents requires Pro Forma Compliance with a test or covenant hereunder or requires such test or covenant to be calculated on a Pro Forma Basis.
Sponsor means, collectively, Insight, Iconiq and each of their respective Controlled Investment Affiliates.
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Starter Basket has the meaning assigned to such term in the definition of Available Amount.
Statutory Reserves means for any Interest Period for any Eurodollar Borrowing, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the United States Federal Reserve System in New York City with deposits exceeding one billion dollars against Eurocurrency liabilities (as such term is used in Regulation D). Eurodollar Borrowings shall be deemed to constitute Eurodollar liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any Lender under Regulation D.
Submitted Amount has the meaning assigned to such term in Section 2.11(a)(ii)(C)(1).
Submitted Discount has the meaning assigned to such term in Section 2.11(a)(ii)(C)(1).
subsidiary means, with respect to any Person (the parent ) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parents consolidated financial statements if such financial statements were prepared in accordance with GAAP, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held (unless parent does not Control such entity), or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent; in each case, whether existing as of the Effective Date or subsequently created or coming to exist.
Subsidiary means any subsidiary of the Borrower (unless otherwise specified).
Subsidiary Loan Party means each Subsidiary of the Borrower that is a party to the Guarantee Agreement.
Swap Agreement means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a Master Agreement ), including any such obligations or liabilities under any Master Agreement.
Taxes means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
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Term Commitment means with respect to any Lender, its Initial Term Commitment, Other Term Commitment of any Class or any combination thereof (as the context may require).
Term Lender means a Lender with a Term Commitment or an outstanding Term Loan.
Term Loans means, individually or collectively as the context requires, Initial Term Loans and Other Term Loans.
Term Maturity Date means June 12, 2023 (or, with respect to any Term Lender that has the maturity date of its Term Loans pursuant to a Permitted Amendment, the extended maturity date set forth in any such Loan Modification Agreement).
Test Period means, at any date of determination, the period of four consecutive fiscal quarters of Holdings then last ended as of such time for which financial statements have been delivered pursuant to Section 5.01(a) or (b); provided that for any date of determination before the delivery of the first financial statements pursuant to Section 5.01(a) or (b), the Test Period shall be the period of four consecutive fiscal quarters of Holdings then last ended as of such time.
Total Net Leverage Ratio means, as of any date of determination, the ratio, on a Pro Forma Basis, of (a) (x) Consolidated Total Indebtedness of Holdings and its Restricted Subsidiaries on such date minus (y) Qualified Cash on such date minus (z) the aggregate principal amount of Revolving Loans that are used to cash collateralize letters of credit permitted pursuant to Sections 6.01(a)(xvi) and Section 6.02(s), to (b) Consolidated EBITDA for the most recently completed LTM Period.
Total Net Recurring Revenue Leverage Ratio shall mean, at any date of determination, the ratio, on a Pro Forma Basis, of (a) (x) Consolidated Total Indebtedness of Holdings and its Restricted Subsidiaries on such date minus (y) Qualified Cash minus (z) the aggregate principal amount of Revolving Loans that are used to cash collateralize letters of credit permitted pursuant to Sections 6.01(a)(xvi) and Section 6.02(s), to (b) Recurring Revenues of the Borrower and its Restricted Subsidiaries for the most recently completed LTM Period; provided that Recurring Revenues attributable to Restricted Subsidiaries that are not Loan Parties shall be excluded from the foregoing calculation.
Transaction Costs means all fees, costs and expenses incurred or payable by Holdings, the Borrower or any other Subsidiary in connection with the Transactions.
Transactions means (a) the Financing Transactions, (b) the payment of the Transaction Costs and (c) the repayment of the amounts outstanding under the Existing Credit Agreement as of the Effective Date.
Type , when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
UCC or Uniform Commercial Code means the Uniform Commercial Code as in effect from time to time in the State of New York; provided , however , that, at any time, if by reason of mandatory provisions of law, any or all of the perfection or priority of the Collateral Agents security interest in any item or portion of the Collateral is governed by the Uniform Commercial Code as in effect in a U.S. jurisdiction other than the State of New York, the term UCC and Uniform Commercial Code shall mean the Uniform Commercial Code as in effect, at such time, in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority and for purposes of definitions relating to such provisions.
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Unaudited Financial Statements means the unaudited consolidated balance sheet of Holdings and its Subsidiaries, and the related statements of operations and comprehensive income, shareholders equity and cash flows for the fiscal quarter ended March 31, 2017.
Undisclosed Administration means in relation to a Lender the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official by a supervisory authority or regulator under or based on the law in the country where such Lender is subject to home jurisdiction supervision if applicable law requires that such appointment is not to be publicly disclosed.
United States Tax Compliance Certificate has the meaning assigned to such term in Section 2.17(f)(ii)(B).
Unrestricted Cash means, at any time, the aggregate amount of unrestricted cash and Permitted Investments described in clauses (b) through (f) of the definition thereof that are held in accounts of the Borrower or any Domestic Subsidiary (whether or not held in an account pledged to the Administrative Agent or Collateral Agent); provided that Unrestricted Cash shall not include (x) the proceeds of any Cure Amount or (y) any cash or Permitted Investments that are subject to a Lien (other than any Lien in favor of the Administrative Agent or the Collateral Agent).
Unrestricted Subsidiary means any Subsidiary designated by the Borrower as an Unrestricted Subsidiary pursuant to Section 5.13. As of the Effective Date, there are no Unrestricted Subsidiaries.
U.S. and United States mean the United States of America.
USA PATRIOT Act means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended from time to time.
Weighted Average Life to Maturity means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then outstanding principal amount of such Indebtedness.
Wholly Owned Restricted Subsidiary means any Restricted Subsidiary that is a Wholly Owned Subsidiary.
Wholly Owned Subsidiary means, with respect to any Person at any date, a subsidiary of such Person of which securities or other ownership interests representing 100% of the Equity Interests (other than (a) directors qualifying shares and (b) nominal shares issued to foreign nationals to the extent required by applicable Requirements of Law) are, as of such date, owned, controlled or held by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person.
Withdrawal Liability means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
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Section 1.02 Classification of Loans and Borrowings .
For purposes of this Agreement, Loans and Borrowings may be classified and referred to by Class ( e.g ., a Revolving Loan ) or by Type ( e.g ., a Eurodollar Loan or ABR Loan ) or by Class and Type ( e.g ., a Eurodollar Revolving Loan ). Borrowings also may be classified and referred to by Class ( e.g ., a Revolving Loan Borrowing or Initial Term Loan Borrowing ) or by Type ( e.g ., a Eurodollar Borrowing ) or by Class and Type ( e.g ., a Eurodollar Revolving Loan Borrowing ). For the avoidance of doubt, reference to Term Loan Borrowings herein shall include Initial Term Loan Borrowings.
Section 1.03 Terms Generally .
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. Unless the context requires otherwise, (a) any definition of or reference to any agreement (including this Agreement and the other Loan Documents), instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, amended and restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or other modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Persons successors and assigns (subject to any restrictions on assignment set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions thereof, (c) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement; (e) the words asset and property shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights and (f) references to agreements and other contractual instruments shall be deemed to include subsequent amendments, restatements, extensions, replacements, refinancing, substitutions, assignments and other modifications and supplements thereto, but only to the extent such amendments, restatements, extensions, replacements, refinancing, substitutions, assignments and other modifications and supplements are not prohibited by the terms of this Agreement or any other Loan Document.
Section 1.04 Accounting Terms; GAAP .
(a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP, except as otherwise specifically prescribed herein.
(b) Notwithstanding anything to the contrary herein, for purposes of determining compliance with any test contained in this Agreement, the Total Net Leverage Ratio, the Total Net Recurring Revenue Leverage Ratio and any other financial ratio or test shall be calculated on a Pro Forma Basis to give effect to all Specified Transactions that have been made during the applicable period of measurement or subsequent to such period and prior to or simultaneously with the event for which the calculation is made.
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Section 1.05 Effectuation of Transactions .
All references herein to Holdings, the Borrower and the other Subsidiaries shall be deemed to be references to such Persons, and all the representations and warranties of Holdings, the Borrower and the other Loan Parties contained in this Agreement and the other Loan Documents shall be deemed made, in each case, after giving effect to the Transactions to occur on the Effective Date, unless the context otherwise requires.
Section 1.06 Limited Conditionality Acquisition .
Notwithstanding anything in this Agreement or any Loan Document to the contrary, when (a) calculating any applicable ratio, the amount or availability of the Available Amount or any other basket based on Consolidated Net Income, Consolidated EBITDA or total assets or determining other compliance with this Agreement, in connection with incurrence of Indebtedness for the purposes of financing a Limited Condition Acquisition or making an Investment that is a Limited Condition Acquisition and (b) determining compliance with any provision of this Agreement which requires that no Default or Event of Default has occurred, is continuing or would result therefrom, to the extent that the incurrence of any Indebtedness referred to in clause (a) or the making of any Investment referred to in clause (a) would not be permitted if such Default or Event of Default then exists or would result therefrom, in each case in connection with a Limited Condition Acquisition, the date of determination of such ratio or other provisions or determination of whether any Default or Event of Default has occurred, is continuing or would result therefrom shall, at the option of the Borrower (the Borrowers election to exercise such option in connection with any Limited Condition Acquisition, an LCA Election ), be deemed to be the date the definitive agreements for such Limited Condition Acquisition are entered into (the LCA Test Date ). If on a pro forma basis after giving effect to such Limited Condition Acquisition and the other transactions to be entered into in connection therewith (including any incurrence of Indebtedness and the use of proceeds thereof) as if such Limited Condition Acquisition or other transactions had occurred at the beginning of the most recent LTM Period or Test Period, as applicable, ending prior to the LCA Test Date for which financial statements of the Borrower have been delivered pursuant to Section 5.01(a), (b) or (c), as applicable, the Borrower could have taken such action on the relevant LCA Test Date in compliance with the applicable ratios or other provisions, such provisions shall be deemed to have been complied with. For the avoidance of doubt, (i) if any of such ratios or other provisions are exceeded or breached as a result of fluctuations in such ratio (including due to fluctuations in Consolidated EBITDA or other components of such ratio) or other provisions at or prior to the consummation of the relevant Limited Condition Acquisition, such ratios and other provisions will not be deemed to have been exceeded as a result of such fluctuations solely for purposes of determining whether the Limited Condition Acquisition is permitted hereunder and (ii) such ratios and compliance with such conditions (other than conditions requiring no Event of Default under Section 7.01(a), (b), (h) or (i) and conditions requiring the accuracy of customary Sungard representations, in each case, which shall be required to be met upon the consummation of such Limited Condition Acquisition) shall not be tested at the time of consummation of such Limited Condition Acquisition or related transactions. If the Borrower has made an LCA Election for any Limited Condition Acquisition, then in connection with any subsequent calculation of any ratio with respect to any other transactions on or following the relevant LCA Test Date and prior to the earlier of the date on which such Limited Condition Acquisition is consummated or the date that the definitive agreement for, or offer in respect of, such Limited Condition Acquisition is terminated or expires without consummation of such Limited Condition Acquisition, any such ratio shall be calculated (and tested) on a pro forma basis (x) assuming such Limited Condition Acquisition and other transactions in connection therewith (including any incurrence of Indebtedness and the use of proceeds thereof) had been consummated on the LCA Test Date and (y) assuming such Limited Condition Acquisition and other transactions in connection therewith (excluding any EBITDA and consolidated net income of the target and any incurrence of Indebtedness) had not been consummated on
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the LCA Test Date. Notwithstanding anything in this Agreement or any Loan Document to the contrary, if the Borrower or its Restricted Subsidiaries (x) incurs Indebtedness, creates Liens, makes asset sales, makes Investments, makes Restricted Payments, designates any Subsidiary as restricted or unrestricted or repays any Indebtedness in connection with any Limited Condition Acquisition under a ratio-based basket and (y) incurs Indebtedness, creates Liens, makes asset sales, Investments or Restricted Payments, designates any Subsidiary as restricted or unrestricted or repays any Indebtedness in connection with such Limited Condition Acquisition under a non-ratio-based basket (which shall occur within five Business Days of the events in clause (x) above), then the applicable ratio will be calculated with respect to any such action under the applicable ratio-based basket without regard to any such action under such non-ratio-based basket made in connection with such Limited Condition Acquisition.
Section 1.07 Certain Determinations .
(a) [Reserved].
(b) Notwithstanding anything to the contrary herein, with respect to any Indebtedness or other amounts incurred or transactions entered into (or consummated) in reliance on a provision of this Agreement that does not require compliance with a financial ratio or test (including, without limitation, the Total Net Leverage Ratio and the Total Net Recurring Revenue Leverage Ratio) (any such amounts, the Fixed Amounts ) substantially concurrently with any amounts incurred or transactions entered into (or consummated) in reliance on a provision of this Agreement that requires compliance with any such financial ratio or test (any such amounts, the Incurrence Based Amounts ), it is understood and agreed that the Fixed Amounts (and any cash proceeds thereof) shall be disregarded in the calculation of the financial ratio or test applicable to the Incurrence Based Amounts in connection with such substantially concurrent incurrence, except that incurrences of Indebtedness and Liens constituting Fixed Amounts shall be taken into account for purposes of Incurrence Based Amounts other than Incurrence Based Amounts contained in Section 6.01 or Section 6.02.
ARTICLE II
THE CREDITS
Section 2.01 Commitments .
Subject to the terms and conditions set forth herein, (a) each Term Lender agrees to make Initial Term Loans to the Borrower on the Effective Date denominated in dollars in an aggregate principal amount not exceeding such Term Lenders Initial Term Commitment and (b) each Revolving Lender agrees to make Revolving Loans to the Borrower denominated in dollars from time to time during the Revolving Availability Period in an aggregate principal amount which will not result in such Revolving Lenders Revolving Exposure exceeding such Revolving Lenders Revolving Commitment. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts repaid or prepaid in respect of Term Loans may not be reborrowed.
Section 2.02 Loans and Borrowings .
(a) Each Loan shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with their respective Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder, provided that the Commitments of the Lenders are several and other than as expressly provided herein with respect to a Defaulting Lender, no Lender shall be responsible for any other Lenders failure to make Loans as required hereby.
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(b) Subject to Section 2.14, each Revolving Loan Borrowing and Term Loan Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith; provided that all Borrowings made on the Effective Date must be made as ABR Borrowings unless the Borrower shall have given the notice required for a Eurodollar Borrowing under Section 2.03, and provided an indemnity letter extending the benefits of Section 2.16 to Lenders in respect of such Borrowings. Each Lender at its option may make any Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum; provided that a Eurodollar Borrowing that results from a continuation of an outstanding Eurodollar Borrowing may be in an aggregate amount that is equal to such outstanding Borrowing. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of the Borrowing Multiple and not less than the Borrowing Minimum. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of eight Eurodollar Borrowings outstanding. Notwithstanding anything to the contrary herein, an ABR Revolving Loan Borrowing may be in an aggregate amount equal to the entire unused balance of the aggregate Revolving Commitments.
Section 2.03 Requests for Borrowings .
To request a Revolving Loan Borrowing or Term Loan Borrowing, the Borrower shall notify the Administrative Agent of such request in writing by telecopy, electronic mail, facsimile or overnight courier (a) in the case of a Eurodollar Borrowing, not later than 2:00 p.m., New York City time, three (3) Business Days before the date of the proposed Borrowing (or such shorter period as the Administrative Agent agrees in its sole discretion) and (b) in the case of an ABR Borrowing, not later than 1:00 p.m., New York City time, two (2) Business Days before the proposed Borrowing (or, with respect to up to $2,000,000 of Revolving Loans at any one time outstanding, not later than 1:00 p.m., New York City time on the date of the proposed Borrowing). Each such written Borrowing Request shall be signed by the Borrower substantially in the form of Exhibit R and shall be irrevocable. Each such written Borrowing Request shall specify the following information:
(a) whether the requested Borrowing is to be a Revolving Loan Borrowing, an Initial Term Loan Borrowing or a Borrowing of any other Class (specifying the Class thereof);
(b) the aggregate amount of such Borrowing;
(c) the date of such Borrowing, which shall be a Business Day;
(d) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(e) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term Interest Period;
(f) the location and number of the Borrowers account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06; and
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(g) that as of the date of such Borrowing, the conditions set forth in Sections 4.02(a) and 4.02(b) are satisfied.
(h) If no election as to the Type of Borrowing is specified as to any Borrowing, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one months duration. Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the applicable Class of the details thereof and of the amount of such Lenders Loan to be made as part of the requested Borrowing.
Section 2.04 [Reserved] .
Section 2.05 [Reserved] .
Section 2.06 Funding of Borrowings .
(a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the Applicable Account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower designated by the Borrower in the applicable Borrowing Request.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lenders share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section 2.06 and may, in reliance on such assumption and in its sole discretion, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender agrees to pay to the Administrative Agent an amount equal to such share on demand of the Administrative Agent. If such Lender does not pay such corresponding amount forthwith upon demand of the Administrative Agent therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower agrees to pay such corresponding amount to the Administrative Agent forthwith on demand. The Administrative Agent shall also be entitled to recover from such Lender or Borrower interest on such corresponding amount, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, or (ii) in the case of the Borrower, the interest rate applicable to such Borrowing in accordance with Section 2.13. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lenders Loan included in such Borrowing.
(c) The obligations of the Lenders hereunder to make Term Loans and Revolving Loans and to make payments pursuant to Section 9.03(c) are several and not joint. The failure of any Lender to make any Loan, to fund any such participation or to make any payment under Section 9.03(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan, to purchase its participation or to make its payment under Section 9.03(c).
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Section 2.07 Interest Elections .
(a) Each Revolving Loan Borrowing and Term Loan Borrowing initially shall be of the Type specified in the applicable Borrowing Request or designated by Section 2.03 and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request or designated by Section 2.03. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.07. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election in writing by the time that a Revolving Loan Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such written Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery, facsimile or other electronic transmission to the Administrative Agent of a written Interest Election Request signed by a Responsible Officer.
(c) Each written Interest Election Request shall specify the following information in compliance with Section 2.03:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is to be a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term Interest Period.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one months duration.
(d) Promptly following receipt of an Interest Election Request in accordance with this Section 2.07, the Administrative Agent shall advise each Lender of the applicable Class of the details thereof and of such Lenders portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
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Section 2.08 Termination and Reduction of Commitments .
(a) Unless previously terminated, (i) the Initial Term Commitments shall terminate at 5:00 p.m., New York City time, on the Effective Date and (ii) the Revolving Commitments shall terminate on the Revolving Maturity Date.
(b) The Borrower may at any time terminate, or from time to time reduce, the Commitments of any Class; provided that (i) each reduction of the Commitments of any Class shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000 unless such amount represents all of the remaining Commitments of such Class and (ii) the Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.11, the aggregate Revolving Exposures would exceed the aggregate Revolving Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section 2.08 at least one (1) Business Day prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section 2.08 shall be irrevocable; provided that a notice of termination of the Revolving Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other Indebtedness or the occurrence of some other identifiable event or condition, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date of termination) if such condition is not satisfied. Any termination or reduction of the Commitments of any Class shall be permanent. Each reduction of the Commitments of any Class shall be made ratably among the Lenders in accordance with their respective Commitments of such Class.
Section 2.09 Repayment of Loans; Evidence of Debt .
(a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Maturity Date and (ii) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Term Loan of such Lender as provided in Section 2.10.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lenders share thereof.
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(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section 2.09 shall be prima facie evidence of the existence and amounts of the obligations recorded therein, provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to pay any amounts due hereunder in accordance with the terms of this Agreement. In the event of any inconsistency between the entries made pursuant to paragraphs (b) and (c) of this Section 2.09, the accounts maintained by the Administrative Agent pursuant to paragraph (c) of this Section 2.09 shall control, subject in all cases to Section 8.04(b)(iv).
(e) Any Lender may request through the Administrative Agent that Loans of any Class made by it be evidenced by a Note. In such event, the Borrower shall execute and deliver to such Lender a Note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns).
Section 2.10 Repayment of Term Loans .
To the extent not previously paid, all Term Loans made on the Effective Date shall be due and payable by the Borrower on the applicable Term Maturity Date together with accrued and unpaid interest thereon.
Section 2.11 Prepayment of Loans .
(a) (i) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part.
(ii) Notwithstanding anything in any Loan Document to the contrary, so long as no Default or Event of Default has occurred and is continuing, Holdings, the Borrower or any of their respective Subsidiaries may offer to prepay all or a portion of the outstanding Term Loans on the following basis:
(A) Holdings, the Borrower or any of their respective Subsidiaries shall have the right to make a voluntary prepayment of Term Loans at a discount to par (such prepayment, the Discounted Term Loan Prepayment ) pursuant to a Borrower Offer of Specified Discount Prepayment, Borrower Solicitation of Discount Range Prepayment Offers or Borrower Solicitation of Discounted Prepayment Offers, in each case made in accordance with this Section 2.11(a)(ii); provided that Holdings, the Borrower or any of their respective Subsidiaries shall not make any Borrowing of Revolving Loans to fund any Discounted Term Loan Prepayment and (y) Holdings, the Borrower or any of their respective Subsidiaries shall not initiate any action under this Section 2.11(a)(ii) in order to make a Discounted Term Loan Prepayment unless (I) at least ten (10) Business Days shall have passed since the consummation of the most recent Discounted Term Loan Prepayment as a result of a prepayment made by Holdings, the Borrower or any of their respective Subsidiaries on the applicable Discounted Prepayment Effective Date; or (II) at least three (3) Business Days shall have passed since the date Holdings, the Borrower or any of their respective Subsidiaries were notified that no Term Lender was willing to accept any prepayment of any Term Loan and/or Other Term Loan at the Specified Discount, within the Discount Range or at any discount to par value, as applicable, or in the case of Borrower Solicitation of Discounted Prepayment Offers, the date of Holdings, the Borrowers or any of their respective Subsidiaries election not to accept any Solicited Discounted Prepayment Offers and (z) each Lender participating in any Discounted Term Loan Prepayment acknowledges and agrees that in connection with such Discounted Term Loan Prepayment, (1) the Borrower then may have, and later may come into possession of, information regarding the Term Loans or the Loan Parties
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hereunder that is not known to such Lender and that may be material to a decision by such Lender to participate in such Discounted Term Loan Prepayment ( Excluded Information ), (2) such Lender has independently and, without reliance on Holdings, any of its Subsidiaries, the Administrative Agent or any of their respective Affiliates, made its own analysis and determination to participate in such Discounted Term Loan Prepayment notwithstanding such Lenders lack of knowledge of the Excluded Information and (3) none of Holdings, its Subsidiaries, the Administrative Agent, or any of their respective Affiliates shall have any liability to such Lender, and such Lender hereby waives and releases, to the extent permitted by Requirements of Law, any claims such Lender may have against Holdings, its Subsidiaries, the Administrative Agent, and their respective Affiliates, under applicable laws or otherwise, with respect to the nondisclosure of the Excluded Information; provided , further , that any Term Loan that is prepaid will be automatically and irrevocably cancelled.
(B) (1) Subject to the proviso to subsection (i) above, Holdings, the Borrower or any of their respective Subsidiaries may from time to time offer to make a Discounted Term Loan Prepayment by providing the Auction Agent with three (3) Business Days notice in the form of a Specified Discount Prepayment Notice; provided that (I) any such offer shall be made available, at the sole discretion of Holdings, the Borrower or any of their respective Subsidiaries, to each Term Lender and/or each Lender with respect to any Class of Term Loans on an individual tranche basis, (II) any such offer shall specify the aggregate principal amount offered to be prepaid (the Specified Discount Prepayment Amount ) with respect to each applicable tranche, the tranche or tranches of Term Loans subject to such offer and the specific percentage discount to par (the Specified Discount ) of such Term Loans to be prepaid (it being understood that different Specified Discounts and/or Specified Discount Prepayment Amounts may be offered with respect to different tranches of Term Loans and, in such an event, each such offer will be treated as a separate offer pursuant to the terms of this Section), (III) the Specified Discount Prepayment Amount shall be in an aggregate amount not less than $1,000,000 and whole increments of $500,000 in excess thereof and (IV) each such offer shall remain outstanding through the Specified Discount Prepayment Response Date. The Auction Agent will promptly provide each relevant Term Lender with a copy of such Specified Discount Prepayment Notice and a form of the Specified Discount Prepayment Response to be completed and returned by each such Lender to the Auction Agent (or its delegate) by no later than 5:00 p.m., New York City time, on the third Business Day after the date of delivery of such notice to the relevant Term Lenders (the Specified Discount Prepayment Response Date ).
(2) Each relevant Term Lender receiving such offer shall notify the Auction Agent (or its delegate) by the Specified Discount Prepayment Response Date whether or not it agrees to accept a prepayment of any of its relevant then outstanding Term Loans at the Specified Discount and, if so (such accepting Term Lender, a Discount Prepayment Accepting Lender ), the amount and the tranches of such Lenders Term Loans to be prepaid at such offered discount. Each acceptance of a Discounted Term Loan Prepayment by a Discount Prepayment Accepting Lender shall be irrevocable. Any Term Lender whose Specified Discount Prepayment Response is not received by the Auction Agent by the Specified Discount Prepayment Response Date shall be deemed to have declined to accept the applicable Borrower Offer of Specified Discount Prepayment.
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(3) If there is at least one Discount Prepayment Accepting Lender, Holdings, the Borrower or any of their respective Subsidiaries will make prepayment of outstanding Term Loans pursuant to this paragraph (B) to each Discount Prepayment Accepting Lender in accordance with the respective outstanding amount and tranches of Term Loans specified in such Lenders Specified Discount Prepayment Response given pursuant to subsection (2); provided that, if the aggregate principal amount of Term Loans accepted for prepayment by all Discount Prepayment Accepting Lenders exceeds the Specified Discount Prepayment Amount, such prepayment shall be made pro-rata among the Discount Prepayment Accepting Lenders in accordance with the respective principal amounts accepted to be prepaid by each such Discount Prepayment Accepting Lender and the Auction Agent (in consultation with Holdings, the Borrower or any of their respective Subsidiaries and subject to rounding requirements of the Auction Agent made in its reasonable discretion) will calculate such proration (the Specified Discount Proration ). The Auction Agent shall promptly, and in any case within three (3) Business Days following the Specified Discount Prepayment Response Date, notify (I) Holdings, the Borrower or any of their respective Subsidiaries of the respective Term Lenders responses to such offer, the Discounted Prepayment Effective Date and the aggregate principal amount of the Discounted Term Loan Prepayment and the tranches to be prepaid, (II) each Term Lender of the Discounted Prepayment Effective Date, and the aggregate principal amount and the tranches of Term Loans to be prepaid at the Specified Discount on such date and (III) each Discount Prepayment Accepting Lender of the Specified Discount Proration, if any, and confirmation of the principal amount, tranche and Type of Loans of such Lender to be prepaid at the Specified Discount on such date. Each determination by the Auction Agent of the amounts stated in the foregoing notices to Holdings, the Borrower or any of their respective Subsidiaries and Lenders shall be conclusive and binding for all purposes absent manifest error. The payment amount specified in such notice to Holdings, the Borrower or any of their respective Subsidiaries shall be due and payable by Holdings, the Borrower or any of their respective Subsidiaries on the Discounted Prepayment Effective Date in accordance with subsection (F) below (subject to subsection (J) below).
(C) (1) Subject to the proviso to subsection (A) above, Holdings, the Borrower or any of their respective Subsidiaries may from time to time solicit Discount Range Prepayment Offers by providing the Auction Agent with three (3) Business Days notice in the form of a Discount Range Prepayment Notice; provided that (I) any such solicitation shall be extended, at the sole discretion of Holdings, the Borrower or any of their respective Subsidiaries, to each Term Lender and/or each Lender with respect to any Class of Loans on an individual tranche basis, (II) any such notice shall specify the maximum aggregate principal amount of the relevant Term Loans (the Discount Range Prepayment Amount ), the tranche or tranches of Term Loans subject to such offer and the maximum and minimum percentage discounts to par (the Discount Range ) of the principal amount of such Term Loans with respect to each relevant tranche of Term Loans willing to be prepaid by Holdings, the Borrower or any of their respective Subsidiaries (it being understood that different Discount Ranges and/or Discount Range Prepayment Amounts may be offered with respect to different tranches of Term Loans and, in such an event, each such offer will be treated as a separate offer pursuant to the terms of this Section), (III) the Discount Range Prepayment Amount shall be in an aggregate amount not less than $1,000,000 and whole increments of $500,000 in excess thereof and (IV) each such solicitation by Holdings, the Borrower or any of their respective Subsidiaries shall remain outstanding through the Discount Range Prepayment Response Date. The Auction Agent will promptly provide each relevant Term Lender with a copy of such Discount Range Prepayment Notice and a form of the Discount Range Prepayment Offer to be submitted by a responding relevant Term Lender to the
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Auction Agent (or its delegate) by no later than 5:00 p.m., New York City time, on the third Business Day after the date of delivery of such notice to the relevant Term Lenders (the Discount Range Prepayment Response Date ). Each relevant Term Lenders Discount Range Prepayment Offer shall be irrevocable and shall specify a discount to par within the Discount Range (the Submitted Discount ) at which such Term Lender is willing to allow prepayment of any or all of its then outstanding Term Loans of the applicable tranche or tranches and the maximum aggregate principal amount and tranches of such Lenders Term Loans (the Submitted Amount ) such Lender is willing to have prepaid at the Submitted Discount. Any Term Lender whose Discount Range Prepayment Offer is not received by the Auction Agent by the Discount Range Prepayment Response Date shall be deemed to have declined to accept a Discounted Term Loan Prepayment of any of its Term Loans at any discount to their par value within the Discount Range.
(2) The Auction Agent shall review all Discount Range Prepayment Offers received on or before the applicable Discount Range Prepayment Response Date and shall determine (in consultation with Holdings, the Borrower or any of their respective Subsidiaries and subject to rounding requirements of the Auction Agent made in its reasonable discretion) the Applicable Discount and Term Loans to be prepaid at such Applicable Discount in accordance with this subsection (C). Holdings, the Borrower or any of their respective Subsidiaries agree to accept on the Discount Range Prepayment Response Date all Discount Range Prepayment Offers received by the Auction Agent by the Discount Range Prepayment Response Date, in the order from the Submitted Discount that is the largest discount to par to the Submitted Discount that is the smallest discount to par, up to and including the Submitted Discount that is the smallest discount to par within the Discount Range (such Submitted Discount that is the smallest discount to par within the Discount Range being referred to as the Applicable Discount ) which yields a Discounted Term Loan Prepayment in an aggregate principal amount equal to the lower of (I) the Discount Range Prepayment Amount and (II) the sum of all Submitted Amounts. Each Lender that has submitted a Discount Range Prepayment Offer to accept prepayment at a discount to par that is larger than or equal to the Applicable Discount shall be deemed to have irrevocably consented to prepayment of Term Loans equal to its Submitted Amount (subject to any required proration pursuant to the following subsection (3)) at the Applicable Discount (each such Lender, a Participating Lender ).
(3) If there is at least one Participating Lender, Holdings, the Borrower or any of their respective Subsidiaries will prepay the respective outstanding Term Loans of each Participating Lender in the aggregate principal amount and of the tranches specified in such Lenders Discount Range Prepayment Offer at the Applicable Discount; provided that if the Submitted Amount by all Participating Lenders offered at a discount to par greater than the Applicable Discount exceeds the Discount Range Prepayment Amount, prepayment of the principal amount of the relevant Term Loans for those Participating Lenders whose Submitted Discount is a discount to par greater than or equal to the Applicable Discount (the Identified Participating Lenders ) shall be made pro-rata among the Identified Participating Lenders in accordance with the Submitted Amount of each such Identified Participating Lender and the Auction Agent (in consultation with Holdings, the Borrower or any of their respective Subsidiaries and subject to rounding requirements of the Auction Agent made in its reasonable discretion) will calculate such proration (the Discount Range Proration ). The Auction Agent shall promptly, and in any case within five (5) Business Days following the Discount Range Prepayment Response Date, notify (I) Holdings, the Borrower or any of their respective Subsidiaries of the respective Term Lenders responses to such solicitation, the Discounted
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Prepayment Effective Date, the Applicable Discount, and the aggregate principal amount of the Discounted Term Loan Prepayment and the tranches to be prepaid, (II) each Term Lender of the Discounted Prepayment Effective Date, the Applicable Discount, and the aggregate principal amount and tranches of Term Loans to be prepaid at the Applicable Discount on such date, (III) each Participating Lender of the aggregate principal amount and tranches of such Lender to be prepaid at the Applicable Discount on such date, and (z) if applicable, each Identified Participating Lender of the Discount Range Proration. Each determination by the Auction Agent of the amounts stated in the foregoing notices to Holdings, the Borrower or any of their respective Subsidiaries and Lenders shall be conclusive and binding for all purposes absent manifest error. The payment amount specified in such notice to Holdings, the Borrower or any of their respective Subsidiaries shall be due and payable by such Borrower on the Discounted Prepayment Effective Date in accordance with subsection (F) below (subject to subsection (J) below).
(D) (1) Subject to the proviso to subsection (A) above, Holdings, the Borrower or any of their respective Subsidiaries may from time to time solicit Solicited Discounted Prepayment Offers by providing the Auction Agent with three (3) Business Days notice in the form of a Solicited Discounted Prepayment Notice; provided that (I) any such solicitation shall be extended, at the sole discretion of Holdings, the Borrower or any of their respective Subsidiaries, to each Term Lender and/or each Lender with respect to any Class of Term Loans on an individual tranche basis, (II) any such notice shall specify the maximum aggregate dollar amount of the Term Loans (the Solicited Discounted Prepayment Amount ) and the tranche or tranches of Term Loans Holdings, the Borrower or any of their respective Subsidiaries is willing to prepay at a discount (it being understood that different Solicited Discounted Prepayment Amounts may be offered with respect to different tranches of Term Loans and, in such an event, each such offer will be treated as a separate offer pursuant to the terms of this Section), (III) the Solicited Discounted Prepayment Amount shall be in an aggregate amount not less than $1,000,000 and whole increments of $500,000 in excess thereof and (IV) each such solicitation by Holdings, the Borrower or any of their respective Subsidiaries shall remain outstanding through the Solicited Discounted Prepayment Response Date. The Auction Agent will promptly provide each relevant Term Lender with a copy of such Solicited Discounted Prepayment Notice and a form of the Solicited Discounted Prepayment Offer to be submitted by a responding Term Lender to the Auction Agent (or its delegate) by no later than 5:00 p.m., New York City time on the third Business Day after the date of delivery of such notice to the relevant Term Lenders (the Solicited Discounted Prepayment Response Date ). Each Term Lenders Solicited Discounted Prepayment Offer shall (x) be irrevocable, (y) remain outstanding until the Acceptance Date, and (z) specify both a discount to par (the Offered Discount ) such Term Lender is willing to allow to be applied to the prepayment of its then outstanding Term Loan and the maximum aggregate principal amount and tranches of such Term Loans (the Offered Amount ) such Term Lender is willing to have prepaid subject to such Offered Discount. Any Term Lender whose Solicited Discounted Prepayment Offer is not received by the Auction Agent by the Solicited Discounted Prepayment Response Date shall be deemed to have declined prepayment of any of its Term Loans at any discount.
(2) The Auction Agent shall promptly provide Holdings, the Borrower or any of their respective Subsidiaries with a copy of all Solicited Discounted Prepayment Offers received on or before the Solicited Discounted Prepayment Response Date. Holdings, the Borrower or any of their respective Subsidiaries shall review all such Solicited Discounted Prepayment Offers and select the largest of the Offered Discounts
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specified by the relevant responding Term Lenders in the Solicited Discounted Prepayment Offers that is acceptable to Holdings, the Borrower or any of their respective Subsidiaries (the Acceptable Discount ), if any. If Holdings, the Borrower or any of their respective Subsidiaries elects to accept any Offered Discount as the Acceptable Discount, then as soon as practicable after the determination of the Acceptable Discount, but in no event later than by the third Business Day after the date of receipt by Holdings, the Borrower or any of their respective Subsidiaries from the Auction Agent of a copy of all Solicited Discounted Prepayment Offers pursuant to the first sentence of this subsection (2) (the Acceptance Date ), the Borrower shall submit an Acceptance and Prepayment Notice to the Auction Agent. If the Auction Agent shall fail to receive an Acceptance and Prepayment Notice from Holdings, the Borrower or any of their respective Subsidiaries by the Acceptance Date, Holdings, the Borrower or any of their respective Subsidiaries shall be deemed to have rejected all Solicited Discounted Prepayment Offers.
(3) Based upon the Acceptable Discount and the Solicited Discounted Prepayment Offers received by Auction Agent by the Solicited Discounted Prepayment Response Date, within three (3) Business Days after receipt of an Acceptance and Prepayment Notice (the Discounted Prepayment Determination Date ), the Auction Agent will determine (in consultation with Holdings, the Borrower or any of their respective Subsidiaries and subject to rounding requirements of the Auction Agent made in its reasonable discretion) the aggregate principal amount and the tranches of Term Loans (the Acceptable Prepayment Amount ) to be prepaid by Holdings, the Borrower or any of their respective Subsidiaries at the Acceptable Discount in accordance with this Section 2.11(a)(ii)(D). If Holdings, the Borrower or any of their respective Subsidiaries elects to accept any Acceptable Discount, then Holdings, the Borrower or any of their respective Subsidiaries agrees to accept all Solicited Discounted Prepayment Offers received by Auction Agent by the Solicited Discounted Prepayment Response Date, in the order from largest Offered Discount to smallest Offered Discount, up to and including the Acceptable Discount. Each Lender that has submitted a Solicited Discounted Prepayment Offer with a Offered Discount that is greater than or equal to the Acceptable Discount shall be deemed to have irrevocably consented to prepayment of Term Loans equal to its Offered Amount (subject to any required pro-rata reduction pursuant to the following sentence) at the Acceptable Discount (each such Lender, a Qualifying Lender ). Holdings, the Borrower or any of their respective Subsidiaries will prepay outstanding Term Loans pursuant to this subsection (D) to each Qualifying Lender in the aggregate principal amount and of the tranches specified in such Lenders Solicited Discounted Prepayment Offer at the Acceptable Discount; provided that if the aggregate Offered Amount by all Qualifying Lenders whose Offered Discount is greater than or equal to the Acceptable Discount exceeds the Solicited Discounted Prepayment Amount, prepayment of the principal amount of the Term Loans for those Qualifying Lenders whose Offered Discount is greater than or equal to the Acceptable Discount (the Identified Qualifying Lenders ) shall be made pro-rata among the Identified Qualifying Lenders in accordance with the Offered Amount of each such Identified Qualifying Lender and the Auction Agent (in consultation with Holdings, the Borrower or any of their respective Subsidiaries and subject to rounding requirements of the Auction Agent made in its reasonable discretion) will calculate such proration (the Solicited Discount Proration ). On or prior to the Discounted Prepayment Determination Date, the Auction Agent shall promptly notify (I) Holdings, the Borrower or any of their respective Subsidiaries of the Discounted Prepayment Effective Date and Acceptable Prepayment Amount comprising the Discounted Term Loan Prepayment and the tranches to be
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prepaid, (II) each Term Lender who made a Solicited Discounted Prepayment Offer of the Discounted Prepayment Effective Date, the Acceptable Discount, and the Acceptable Prepayment Amount of all Term Loans and the tranches to be prepaid to be prepaid at the Applicable Discount on such date, (III) each Qualifying Lender of the aggregate principal amount and the tranches of such Lender to be prepaid at the Acceptable Discount on such date, and (IV) if applicable, each Identified Qualifying Lender of the Solicited Discount Proration. Each determination by the Auction Agent of the amounts stated in the foregoing notices to such Borrower and Lenders shall be conclusive and binding for all purposes absent manifest error. The payment amount specified in such notice to such Borrower shall be due and payable by such Borrower on the Discounted Prepayment Effective Date in accordance with subsection (F) below (subject to subsection (J) below).
(E) In connection with any Discounted Term Loan Prepayment, Holdings, the Borrower or any of their respective Subsidiaries and the Lenders acknowledge and agree that the Auction Agent may require as a condition to any Discounted Term Loan Prepayment, the payment of reasonable and customary fees and expenses from Holdings, the Borrower or any of their respective Subsidiaries in connection therewith.
(F) If any Term Loan is prepaid in accordance with paragraphs (B) through (D) above, Holdings, the Borrower or any of their respective Subsidiaries shall prepay such Term Loans on the Discounted Prepayment Effective Date. Holdings, the Borrower or any of their respective Subsidiaries shall make such prepayment to the Auction Agent, for the account of the Discount Prepayment Accepting Lenders, Participating Lenders, or Qualifying Lenders, as applicable, to the Applicable Account of the Administrative Agent in immediately available funds not later than 11:00 a.m. (New York City time) on the Discounted Prepayment Effective Date and all such prepayments shall be applied to the remaining principal installments of the relevant tranche of Term Loans on a pro rata basis across such installments. The Term Loans so prepaid shall be accompanied by all accrued and unpaid interest including any PIK Interest on the par principal amount so prepaid up to, but not including, the Discounted Prepayment Effective Date. Each prepayment of the outstanding Term Loans pursuant to this Section 2.11(a)(ii) shall be paid to the Discount Prepayment Accepting Lenders, Participating Lenders, or Qualifying Lenders, as applicable. The aggregate principal amount of the tranches and installments of the relevant Term Loans outstanding shall be deemed reduced by the full par value of the aggregate principal amount of the tranches of Term Loans prepaid on the Discounted Prepayment Effective Date in any Discounted Term Loan Prepayment.
(G) To the extent not expressly provided for herein, each Discounted Term Loan Prepayment shall be consummated pursuant to procedures consistent with the provisions in this Section 2.11(a)(ii), established by the Auction Agent acting in its reasonable discretion and as reasonably agreed by Holdings, the Borrower or any of their respective Subsidiaries.
(H) Notwithstanding anything in any Loan Document to the contrary, for purposes of this Section 2.11(a)(ii), each notice or other communication required to be delivered or otherwise provided to the Auction Agent (or its delegate) shall be deemed to have been given upon Auction Agents (or its delegates) actual receipt during normal business hours of such notice or communication; provided that any notice or communication actually received outside of normal business hours shall be deemed to have been given as of the opening of business on the next Business Day.
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(I) Each of Holdings, the Borrower or any of their respective Subsidiaries and the Lenders acknowledges and agrees that the Auction Agent may perform any and all of its duties under this Section 2.11(a)(ii) by itself or through any Affiliate of the Auction Agent and expressly consents to any such delegation of duties by the Auction Agent to such Affiliate and the performance of such delegated duties by such Affiliate. The exculpatory provisions pursuant to this Agreement shall apply to each Affiliate of the Auction Agent and its respective activities in connection with any Discounted Term Loan Prepayment provided for in this Section 2.11(a)(ii) as well as activities of the Auction Agent.
(J) Holdings, the Borrower or any of their respective Subsidiaries shall have the right, by written notice to the Auction Agent, to revoke in full (but not in part) its offer to make a Discounted Term Loan Prepayment and rescind the applicable Specified Discount Prepayment Notice, Discount Range Prepayment Notice or Solicited Discounted Prepayment Notice therefor at its reasonable discretion at any time on or prior to the applicable Specified Discount Prepayment Response Date, Discount Range Prepayment Response Date or Solicited Discounted Prepayment Response Date, as applicable (and if such offer is revoked pursuant to the preceding clauses, any failure by such Borrower to make any prepayment to a Term Lender, as applicable, pursuant to this Section 2.11(a)(ii) shall not constitute a Default or Event of Default under Section 7.01 or otherwise).
(b) In the event and on each occasion that the aggregate Revolving Exposures exceed the aggregate Revolving Commitments, the Borrower shall prepay Revolving Loan Borrowings (or, if no such Borrowings are outstanding, deposit cash collateral in an account with the Administrative Agent pursuant to Section 2.05(j)) in an aggregate amount necessary to eliminate such excess.
(c) In the event and on each occasion that any Net Proceeds are received by or on behalf of the Borrower or any of its Restricted Subsidiaries in respect of any Prepayment Event, the Borrower shall, within five Business Days after such Net Proceeds are received (or, in the case of a Prepayment Event described in clause (b) of the definition of the term Prepayment Event, on the date of such Prepayment Event), prepay Term Loan Borrowings in an aggregate amount equal to 100% of the amount of such Net Proceeds; provided that, in the case of any event described in clause (a) of the definition of the term Prepayment Event, if the Borrower or any of the Restricted Subsidiaries invest (or commit to invest) the Net Proceeds from such event (or a portion thereof) within 12 months after receipt of such Net Proceeds in the business of the Borrower and the other Subsidiaries (including any acquisitions permitted under Section 6.04), then no prepayment shall be required pursuant to this paragraph in respect of such Net Proceeds in respect of such event (or the applicable portion of such Net Proceeds, if applicable) except to the extent of any such Net Proceeds therefrom that have not been so invested (or committed to be invested) by the end of such 12-month period (or if committed to be so invested within such 12-month period, have not been so invested within 18 months after receipt thereof), at which time a prepayment shall be required in an amount equal to such Net Proceeds that have not been so invested (or committed to be invested); provided , further , that in the case of a Default or Event of Default, such Net Cash Proceeds shall be applied pro rata to prepay the Term Loans and the Revolving Loans.
(d) Following the end of each fiscal year of Holdings, commencing with the fiscal year ending December 31, 2019, the Borrower shall prepay Term Loan Borrowings in an aggregate amount equal to the ECF Percentage of Excess Cash Flow for such fiscal year; provided that such amount shall, at the option of the Borrower, be reduced on a dollar-for-dollar basis for such fiscal year by the aggregate amount of prepayments and repurchases of Term Loans (and, to the extent the Revolving Commitments are reduced in a corresponding amount pursuant to Section 2.08, Revolving Loans) made
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pursuant to Section 2.11(a) or otherwise in a manner not prohibited by Section 8.04(g) during such fiscal year or after such fiscal year and prior to the time such prepayment is due (without duplication to subsequent years) ( provided that such reduction as a result of prepayments pursuant to Section 2.11(a)(ii) or Section 8.04(g) shall (x) be limited to the actual amount of such cash prepayment and (y) only be applicable if the applicable prepayment offer was made to all Lenders) (excluding all such prepayments or repurchases funded with the proceeds of other long term Indebtedness other than Revolving Loans or the issuance of Equity Interests). Each prepayment pursuant to this paragraph shall be made on or before the date that is five (5) Business Days after the date on which financial statements are required to be delivered pursuant to Section 5.01 with respect to the fiscal year for which Excess Cash Flow is being calculated.
(e) Prior to any optional prepayment of Borrowings pursuant to Section 2.11(a)(i), the Borrower shall select the Borrowing or Borrowings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to paragraph (f) of this Section 2.11. In the event of any mandatory prepayment of Term Loan Borrowings made at a time when Term Loan Borrowings of more than one Class remain outstanding, the Borrower shall select Term Loan Borrowings to be prepaid so that the aggregate amount of such prepayment is allocated between Term Loan Borrowings pro rata based on the aggregate principal amount of outstanding Borrowings of each such Class; provided that any Term Lender may elect, by notice to the Administrative Agent in writing (delivered by hand, facsimile or other similar electronic transmission) at least two (2) Business Days prior to the prepayment date, to decline all or any portion of any prepayment of its Term Loans or Other Term Loans of any such Class pursuant to this Section 2.11 (other than an optional prepayment pursuant to paragraph (a)(i) of this Section or a mandatory prepayment as a result of the Prepayment Event set forth in clause (b) of the definition thereof, which may not be declined), in which case the aggregate amount of the prepayment that would have been applied to prepay Term Loans or Other Term Loans of any such Class but was so declined (and not used pursuant to the immediately following sentence) shall be retained by the Borrower (such amounts, Retained Declined Proceeds ). Retained Declined Proceeds first, shall be offered to the Term Lenders that accepted their pro rata shares of such prepayments, pro rata among such Lenders. Optional prepayments of Term Loan Borrowings shall be allocated among the Classes of Term Loan Borrowings as directed by the Borrower. In the absence of a designation by the Borrower as described in the preceding provisions of this paragraph of the Type of Borrowing of any Class, the Administrative Agent shall make such designation in its reasonable discretion with a view, but no obligation, to minimize breakage costs owing under Section 2.16; provided that, in connection with any mandatory prepayments by the Borrower of the Term Loans pursuant to Section 2.11(c) or Section 2.11(d), such prepayments shall be applied on a pro rata basis to the then outstanding Term Loans being prepaid irrespective of whether such outstanding Term Loans are ABR Loans or Eurodollar Loans.
(f) The Borrower shall notify the Administrative Agent of any optional prepayment pursuant to Section 2.11(a)(i) in writing (delivered by hand, facsimile or other similar electronic transmission) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one (1) Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment; provided that a notice of optional prepayment may state that such notice is conditional upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other Indebtedness or the occurrence of some other identifiable event or condition, in which case such notice of prepayment may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified date of prepayment) if such condition is not satisfied. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment
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of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13, and subject to Section 2.11(a)(i) and Section 2.11(h), shall be without premium or penalty. At the Borrowers election in connection with any prepayment pursuant to this Section 2.11, such prepayment shall not be applied to any Term Loan or Revolving Loan of a Defaulting Lender (under any of subclauses (a), (b) or (c) of the definition of Defaulting Lender) and shall be allocated ratably among the relevant non-Defaulting Lenders.
(g) Notwithstanding any other provisions of Section 2.11(c) or Section 2.11(d), (A) to the extent that any of or all the Net Proceeds of any Prepayment Event or Excess Cash Flow of a Foreign Subsidiary of the Borrower giving rise to a prepayment pursuant to Section 2.11(c) or Section 2.11(d) (a Foreign Prepayment Event ) are prohibited or delayed by applicable local law from being repatriated to the Borrower, the portion of such Net Proceeds or Excess Cash Flow so affected will not be required to be applied to repay Term Loans at the times provided in Section 2.11(c) or Section 2.11(d), as the case may be, and such amounts may be retained by such Subsidiary so long, but only so long, as the Borrower determined in good faith that the applicable local law will not permit repatriation to the Borrower, and once the Borrower has determined in good faith that such repatriation of any of such affected Net Proceeds or Excess Cash Flow is permitted under the applicable local law, such repatriation will be effected as soon as practicable and such repatriated Net Proceeds or Excess Cash Flow will be applied (net of additional taxes payable or reserved against as a result thereof) to the repayment of the Term Loans pursuant to Section 2.11(c) or Section 2.11(d), as applicable, (B) to the extent that and for so long as the Borrower has determined in good faith that repatriation of any of or all the Net Proceeds of any Foreign Prepayment Event or Excess Cash Flow would have a material adverse tax or cost consequence to the Borrower and its Subsidiaries with respect to such Net Proceeds or Excess Cash Flow, the Net Proceeds or Excess Cash Flow so affected will not be required to be applied to repay Term Loans at the times provided in Section 2.11(c) or Section 2.11(d), as the case may be, and such amounts may be retained by such Subsidiary; provided that when the Borrower determines in good faith that repatriation of any of or all the Net Proceeds of any Foreign Prepayment Event or Excess Cash Flow would no longer have a material adverse tax consequence with respect to such Net Proceeds or Excess Cash Flow, such Net Proceeds or Excess Cash Flow shall be applied (net of additional taxes payable or reserved against as a result thereof) to the repayment of the Term Loans pursuant to Section 2.11(c) or Section 2.11(d), as applicable, and (C) to the extent that and for so long as the Borrower has determined in good faith that repatriation of any of or all the Net Proceeds of any Foreign Prepayment Event or Excess Cash Flow would give rise to a risk of liability for the directors of such Subsidiary, the Net Proceeds or Excess Cash Flow so affected will not be required to be applied to repay Term Loans at the times provided in Section 2.11(c) or Section 2.11(d), as the case may be, and such amounts may be retained by such Subsidiary.
(h) Call Protection.
(i) All prepayments of the Term Loans made or required to be made prior to the third anniversary of the Effective Date (whether voluntary or mandatory , and whether before or after acceleration of the Loan Document Obligations or the commencement of any bankruptcy or insolvency proceeding, but in any event (A) including any such prepayment in connection with (u) a Change of Control, (v) an acceleration of the Loan Document Obligations as a result of the occurrence of an Event of Default, (w) foreclosure and sale of, or collection of, the Collateral, (x) sale of the Collateral in any insolvency proceeding, (y) the restructure, reorganization, or compromise of the Loan Document Obligations by the confirmation of a plan of reorganization or any other plan of compromise, restructure, or arrangement in any insolvency proceeding, or (z) the termination of this Agreement for any reason, and (B) excluding mandatory
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prepayments made pursuant to any of Section 2.11(d) (any such prepayment or event described in this Section 2.11(h) , a Prepayment Premium Event )) shall be subject to a premium (the Prepayment Premium ) in an amount equal to the product of (1) the principal amount (which shall include accrued and unpaid PIK Interest) subject to the Prepayment Premium Event and (2)(x) on any date on or prior to the first anniversary of the Effective Date, 3.0%, (y) on any date after the first anniversary of the Effective Date but on or prior to the second anniversary of the Effective Date, 2.0% and (z) on any date after the second anniversary of the Effective Date but on or prior to the third anniversary of the Effective Date, 1.0%; provided that (I) if an IPO occurs at any time or (II) a Change of Control occurs at any time on or after the first anniversary of the Effective Date, 50% of the Prepayment Premium (if any) paid by the Borrower hereunder shall be refunded by the Lender in receipt thereof. Notwithstanding anything to the contrary contained in this Agreement, to the extent that (x) any Non-Accepting Lender is replaced pursuant to Section 2.24 or (y) any Non-Consenting Lender is replaced pursuant to Section 9.02 due to such Lenders failure to approve a consent, waiver or amendment extending the termination date of any of such Lenders Loans or the scheduled maturity date(s) of any payment of principal with respect to all or a portion of any principal amount of any of such Lenders Loans, such Non-Accepting Lender or Non-Consenting Lender, as the case maybe, shall be entitled to receive a premium in connection with such replacement or prepayment in the amount that would have been payable in respect of the Term Loans of such Non-Accepting Lender or such Non-Consenting Lender, as applicable, under this clause (h)( i ) had such Term Loans been the subject of a voluntary prepayment at such time.
(ii) It is understood and agreed that if the Loan Document Obligations are accelerated prior to the third anniversary of the Effective Date for any reason, including because of default, the commencement of any insolvency proceeding or other proceeding pursuant to any applicable debtor relief laws, sale, disposition or encumbrance (including that by operation of law or otherwise), the Prepayment Premium, determined as of the date of acceleration will also be due and payable as though said Loan Document Obligations were voluntarily prepaid as of such date and shall constitute part of the Loan Document Obligations, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of each Lenders lost profits as a result thereof. The Prepayment Premium payable in accordance with the immediately preceding sentence shall be presumed to be the liquidated damages sustained by each Lender as the result of the early termination and the Borrower agrees that it is reasonable under the circumstances. The Borrower expressly agrees that: (A) the Prepayment Premium is reasonable and is the product of an arms length transaction between sophisticated business people, ably represented by counsel and (B) the Prepayment Premium shall be payable notwithstanding the then prevailing market rates at the time payment is made. The Borrower expressly acknowledges that its agreement to pay the Prepayment Premium as herein described is a material inducement to the Lenders to provide the Commitments and make the Loans.
(iii) On or after the third anniversary of the Effective Date, no premiums shall be payable pursuant to this Section 2.11(h) in connection with any prepayments of the Term Loans other than Eurodollar funding breakage costs as required under the terms of this Agreement.
(iv) The Prepayment Premium shall be paid to Administrative Agent for the benefit of the Term Loan Lenders as liquidated damages and compensation for the costs of being prepared to make funds available hereunder with respect to the Term Loans.
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Section 2.12 Fees .
(a) The Borrower agrees to pay to the Administrative Agent in dollars for the account of each Revolving Lender a commitment fee, which shall accrue at the rate of the Commitment Fee Percentage per annum on the average daily unused amount of the Revolving Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which the Revolving Commitments terminate. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the Effective Date. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of computing commitment fees, a Revolving Commitment of a Lender shall be deemed to be used to the extent of the outstanding Revolving Loans of such Lender.
(b) [Reserved].
(c) [Reserved].
(d) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent in the Fee Letter.
(e) Notwithstanding the foregoing, and subject to Section 2.22, the Borrower shall not be obligated to pay any amounts to any Defaulting Lender pursuant to this Section 2.12.
Section 2.13 Interest .
(a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if upon the occurrence and during the continuance of any Event of Default under Section 7.01, any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of the overdue principal of any Loan, 2.00% per annum plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section 2.13 or (ii) in the case of any other amount, 2.00% per annum plus the rate applicable to ABR Revolving Loans as provided in paragraph (a) of this Section 2.13; provided that no amount shall be payable pursuant to this Section 2.13(c) to a Defaulting Lender so long as such Lender shall be a Defaulting Lender; provided , further , that no amounts shall accrue pursuant to this Section 2.13(c) on any overdue amount or other amount payable to a Defaulting Lender so long as such Lender shall be a Defaulting Lender.
(d) All accrued interest on each Loan shall be payable in cash in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Commitments; provided that (i) the Borrower may elect (in writing) on or prior to such Interest Payment Date, to pay-in-kind (such interest, PIK Interest ) 2.50% per annum of the Applicable Rate in respect of any Loan (whereupon, from and after such Interest Payment Date, such amount shall (x) be capitalized, compounded and added to the unpaid principal amount of such Loan and (y) also accrue
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interest pursuant to this clause (d)); (ii) interest accrued pursuant to paragraph (c) of this Section 2.13 shall be payable on demand, (iii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Revolving Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iv) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. The aggregate amount of interest capitalized and added to principal on any relevant date shall be subject to determination by the Administrative Agent, which determination shall be conclusive and binding on the Borrower absent manifest error
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
(f) Notwithstanding any provision of this Agreement to the contrary, provided that no Event of Default shall have occurred and be continuing, if (a) the Term Loans remain outstanding after the fifth anniversary of the initial issuance thereof and (b) the aggregate amount of the accrued but unpaid interest on any Term Loan (including any amounts treated as interest for federal income tax purposes, such as original issue discount) as of any AHYDO Testing Date occurring after such fifth anniversary exceeds an amount equal to the Maximum Accrual, then all such accrued but unpaid interest on such Term Loan as of such time in excess of an amount equal to the Maximum Accrual shall be paid in cash to the holders of such Term Loan on such AHYDO Testing Date, it being the intent of the parties hereto that the deductibility of interest under the Term Loans shall not be limited or deferred by reason of Section 163(i) of the Code and this provision shall be treated consistently therewith. For these purposes, (i) the Maximum Accrual is an amount equal to the product of the issue price (as defined in Sections 1273(b) and 1274(a) of the Code) of such Term Loan and its yield to maturity (as defined in Treasury Regulation Section 1.1272-1(b)(1)(i)), and (ii) an AHYDO Testing Date is any interest payment date and the date on which any accrual period (within the meaning of Section 1272(a)(5) of the Code) closes.
Section 2.14 Alternate Rate of Interest .
If at least two (2) Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period (in each case with respect to the Loans impacted by this clause (b) or clause (a) above, Impacted Loans );
(c) the Administrative Agent shall give notice thereof to the Borrower and the Lenders in writing (delivered by hand, facsimile or other similar electronic transmission) as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest
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Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, then such Borrowing shall be made as an ABR Borrowing; provided , however , that, in each case, the Borrower may revoke any Borrowing Request that is pending when such notice is received.
(d) Notwithstanding the foregoing, if the Administrative Agent has made the determination described in clause (a) of this Section 2.14 and/or is advised by the Required Lenders of their determination in accordance with clause (b) of this Section 2.14 and the Borrower shall so request, the Administrative Agent, the Required Lenders and the Borrower shall negotiate in good faith to amend the definition of Adjusted LIBO Rate and other applicable provisions to preserve the original intent thereof in light of such change; provided that, until so amended, such Impacted Loans will be handled as otherwise provided pursuant to the terms of this Section 2.14.
Section 2.15 Increased Costs .
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other condition, cost or expense (other than Excluded Taxes or Indemnified Taxes) affecting this Agreement or Eurodollar Loans (or, with respect to Taxes, any Loans) made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or, with respect to Taxes, any Loan), or of maintaining its obligation to make any such Loan or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then, from time to time upon request of such Lender, the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender, as the case may be, for such increased costs actually incurred or reduction actually suffered; provided that the Borrower shall not be liable for such compensation if, in the case of requests for reimbursement under clause (ii) above resulting from a market disruption, (A) the relevant circumstances are not generally affecting the banking market or (B) the applicable request has not been made by (1) the Majority in Interest of Term Lenders with respect to Term Loans or (2) Majority in Interest of Revolving Lenders with respect to Revolving Loans; provided , further , that to the extent any such costs or reductions are incurred by any Lender as a result of any requests, rules, guidelines or directives enacted or promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Basel III, then such Lender shall be compensated pursuant to this Section 2.15(a) only to the extent such Lender is imposing such charges on similarly situated borrowers where the terms of other syndicated credit facilities permit it to impose such charges.
(b) If any Lender determines that any Change in Law regarding capital requirements has the effect of reducing the rate of return on such Lenders capital or on the capital of such Lenders holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lenders holding company could have achieved but for such Change in Law (taking into consideration such Lenders policies and the policies of such Lenders holding company with respect to capital adequacy), then, from time to time upon request of such Lender, the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Lenders holding company for any such reduction actually suffered.
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(c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company in reasonable detail, as the case may be, as specified in paragraph (a) or (b) of this Section 2.15 delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.15 shall not constitute a waiver of such Lenders right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section 2.15 for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lenders intention to claim compensation therefor; provided , further , that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
Section 2.16 Break Funding Payments .
In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan or Term Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(f) and is revoked in accordance therewith) or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19 or Section 9.02(c), then, in any such event, the Borrower shall, after receipt of a written request by any Lender affected by any such event (which request shall set forth in reasonable detail the basis for requesting such amount), compensate each Lender for the loss, cost and expense (excluding loss of profit) actually incurred by it as a result of such event. Such loss, cost or expense shall in no event exceed that which would have been incurred by such Lender had it funded each Eurodollar Loan made by it at the Adjusted LIBO Rate for such Loan by a matching deposit or other borrowing in the applicable interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan was in fact so funded. A certificate of any Lender setting forth in reasonable detail any amount or amounts that such Lender is entitled to receive pursuant to this Section 2.16 and the reasons therefor delivered to the Borrower shall be prima facie evidence of such amounts. The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt of such demand. Notwithstanding the foregoing, this Section 2.16 will not apply to losses, costs or expenses resulting from Taxes, as to which Section 2.17 shall govern. Notwithstanding the foregoing, no Lender shall demand compensation pursuant to this Section 2.16 if it shall not at the time be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements.
Section 2.17 Taxes .
(a) Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made free and clear of and without deduction for any Taxes, except as required by applicable Requirements of Law. If the applicable withholding agent shall be required by applicable Requirements of Law (as determined in the good faith discretion of the applicable withholding agent) to deduct any Taxes from such payments, then the applicable withholding agent shall make such
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deductions and shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Requirements of Law, and if such Taxes are Indemnified Taxes, then the amount payable by the applicable Loan Party shall be increased as necessary so that after all such required deductions have been made (including such deductions applicable to additional amounts payable under this Section 2.17), each Lender (or, in the case of a payment made to the Administrative Agent for its own account, the Administrative Agent) receives an amount equal to the sum it would have received had no such deductions for Indemnified Taxes been made.
(b) Without limiting the provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with Requirements of Law, or at the option of the Administrative Agent, timely reimburse it for the payment of such Other Taxes.
(c) The Borrower shall indemnify the Administrative Agent and each Lender within 10 days after written demand therefor, for the full amount of any Indemnified Taxes payable or paid by the Administrative Agent or such Lender as the case may be, on or with respect to any payment by or on account of any obligation of any Loan Party under any Loan Document (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 2.17) and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate setting forth in reasonable detail the basis and calculation of the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lenders failure to comply with the provisions of Section 8.04(c)(ii).relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (d).
(e) As soon as practicable after any payment of any Taxes by a Loan Party to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(f) (i) Each Lender shall, at such times as are reasonably requested by Borrower or the Administrative Agent, provide Borrower and the Administrative Agent with any properly completed and executed documentation prescribed by any Requirement of Law, or reasonably requested by Borrower or the Administrative Agent, certifying as to any entitlement of such Lender to an exemption from, or reduction in, any withholding Tax with respect to any payments to be made to such Lender under the Loan Documents. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably
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requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding sentence, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.17(f)(ii)(A), 2.17(f)(ii)(B)(1), 2.17(f)(ii)(B)(2), 2.17(f)(ii)(B)(3), 2.17(f)(ii)(B)(4), and 2.17(f)(iii) below) shall not be required if in the Lenders reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing:
(A) Each Lender that is a United States person (as defined in Section 7701(a)(30) of the Code) shall deliver to Borrower and the Administrative Agent on or before the date on which it becomes a party to this Agreement two properly completed and duly signed copies of Internal Revenue Service Form W-9 (or any successor form) certifying that such Lender is exempt from U.S. federal backup withholding.
(B) Each Lender that is not a United States person (as defined in Section 7701(a)(30) of the Code) shall deliver (to the extent it is legally entitled to do so) to Borrower and the Administrative Agent on or before the date on which it becomes a party to this Agreement (and from time to time thereafter upon the reasonable request of Borrower or the Administrative Agent) whichever of the following is applicable:
(1) two properly completed and duly signed copies of Internal Revenue Service Form W-8BEN or W-8BEN-E, as applicable (or any successor forms) claiming eligibility for benefits of an income tax treaty to which the United States of America is a party,
(2) two properly completed and duly signed copies of Internal Revenue Service Form W-8ECI (or any successor forms),
(3) in the case of a foreign Lender claiming the benefits of the exemption for portfolio interest under Section 871(h) or Section 881(c) of the Code, (x) two properly completed and duly signed certificates, substantially in the form of Exhibit P (any such certificate a United States Tax Compliance Certificate ), and (y) two properly completed and duly signed copies of Internal Revenue Service Form W-8BEN or W-8BEN-E, as applicable (or any successor forms),
(4) to the extent a foreign Lender is not the beneficial owner (for example, where the Lender is a partnership or a participating Lender), two properly completed and duly signed copies of Internal Revenue Service Form W-8IMY (or any successor forms) of the foreign Lender, accompanied by a Form W-8ECI, W-8BEN or W-8BEN-E, United States Tax Compliance Certificate, Form W-9, Form W-8IMY (or other successor forms) or any other required information from each beneficial owner that would be required under this Section 2.17 if such beneficial owner were a Lender, as applicable ( provided that, if the Lender is a partnership (and not a participating Lender) and one or more direct or indirect partners are claiming the portfolio interest exemption, the United States Tax Compliance Certificate may be provided by such Lender on behalf of such direct or indirect partner(s)), or
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(5) any other form prescribed by applicable Requirements of Law as a basis for claiming exemption from or a reduction in U.S. federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Requirements of Law to permit Borrower and the Administrative Agent to determine the withholding or deduction required to be made.
(iii) If a payment made to any Lender under any Loan Document would be subject to U.S. federal withholding tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Requirements of Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine whether such Lender has or has not complied with such Lenders obligations under FATCA and, if necessary, to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (iii), FATCA shall include any amendments made to FATCA after the date of this Agreement.
(iv) Each such Lender shall, whenever a lapse in time or change in circumstances renders any previously delivered documentation expired, obsolete or inaccurate in any respect (including any specific documentation required in this Section 2.17(f)), deliver promptly to Borrower and the Administrative Agent updated or other appropriate documentation (including any new documentation reasonably requested by the applicable withholding agent) or promptly notify Borrower and the Administrative Agent in writing of its legal ineligibility to do so.
(g) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.17 (including by the payment of additional amounts pursuant to this Section 2.17), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.17 with respect to the Indemnified Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that such indemnifying party, upon the request of such indemnified party, agrees promptly to repay the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to such indemnified party in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This Section 2.17(g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to Taxes which it deems confidential) to the indemnifying party or any other person.
(h) The agreements in this Section 2.17 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
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(i) For purposes of this Section 2.17, the term applicable Requirements of Law includes FATCA.
Section 2.18 Payments Generally; Pro Rata Treatment; Sharing of Setoffs .
(a) The Borrower shall make each payment required to be made by it under any Loan Document (whether of principal, interest or fees, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to the time expressly required hereunder or under such other Loan Document for such payment (or, if no such time is expressly required, prior to 2:00 p.m., New York City time), on the date when due, in immediately available funds, without condition or deduction for any counterclaim, recoupment or setoff. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to such account as may be specified by the Administrative Agent, except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto and payments pursuant to other Loan Documents shall be made to the Persons specified therein. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. Except as otherwise provided herein, if any payment under any Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate for the period of such extension. All payments or prepayments of any Loan shall be made in dollars, all payments of accrued interest payable on a Loan shall be made in dollars, and all other payments under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first , towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second , towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or Term Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and Term Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and Term Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and Term Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest and (ii) the provisions of this paragraph shall not be construed to apply to (A) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), (B) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant or (C) any disproportionate payment obtained by a Lender of any Class as a result of the extension by Lenders of the maturity date or expiration date of some but not all
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Loans or Revolving Commitments of that Class or any increase in the Applicable Rate in respect of Loans of Lenders that have consented to any such extension. The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption and in its sole discretion, distribute to the Lenders, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(c), Section 2.05(e) or Section 2.05(f), Section 2.06(a) or Section 2.06(b), Section 2.18(d) or Section 9.03(c), then the Administrative Agent may, in its sole discretion and in the order determined by the Administrative Agent (notwithstanding any contrary provision hereof), (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lenders obligations under such Section until all such unsatisfied obligations are fully paid and/or (ii) hold any such amounts in a segregated account as cash collateral for, and to be applied to, any future funding obligations of such Lender under any such Section.
Section 2.19 Mitigation Obligations; Replacement of Lenders .
(a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17 or any event gives rise to the operation of Section 2.23, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder affected by such event, or to assign and delegate its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Lender, such designation or assignment and delegation (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17 or mitigate the applicability of Section 2.23, as the case may be, and (ii) would not subject such Lender to any unreimbursed cost or expense reasonably deemed by such Lender to be material and would not be inconsistent with the internal policies of, or otherwise be disadvantageous in any material economic, legal or regulatory respect to such Lender.
(b) If (i) any Lender requests compensation under Section 2.15 or gives notice under Section 2.23, (ii) the Borrower is required to pay any additional amount to any Lender or to any Governmental Authority for the account of any Lender pursuant to Section 2.17 or (iii) any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 8.04), all its interests, rights and obligations under this Agreement and the other Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment and delegation); provided that (A) the Borrower shall have received the prior written consent of the Administrative Agent to the
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extent such consent would be required under Section 8.04(b) for an assignment of Loans or Commitments, as applicable, which consents, in each case, shall not unreasonably be withheld or delayed, (B) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued but unpaid interest thereon, accrued but unpaid fees and all other amounts payable to it hereunder from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts), (C) the Borrower or such assignee shall have paid (unless waived) to the Administrative Agent the processing and recordation fee specified in Section 8.04(b)(ii) and (D) in the case of any such assignment resulting from a claim for compensation under Section 2.15, or payments required to be made pursuant to Section 2.17 or a notice given under Section 2.23, such assignment will result in a material reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise (including as a result of any action taken by such Lender under paragraph (a) above), the circumstances entitling the Borrower to require such assignment and delegation cease to apply. Each party hereto agrees that an assignment required pursuant to this paragraph may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee and that the Lender required to make such assignment need not be a party thereto.
Section 2.20 [Reserved] .
Section 2.21 [Reserved] .
Section 2.22 Defaulting Lenders .
(a) Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
(i) Waivers and Amendments . Such Defaulting Lenders right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in Section 9.02.
(ii) Reallocation of Payments . Subject to the last sentence of Section 2.11(f), any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of that Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VII or otherwise, and including any amounts made available to the Administrative Agent by that Defaulting Lender pursuant to Section 9.08), shall be applied at such time or times as may be determined by the Administrative Agent as follows: first , to the payment of any amounts owing by that Defaulting Lender to the Administrative Agent hereunder; second , as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; third , in the case of a Revolving Lender, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of that Defaulting Lender to fund Loans under this Agreement; fourth , to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against that Defaulting Lender as a result of that Defaulting Lenders breach of its obligations under this Agreement; fifth , so long as no Default or Event of Default exists, to the payment of any amounts owing to any Loan Party as a result of any judgment of a court of competent jurisdiction obtained by any Loan Party against that Defaulting Lender as a result of that Defaulting Lenders breach of its obligations under this Agreement; and sixth , to that Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if such
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payment is a payment of the principal amount of any Loans and such Lender is a Defaulting Lender under clause (a) of the definition thereof, such payment shall be applied solely to pay the relevant Loans of the relevant non-Defaulting Lenders on a pro rata basis prior to being applied pursuant to Section 2.05(j) or this Section 2.22(a)(ii). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post cash collateral pursuant to Section 2.05(j) shall be deemed paid to and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees . That Defaulting Lender shall not be entitled to receive or accrue any commitment fee pursuant to Section 2.12(a) for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(b) Defaulting Lender Cure . If the Borrower and the Administrative Agent agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any cash Collateral), such Lender will, to the extent applicable, purchase that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans to be held on a pro rata basis by the Lenders in accordance with their Applicable Percentages (without giving effect to Section 2.22(a)(iv) or the proviso to the definition thereof), whereupon that Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender.
Section 2.23 Illegality .
If any Lender determines that any law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender to make, maintain or fund Loans whose interest is determined by reference to the Adjusted LIBO Rate, or to determine or charge interest rates based upon the Adjusted LIBO Rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, (i) any obligation of such Lender to make or continue Eurodollar Loans denominated in dollars or to convert ABR Loans denominated in dollars to Eurodollar Loans shall be suspended, and (ii) if such notice asserts the illegality of such Lender making or maintaining ABR Loans the interest rate on which is determined by reference to the Adjusted LIBO Rate component of the Alternate Base Rate, the interest rate on such ABR Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Adjusted LIBO Rate component of the Alternate Base Rate, in each case until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, (x) the Borrower shall, upon three Business Days notice from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Loans denominated in dollars of such Lender to ABR Loans (the interest rate on which ABR Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Adjusted LIBO Rate component of the Alternate Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Loans, and (y) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the Adjusted LIBO Rate, the Administrative Agent shall during the period of such suspension compute the Alternate Base Rate
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applicable to such Lender without reference to the Adjusted LIBO Rate component thereof until the Administrative Agent is advised in writing by such Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the Adjusted LIBO Rate. Each Lender agrees to notify the Administrative Agent and the Borrower in writing promptly upon becoming aware that it is no longer illegal for such Lender to determine or charge interest rates based upon the Adjusted LIBO Rate. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
Section 2.24 Loan Modification Offers .
(a) At any time after the Effective Date, the Borrower may on one or more occasions, by written notice to the Administrative Agent, make one or more offers (each, a Loan Modification Offer ) to all the Lenders of one or more Classes (each Class subject to such a Loan Modification Offer, an Affected Class ) to effect one or more Permitted Amendments relating to such Affected Class pursuant to procedures reasonably specified by the Administrative Agent and reasonably acceptable to the Borrower (including mechanics to permit cashless rollovers and exchanges by Lenders). Such notice shall set forth (i) the terms and conditions of the requested Permitted Amendment and (ii) the date on which such Permitted Amendment is requested to become effective. Permitted Amendments shall become effective only with respect to the Loans and Commitments of the Lenders of the Affected Class that accept the applicable Loan Modification Offer (such Lenders, the Accepting Lenders ) and, in the case of any Accepting Lender, only with respect to such Lenders Loans and Commitments of such Affected Class as to which such Lenders acceptance has been made.
(b) A Permitted Amendment shall be effected pursuant to a Loan Modification Agreement executed and delivered by Holdings, the Borrower, each applicable Accepting Lender and the Administrative Agent; provided that no Permitted Amendment shall become effective unless Holdings and the Borrower shall have delivered to the Administrative Agent such legal opinions, board resolutions, secretarys certificates, officers certificates and other documents as shall be reasonably requested by the Administrative Agent in connection therewith. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Loan Modification Agreement. Each Loan Modification Agreement may, without the consent of any Lender other than the applicable Accepting Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the opinion of the Administrative Agent, to give effect to the provisions of this Section 2.24, including any amendments necessary to treat the applicable Loans and/or Commitments of the Accepting Lenders as a new Class of loans and/or commitments hereunder.
(c) If, in connection with any proposed Loan Modification Offer, any Lender declines to consent to such Loan Modification Offer on the terms and by the deadline set forth in such Loan Modification Offer (each such Lender, a Non-Accepting Lender ) then after receipt of consents from Lenders constituting the Required Lenders hereunder the Borrower may, on notice to the Administrative Agent and the Non-Accepting Lender, (i) replace such Non-Accepting Lender in whole or in part by causing such Lender to (and such Lender shall be obligated to) assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 8.04) all or any part of its interests, rights and obligations under this Agreement in respect of the Loans and Commitments of the Affected Class to one or more Eligible Assignees (which Eligible Assignee may be another Lender, if a Lender accepts such assignment); provided that neither the Administrative Agent nor any Lender shall have any obligation to the Borrower to find a replacement Lender; provided , further , that (a) the applicable assignee shall have agreed to provide Loans and/or Commitments on the terms set forth in the applicable Permitted Amendment, (b) such Non-Accepting Lender shall have received payment of an amount equal to the outstanding principal of the Loans of the Affected Class assigned by it pursuant to this Section 2.24(c), accrued interest thereon, accrued fees and
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all other amounts (including any amounts under Section 2.11(a)(i)) payable to it hereunder from the Eligible Assignee (to the extent of such outstanding principal and accrued interest and fees) and (c) unless waived, the Borrower or such Eligible Assignee shall have paid to the Administrative Agent the processing and recordation fee specified in Section 8.04(b).
(d) Notwithstanding anything to the contrary, this Section 2.24 shall supersede any provisions in Section 2.18 or Section 9.02 to the contrary.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of Holdings and the Borrower represents and warrants to the Lenders that as of the Effective Date and upon any credit extension made thereafter subject to Section 4.02:
Section 3.01 Organization; Powers .
Each of Holdings the Borrower and its Restricted Subsidiaries is (a) duly organized or incorporated, validly existing and in good standing (to the extent such concept exists in the relevant jurisdictions) under the laws of the jurisdiction of its organization, (b) has the corporate or other organizational power and authority to carry on its business as now conducted and to execute, deliver and perform its obligations under each Loan Document to which it is a party and (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except in each case where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
Section 3.02 Authorization; Enforceability .
This Agreement has been duly authorized, executed and delivered by each of Holdings and the Borrower and constitutes, and each other Loan Document to which any Loan Party is to be a party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation of Holdings, the Borrower or such Loan Party, as the case may be, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
Section 3.03 Governmental Approvals; No Conflicts .
Except as set forth in Schedule 3.03, the execution, delivery performance by, or enforcement against any Loan Party of this Agreement or any other Loan Document (a) does not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Loan Documents, (b) will not violate (i) the Organizational Documents of, or (ii) any Requirements of Law applicable to, Holdings, the Borrower or any Restricted Subsidiary, (c) will not violate or result in a default under any indenture or other agreement or instrument binding upon Holdings, the Borrower or any Restricted Subsidiary or their respective assets, or give rise to a right thereunder to require any payment, repurchase or redemption to be made by Holdings, the Borrower or any Restricted Subsidiary, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation thereunder and (d) will not result in the creation or imposition of any Lien on any asset of Holdings, the Borrower or any Restricted Subsidiary, except Liens created under the Loan Documents, except (in the case of each of clauses (a), (b)(ii) and (c)) to the extent that the failure to obtain or make such consent, approval, registration, filing or action, or such violation, default or right, or imposition of Lien, as the case may be, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
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Section 3.04 Financial Condition; No Material Adverse Effect .
(a) The Unaudited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of Holdings and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments.
(b) The audited consolidated balance sheet and related statements of operations and comprehensive income, shareholders income and cash flows of Holdings and its Subsidiaries for the fiscal year ended December 31, 2016 (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of Holdings and its Subsidiaries as of December 31, 2016 and their results of operations for the fiscal year ended December 31, 2016.
(c) The Borrower has heretofore furnished to the Lead Arranger the pro forma balance sheet of Holdings and its Subsidiaries, and related statements of operations and comprehensive income, shareholders equity and cash flows as of and for the trailing twelve month period ended April 30, 2017 (the Pro Forma Financial Statements ), which have been prepared giving effect to the Transactions (excluding the impact of purchase accounting effects required by GAAP) as if such Transactions had occurred as of such date (in the case of such balance sheet) or at the beginning of such period (in the case of such statement of operations). The Pro Forma Financial Statements have been prepared in good faith, based on assumptions believed by the Borrower to be reasonable as of the date of delivery thereof, and present fairly in all material respects on a pro forma basis and in accordance with GAAP the estimated financial position of Holdings and its Subsidiaries as at April 30, 2017, and their estimated results of operations for the periods covered thereby, assuming that the Transactions had actually occurred as of such date (in the case of such balance sheet) or at the beginning of such period (in the case of such statement of operations).
(d) Since the Effective Date, there has been no Material Adverse Effect.
Section 3.05 Properties .
Each of Holdings, the Borrower and its Restricted Subsidiaries has good title to, or valid interests in, all its real and personal property material to its business, if any (including all of the Mortgaged Properties), (i) free and clear of all Liens except for Liens permitted by Section 6.02 and (ii) except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or as proposed to be conducted or to utilize such properties for their intended purposes, in each case, except where the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.06 Litigation and Environmental Matters .
(a) Except as set forth in Schedule 3.06, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of Holdings or the Borrower, threatened in writing against or affecting Holdings, the Borrower or any Restricted Subsidiary that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
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(b) Except as set forth in Schedule 3.06, and except with respect to any other matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, none of Holdings, the Borrower or any Restricted Subsidiary (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has, to the knowledge of Holdings or the Borrower, become subject to any Environmental Liability, (iii) has received written notice of any claim with respect to any Environmental Liability or (iv) has, to the knowledge of Holdings or the Borrower, any basis to reasonably expect that Holdings, the Borrower or any Restricted Subsidiary will become subject to any Environmental Liability.
Section 3.07 Compliance with Laws .
Each of Holdings, the Borrower and its Restricted Subsidiaries is in compliance with all Requirements of Law applicable to it or its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
Section 3.08 Investment Company Status .
None of the Loan Parties is required to register as an investment company under the Investment Company Act of 1940, as amended from time to time.
Section 3.09 Taxes .
Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, Holdings, the Borrower and each Restricted Subsidiary (a) have timely filed or caused to be filed all Tax returns and reports required to have been filed and (b) have paid or caused to be paid all Taxes levied or imposed on their properties, income or assets (whether or not shown on a Tax return) including in their capacity as tax withholding agents, except any Taxes that are being contested in good faith by appropriate proceedings, provided that Holdings, the Borrower or such Subsidiary, as the case may be, has set aside on its books adequate reserves therefor in accordance with GAAP. There is no proposed Tax assessment, deficiency or other claim against Holdings, the Borrower or any Restricted Subsidiary that would reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.
Section 3.10 ERISA .
(a) Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, each Plan is in compliance with the applicable provisions of ERISA, the Code and other federal or state laws.
(b) Except as would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, (i) no ERISA Event has occurred during the six year period prior to the date on which this representation is made or deemed made or is reasonably expected to occur, and (ii) neither any Loan Party nor any ERISA Affiliate has engaged in a transaction that could reasonably be expected to be subject to Section 4069 or 4212(c) of ERISA.
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(c) Except as would not reasonably be expected, individually or in the aggregate to result in a Material Adverse Effect, (i) each employee benefit plan (as defined in Section 3(2) of ERISA) that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service to the effect that the form of such plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the Internal Revenue Service to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the Internal Revenue Service; (ii) to the knowledge of Holdings and the Borrower, nothing has occurred that would prevent or cause the loss of such tax-qualified status; and (iii) there are no pending or, to the knowledge of Holdings and the Borrower, threatened in writing claims, actions or lawsuits, or action by any Governmental Authority, with respect to any such plan.
Section 3.11 Disclosure .
As of the Effective Date, all written information and written data (other than (i) financial estimates, budgets, forecasts and other forward-looking information and (ii) information of a general economic or industry specific nature) in respect of the Transactions that has been made available to the Administrative Agent or the Lead Arranger by or on behalf of any Loan Party in connection with the negotiation of any Loan Document or delivered thereunder, when taken as a whole, do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements contained therein not materially misleading in the light of the circumstances under which they were made (after giving effect to all supplements and updated thereto from time to time); provided that, with respect to projected financial information, Holdings and the Borrower represent only that such information, when taken as a whole, was prepared in good faith based upon assumptions that were believed to be reasonable at the time made and at the time delivered, it being understood that (i) any such projected financial information are as to future events and are not to be viewed as facts, (ii) such projected financial information is subject to significant uncertainties and contingencies, many of which are beyond the control of Holdings or any of its Subsidiaries and (iii) no assurance can be given that any particular projections will be realized and that actual results during the period or periods covered by any such projections may differ significantly from the projected results and such differences may be material.
Section 3.12 Subsidiaries .
As of the Effective Date, Schedule 3.12 sets forth the name of, and the ownership interest of Holdings and each of its subsidiaries in, each subsidiary of Holdings.
Section 3.13 Intellectual Property; Licenses, Etc.
Except as would not reasonably be expected to have a Material Adverse Effect, each of Holdings, and the Borrower and its Restricted Subsidiaries owns, licenses or possesses the right to use all Intellectual Property that is used in the operation of its business as currently conducted. To the knowledge of Holdings and the Borrower, neither Holdings, the Borrower or any Restricted Subsidiary nor the operation of their business as currently conducted is infringing upon, misappropriating, diluting or otherwise violating the Intellectual Property of any Person except for such infringements that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. No claim or litigation regarding any of the Intellectual Property owned or used by Holdings, the Borrower, or any of its Restricted Subsidiaries is pending against, or to the knowledge of Holdings and the Borrower, threatened in writing against Holdings, the Borrower or any Restricted Subsidiary, which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
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Section 3.14 Solvency .
Immediately after the consummation of each of the Transactions to occur on the Effective Date, after taking into account all applicable rights of indemnity and contribution, (a) the sum of the debt (including contingent liabilities) of Holdings and its Subsidiaries, on a consolidated basis, does not exceed the present fair saleable value of the present assets of Holdings and its Subsidiaries, on a consolidated basis, (b) the capital of Holdings and its Subsidiaries, on a consolidated basis, is not unreasonably small in relation to their business as contemplated on the Effective Date, (c) Holdings and its Subsidiaries, on a consolidated basis, have not incurred and do not intend to incur, or believe that they will incur, debts including current obligations, beyond their ability to pay such debts as they become due (whether at maturity or otherwise) and (d) Holdings and its Subsidiaries, on a consolidated basis, are solvent within the meaning given to that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this Section 3.14, the amount of any contingent liability at any time shall be computed as the amount that, in the light of all of the facts and circumstances existing at such time, represents the amount that would reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual pursuant to Financial Accounting Standards Board Statement No. 5).
Section 3.15 Federal Reserve Regulations .
None of Holdings, the Borrower or any Restricted Subsidiary is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors), or extending credit for the purpose of purchasing or carrying margin stock. No part of the proceeds of the Loans will be used, directly or indirectly, to purchase or carry any margin stock or to refinance any Indebtedness originally incurred for such purpose, or for any other purpose that entails a violation (including on the part of any Lender) of the provisions of Regulations U or X of the Board of Governors.
Section 3.16 Use of Proceeds .
The Borrower will use the proceeds of the (a) Initial Term Loans made on the Effective Date to consummate the Transactions contemplated to occur on the Effective Date and (b) Revolving Loans made on or after the Effective Date for working capital and for other general corporate purposes (including to finance the Transactions, to cash collateralize letters of credit and for any other transaction not prohibited by the Loan Documents).
Section 3.17 Anti-Corruption Laws and Sanctions.
(a) The operations of Holdings, the Borrower and their respective Subsidiaries are in compliance in all material respects with the USA PATRIOT Act and locally applicable anti-money laundering and anti-terrorism laws, and no action, suit or proceeding by or before any court or government agency, authority or body or any arbitrator or non-government authority involving Holdings, the Borrower or any of their respective Subsidiaries with respect to anti-money laundering or anti-terrorism laws is pending or, to their knowledge, threatened in writing.
(b) None of Holdings, the Borrower, or, to their knowledge, their respective directors, officers or employees, is subject to Sanctions, or resides, is organized or chartered, or has a place of business in any Sanctioned Country.
(c) None of Holdings, the Borrower, or, to their knowledge, their respective directors, officers or employees, will, in connection with the services rendered under this Agreement, engage or transact, either directly or indirectly, with any person or entity that is subject to Sanctions or resides, is organized or chartered, or has a place of business in any Sanctioned Country.
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(d) The Borrower will not use the proceeds of the transaction in violation of applicable Sanctions.
(e) None of Holdings, the Borrower or their respective Subsidiaries, and to the knowledge of Holdings and the Borrower, any director, officer, employee or other person associated with or acting on behalf of Holdings, the Borrower or their respective Subsidiaries has, in connection with this Agreement (i) used or will use any corporate funds directly or indirectly for any contribution, gift, entertainment or other expense; or (ii) made or will make any offer, payment or promise to pay anything of value, directly or indirectly to or for the benefit of any public official or any other party, in either case in violation of any Anti-Corruption Laws. As used herein, the term public official includes: (a) any officer or employee of a government or any government department or agency; (b) any person acting in an official capacity for or on behalf of a government or any government department or agency; (c) any officer or employee of a government investment vehicle owned or funded by a government, including but not limited to currency reserve funds, government-employee pension funds, and sovereign wealth funds; (d) any officer or employee of a company or business that is 25% or more owned or controlled by a government agency (even if such agency is not considered a public official under local law); (e) any officer or employee of a public international organization, such as the World Bank or the United Nations; (f) any officer or employee of a political party or any person acting in an official capacity on behalf of a political party; and (g) any candidate for political office.
(f) Holdings and the Borrower have implemented procedures, and will consistently apply those procedures throughout the term of the Loans, to ensure compliance with Anti-Corruption Laws and Applicable Sanctions during the term of the Loans.
Section 3.18 Senior Indebtedness .
The Loan Document Obligations constitute Senior Indebtedness or Senior Obligations (or any comparable term) under, and as defined in, the documentation governing any Junior Financing that is by its terms subordinated in right of payment or security to the Loan Document Obligations and the Liens in favor of the Collateral Agent.
Section 3.19 Security Documents .
The Security Documents are effective to create in favor of the Collateral Agent, for the benefit of the Secured Parties, a legal, valid, binding and enforceable security interest in the Collateral described therein and proceeds and products thereof. In the case of (i) Pledged Equity Interests represented by certificates, (x) when such certificates are delivered to the Collateral Agent or (y) when financing statements in appropriate form are filed in the appropriate filing offices, and (ii) the other Collateral described in the Collateral Agreement, which can be perfected by filing a financing statement, when financing statements in appropriate form are filed in the appropriate filing offices and such other filings as are required in the Collateral Agreement have been completed (including filing), the Lien created by the Collateral Agreement shall constitute a fully perfected first priority Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds and products thereof, as security for the Secured Obligations.
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Section 3.20 Insurance .
Schedule 3.20 sets forth a listing of all material insurance policies maintained by the Loan Parties as of the Effective Date, with the amounts insured (and any deductibles) set forth in reasonable detail therein.
ARTICLE IV
CONDITIONS
Section 4.01 Effective Date .
The obligation of each Lender to make Loans hereunder on the Effective Date shall be subject to satisfaction of the following conditions (or waiver thereof by the Administrative Agent):
(a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include facsimile or other electronic transmission of a signed counterpart of this Agreement) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a customary written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of each of (i) Goodwin Procter LLP and (ii) Parr Brown Gee & Loveless, P.C., in each case in form and substance satisfactory to the Administrative Agent. Each of Holdings and the Borrower hereby requests such counsel to deliver such opinions.
(c) The Administrative Agent shall have received (i) a certificate of the Borrower, dated the Effective Date, substantially in the form of Exhibit H with appropriate insertions, or otherwise in form and substance satisfactory to the Administrative Agent, executed by a Responsible Officer of the Borrower, and including or attaching the documents referred to in paragraph (d) of this Section 4.01 and (ii) a solvency certificate substantially in the form of Exhibit G executed by the chief financial officer, chief accounting officer or other officer with equivalent duties of the Borrower.
(d) The Administrative Agent shall have received a copy of (i) each Organizational Document of each Loan Party certified, to the extent applicable, as of a recent date by the applicable Governmental Authority, (ii) signature and incumbency certificates of the Responsible Officers of each Loan Party executing the Loan Documents to which it is a party, (iii) copies of resolutions of the Board of Directors of each Loan Party approving and authorizing the execution, delivery and performance of Loan Documents to which it is a party, certified as of the Effective Date by its secretary, an assistant secretary or a Responsible Officer as being in full force and effect without modification or amendment and (iv) a good standing certificate (to the extent such concept exists) as of a recent date from the applicable Governmental Authority of each Loan Partys jurisdiction of incorporation, organization or formation.
(e) The Administrative Agent shall have received all fees previously agreed in writing by the Administrative Agent and the Borrower to be paid and reasonable and documented out-of-pocket expenses required to be paid on the Effective Date, to the extent invoiced at least two Business Days prior to the Effective Date.
(f) The Collateral and Guarantee Requirement (other than in accordance with Section 5.14) shall have been satisfied and the Administrative Agent shall have received a completed Perfection Certificate dated the Effective Date and signed by a Responsible Officer of Holdings and the Borrower, together with all attachments contemplated thereby. For the avoidance of doubt, Control Agreements shall not be required to have been entered into on or prior to the Effective Date.
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(g) Since December 31, 2016, there has not been a Material Adverse Effect.
(h) The Lead Arranger shall have received (i) the Unaudited Financial Statements and (ii) the Pro Forma Financial Statements.
(i) [Reserved].
(j) [Reserved].
(k) The Administrative Agent shall have received evidence, including certificates of insurance, that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect.
(l) The Administrative Agent shall have received, at least three (3) calendar days prior to the Effective Date all documentation and other information about the Loan Parties as shall have been reasonably requested in writing by the Administrative Agent at least ten calendar days prior to the Effective Date and as is mutually agreed to be required by U.S. regulatory authorities under applicable know your customer and anti-money laundering rules and regulations, including without limitation the USA PATRIOT Act.
(m) The Administrative Agent shall have received a fully executed and delivered Borrowing Request in accordance with the requirements hereof.
(n) (i) Substantially concurrently with the initial funding of the Loans on the Effective Date and the use of proceeds thereof, Holdings and its Subsidiaries shall have consummated the repayment of all amounts outstanding under the Existing Credit Agreement as of the Effective Date, and (ii) the Administrative Agent shall have received a fully executed payoff letter satisfactory to the Administrative Agent confirming that all non-contingent obligations owing by Loan Party or any of their Subsidiaries under the Existing Credit Agreement will be repaid upon payment of the payoff amount stated therein, and all Liens upon any property of the Loan Parties or any of their Subsidiaries under the Existing Credit Agreement shall be terminated promptly upon receiving such payment.
Section 4.02 Each Credit Event .
On and after the Effective Date, the obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to receipt of the request therefor in accordance herewith and to the satisfaction of the following conditions:
(a) in the case of any Borrowing, the representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects on and as of the date of such Borrowing; provided that, to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date; provided, further that, any representation and warranty that is qualified as to materiality, Material Adverse Effect or similar language shall be true and correct in all respects on the date of such credit extension or on such earlier date, as the case may be; and
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(b) at the time of and immediately after giving effect to such Borrowing, no Default or Event of Default shall have occurred and be continuing.
Each Borrowing (provided that a conversion or a continuation of a Borrowing shall not constitute a Borrowing for purposes of this Section 4.02) shall be deemed to constitute a representation and warranty by Holdings and the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section 4.02.
ARTICLE V
AFFIRMATIVE COVENANTS
From and after the Effective Date and until the Commitments shall have expired or been terminated, the principal of and interest on each Loan and all fees, expenses and other amounts (other than contingent amounts not yet due) payable under any Loan Document shall have been paid in full, each of Holdings (in the case of Sections 5.03(a), 5.04, 5.05, 5.08, 5.09, 5.11, 5.12 and 5.17) and the Borrower covenants and agrees with the Lenders that:
Section 5.01 Financial Statements and Other Information .
The Borrower will furnish to the Administrative Agent, for further distribution to each Lender:
(a) on or before the date that is one hundred and twenty (120) days after the end of each fiscal year of Holdings, an audited consolidated balance sheet and related statements of operations and comprehensive income, shareholders income and cash flows of Holdings and its Subsidiaries as of the end of and for such year, and related notes thereto, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by (i) PricewaterhouseCoopers LLP or (ii) other independent public accountants of recognized national standing (or such other independent public accountants reasonably acceptable to the Administrative Agent) (without a going concern or like qualification or exception and without any qualification or exception as to the scope of such audit (other than with respect to, or resulting from, (A) an upcoming maturity date of any Indebtedness of the Borrower and its Subsidiaries occurring within one year from the time such opinion is delivered or (B) any potential inability to satisfy a financial maintenance covenant on a future date or in a future period)) to the effect that such consolidated financial statements present fairly in all material respects the financial condition as of the end of and for such year and results of operations and cash flows of Holdings and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b) commencing with the financial statements for the fiscal quarter ending June 30, 2017, on or before the date that is forty-five (45) days after the end of each fiscal quarter of each fiscal year of Holdings, unaudited consolidated balance sheet and related statements of operations and comprehensive income, shareholders equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year and the budget for such fiscal year, all certified by a Financial Officer as presenting fairly in all material respects the financial condition as of the end of and for such fiscal quarter and such portion of the fiscal year and results of operations and cash flows of Holdings and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
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(c) commencing with the financial statements for the fiscal month ending May 31, 2017, on or before the date that is thirty (30) days after the end of each fiscal month of each fiscal year of Holdings (other than the last month of each fiscal quarter and each fiscal year), the unaudited balance sheet of Holdings and its Subsidiaries, and the related statements of operations and comprehensive income, shareholders equity and cash flows as of the end of and for such fiscal month, certified by a Financial Officer as presenting fairly in all material respects the financial condition as of the end of and for such fiscal month and results of operations and cash flows of Holdings and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
(d) simultaneously with the delivery of each set of consolidated financial statements referred to in clauses (a) and (b) above, the related unaudited consolidating financial information reflecting adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements;
(e) not later than five (5) days after any delivery of financial statements under paragraph (a) or (b) above (other than, in the case of clause (b) above, financial statements for the last fiscal quarter of any fiscal year), a certificate of a Financial Officer in the form of Exhibit F hereto (i) certifying as to whether a Default then exists and, if a Default does then exist, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations (A) demonstrating compliance with the required Financial Performance Covenants and (B) in the case of financial statements delivered under paragraph (a) above, beginning with the financial statements for the fiscal year of Holdings ending December 31, 2019, of Excess Cash Flow for such fiscal year, (iii) in the case of financial statements delivered under paragraph (a) above, setting forth a reasonably detailed calculation of the Net Proceeds received during the applicable period by or on behalf of the Borrower or any of its Restricted Subsidiaries in respect of any event described in clause (a) of the definition of the term Prepayment Event and the portion of such Net Proceeds that has been invested or are intended to be reinvested in accordance with the proviso in Section 2.11(c) and (iv) certifying as to the matters set forth in sub-clauses (A) and (B) in clause (b) of the definition of the term Consolidated EBITDA; if applicable;
(f) (i) concurrent with the delivery of financial information under Section 5.01(a) above, a management discussion and analysis describing the performance of Holdings and its Subsidiaries for such periods and explaining any variances between such results and the results from the comparable periods in the prior year and the projected results for such period set forth in the budget delivered pursuant to Section 5.01(g) (and any revised budgets) for the applicable fiscal year, (ii) concurrent with the delivery of financial information under Section 5.01(b) , a report summarizing in reasonable detail the performance of Holdings and its Subsidiaries for such quarter and (iii) concurrent with the delivery of financial information under Section 5.01(a) , (b) or (c) , a liquidity report in form and substance satisfactory to the Administrative Agent which discloses, as of the date of such report, the amount of Liquidity as of such date;
(g) not later than sixty (60) days after the commencement of each fiscal year of Holdings, a consolidated budget (in quarterly detail) for Holdings and its Subsidiaries for such fiscal year (including a projected consolidated balance sheet and consolidated statements of projected statements of operations and comprehensive loss, shareholders deficit and cash flows as of the end of and for such fiscal year and setting forth the material assumptions used for purposes of preparing such budget); provided that the obligations of this paragraph shall be suspended upon and following the filing for an IPO;
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(h) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and registration statements (other than amendments to any registration statement (to the extent such registration statement, in the form it became effective, is delivered to the Administrative Agent), exhibits to any registration statement and, if applicable, any registration statement on Form S-8) filed by Holdings, the Borrower or any Restricted Subsidiary with the SEC or with any national securities exchange; and
(i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of Holdings, the Borrower or any Restricted Subsidiary, or compliance with the terms of any Loan Document, as the Administrative Agent on its own behalf or on behalf of any Lender may reasonably request in writing.
Notwithstanding the foregoing, the obligations in paragraphs (a) and (b) of this Section 5.01 may be satisfied with respect to financial information of Holdings and its Subsidiaries by furnishing (A) the Form 10-K or 10-Q (or the equivalent), as applicable, of Holdings (or a parent company thereof) filed with the SEC within the applicable time periods required by applicable law and regulations (including any extended deadlines available thereunder in connection with an IPO or (B) the applicable financial statements of Holdings (or any direct or indirect parent of Holdings)); provided that (i) to the extent such information relates to a parent of Holdings, such information is accompanied by consolidating information, which may be unaudited, that explains in reasonable detail the differences between the information relating to such parent, on the one hand, and the information relating to Holdings and its Subsidiaries on a standalone basis, on the other hand, and (ii) to the extent such information is in lieu of information required to be provided under Section 5.01(a), such materials are accompanied by a report and opinion of PricewaterhouseCoopers LLP or any other independent registered public accounting firm of nationally recognized standing (or such other independent public accountants reasonably acceptable to the Administrative Agent), which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any going concern or like qualification or exception or any qualification or exception as to the scope of such audit (other than any exception or explanatory paragraph but not a qualification, that is expressly solely with respect to, or expressly resulting solely from, (i) an upcoming maturity date of any Indebtedness occurring within one year from the time such opinion is delivered or (ii) any potential inability to satisfy a financial maintenance covenant on a future date or in a future period).
Documents required to be delivered pursuant to Section 5.01(a), (b) or (h) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrowers website on the Internet at the website address listed on Schedule 8.01 (or otherwise notified pursuant to Section 8.01); or (ii) on which such documents are posted on the Borrowers behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent). The Administrative Agent shall have no obligation to request the delivery of or maintain paper copies of the documents referred to above, and each Lender shall be solely responsible for timely accessing posted documents and maintaining its copies of such documents.
Notwithstanding anything in this Section 5.01 to the contrary herein, neither Holdings nor any Subsidiary of Holdings shall be required to deliver, disclose, permit the inspection, examination or making of copies of or excerpts from, or any discussion of, any document, information, or other matter (i) that constitutes non-financial trade secrets or non-financial proprietary information, (ii) in respect of which disclosure to the Administrative Agent (or any Lender (or their respective representatives or contractors)) is prohibited by applicable law, (iii) that is subject to attorney-client or similar privilege or constitutes attorney work product or (iv) with respect to which any Loan Party owes confidentiality obligations (to the extent not created in contemplation of such Loan Partys obligations under this Section 5.01) to any third party.
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Each of Holdings and the Borrower hereby acknowledges that (a) the Administrative Agent, the Lead Arranger and/or the Bookrunner will make available to the Lenders materials and/or information provided by or on behalf of the Loan Parties hereunder (collectively, Borrower Materials ) by posting the Borrower Materials on IntraLinks or another similar electronic system (the Platform ) and (b) certain of the Lenders (each, a Public Lender ) may have personnel who do not wish to receive Material Non-Public Information and who may be engaged in investment and other market-related activities with respect to Holdings or its Affiliates securities. Each of Holdings and the Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (w) all such Borrower Materials shall be clearly and conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear prominently on the first page thereof; (x) by marking Borrower Materials PUBLIC, the Loan Parties shall be deemed to have authorized the Administrative Agent, the Bookrunner, the Lead Arranger and the Lenders to treat such Borrower Materials as not containing any Material Non-Public Information (although it may be sensitive and proprietary) ( provided , however , that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 8.12); (y) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of the Platform designated Public Side Information; and (z) the Administrative Agent, the Bookrunner and the Lead Arranger shall be entitled to treat any Borrower Materials that are not marked PUBLIC as being suitable only for posting on a portion of the Platform not designated Public Side Information; provided that Holdings or the Borrowers failure to comply with this sentence shall not constitute a Default or an Event of Default under this Agreement or the Loan Documents. Notwithstanding the foregoing, each of Holdings and the Borrower shall be under no obligation to mark any Borrower Materials as PUBLIC. Each of Holdings and the Borrower hereby acknowledges and agrees that, unless Holdings or the Borrower notifies the Administrative Agent otherwise in advance, all financial statements and certificates furnished pursuant to Sections 5.01(a), (b), (c), (d) and (e) above are hereby deemed to be suitable for distribution, and to be made available, to all Lenders and may be treated by the Administrative Agent, the Bookrunner, the Lead Arranger and the Lenders as not containing any Material Non-Public Information.
Section 5.02 Notices of Material Events .
Promptly after any Responsible Officer of the Borrower obtains actual knowledge thereof, the Borrower will furnish to the Administrative Agent (for distribution to each Lender through the Administrative Agent) written notice of the following:
(a) the occurrence of any Default or Event of Default;
(b) to the extent permissible by Requirements of Law, the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of a Financial Officer or another executive officer of Holdings, the Borrower or any Subsidiary, affecting Holdings, the Borrower or any Subsidiary or the receipt of a written notice of an Environmental Liability, in each case that would reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect;
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(d) the receipt by any Loan Party or any of its Subsidiaries of any management letter, exception report or similar letter or report received by such Loan Party or such Subsidiary from its independent certified public accountants; subject, if necessary, to the consent of such certified public accountants and the execution by the Administrative Agent and applicable Lenders of nondisclosure agreements in form and substance reasonably satisfactory to the Administrative Agent and each applicable Lender; and
(e) any development or event that would, individually or in the aggregate, result in a Material Adverse Effect.
Each notice delivered under this Section 5.02 shall be accompanied by a written statement of a Responsible Officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
Section 5.03 Information Regarding Collateral .
(a) Holdings and the Borrower will furnish to the Administrative Agent prompt (and in any event within thirty (30) days or such longer period as agreed to by the Administrative Agent) written notice of any change (i) in any Loan Partys legal name (as set forth in its certificate of organization or like document), (ii) in the jurisdiction of incorporation or organization of any Loan Party or in the form of its organization or location of its chief executive office or (iii) in any Loan Partys organizational identification number to the extent that such Loan Party is organized or owns Mortgaged Property in a jurisdiction where an organizational identification number is required to be included in a UCC financing statement for such jurisdiction.
(b) Not later than five Business Days after delivery of financial statements pursuant to Section 5.01(a), the Borrower shall deliver to the Administrative Agent a certificate executed by a Responsible Officer of the Borrower (i) identifying any Wholly Owned Restricted Subsidiary that has become, or ceased to be, a Material Subsidiary or an Excluded Subsidiary during the most recently ended fiscal quarter and (ii) certifying that all notices required to be given prior to the date of such certificate by Section 5.03 have been given.
Section 5.04 Existence; Conduct of Business .
Each of Holdings and the Borrower will, and will cause each Restricted Subsidiary to, do or cause to be done all things necessary to obtain, preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges, franchises, Intellectual Property and Governmental Approvals material to the conduct of its business, except to the extent (other than with respect to the preservation of the existence of Holdings and the Borrower) that the failure to do so could not reasonably be expected to have a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03 or any Disposition permitted by Section 6.05.
Section 5.05 Payment of Taxes, etc.
Each of Holdings and the Borrower will, and will cause each Restricted Subsidiary to, pay all Taxes (whether or not shown on a Tax return) imposed upon it or its income or properties or in respect of its property or assets, before the same shall become delinquent or in default, except where (a) the same are being contested in good faith by an appropriate proceeding diligently conducted by the Borrower or any of its Subsidiaries, (b) adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP or (c) the failure to make payment would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
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Section 5.06 Maintenance of Properties .
The Borrower will, and will cause each Restricted Subsidiary to, keep and maintain all tangible property material to the conduct of its business in good working order and condition (subject to casualty, condemnation and ordinary wear and tear), except where the failure to do so could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 5.07 Insurance .
(a) The Borrower will, and will cause each Restricted Subsidiary to, maintain, with insurance companies that the Borrower believes (in the good faith judgment of the management of the Borrower) are financially sound and responsible at the time the relevant coverage is placed or renewed, insurance in at least such amounts (after giving effect to any self-insurance which the Borrower believes (in the good faith judgment of management of the Borrower) is reasonable and prudent in light of the size and nature of its business) and against at least such risks (and with such risk retentions) as the Borrower believes (in the good faith judgment or the management of the Borrower) are reasonable and prudent in light of the size and nature of its business, and will furnish to the Lenders, upon written request from the Collateral Agent, information presented in reasonable detail as to the insurance so carried. Each such general liability policy of insurance (other than directors and officers policies, workers compensation policies and business interruption insurance) shall (i) name the Collateral Agent, on behalf of the Secured Parties, as an additional insured thereunder as its interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable clause or mortgagee endorsement that names the Collateral Agent, on behalf of the Secured Parties, as the loss payee or mortgagee thereunder.
(b) If any portion of any Mortgaged Property is at any time located in an area identified by the Federal Emergency Management Agency (or any successor agency) as a special flood hazard area with respect to which flood insurance has been made available under the National Flood Insurance Act of 1968 (as now or hereafter in effect or successor act thereto), then the Borrower shall, or shall cause each Loan Party to (i) maintain, or cause to be maintained, with insurance companies that the Borrower believes (in the good faith judgment of the management of the Borrower) are financially sound and responsible at the time the relevant coverage is placed or renewed, flood insurance in an amount and otherwise sufficient to comply with all applicable rules and regulations promulgated pursuant to the Flood Insurance Laws and (ii) furnish to the Lenders, upon written request from the Collateral Agent, information presented in reasonable detail as to the flood insurance so carried.
Section 5.08 Books and Records; Inspection and Audit Rights .
Holdings and the Borrower will, and will cause each Restricted Subsidiary to, maintain proper books of record and account in which entries that are full, true and correct in all material respects and are in conformity with GAAP (or applicable local standards) consistently applied shall be made of all material financial transactions and matters involving the assets and business of Holdings, the Borrower or its Restricted Subsidiary, as the case may be. Holdings and the Borrower will, and will cause each Restricted Subsidiary to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior written notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested; provided that, excluding any such visits and inspections during the continuation of an Event of Default, only the Administrative Agent on behalf of the Lenders may exercise visitation and inspection rights of the
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Administrative Agent and the Lenders under this Section 5.08 and the Administrative Agent shall not exercise such rights more often than one time during any calendar year absent the existence of an Event of Default and such time shall be at the Borrowers expense; provided, further , that (a) when an Event of Default exists, the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and upon reasonable advance written notice and (b) the Administrative Agent and the Lenders shall give Holdings the opportunity to participate in any discussions with Holdings independent public accountants. Notwithstanding anything to the contrary in this Section 5.08, none of Holdings, the Borrower or any of the Restricted Subsidiaries will be required to disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or other matter (a) unless an Event of Default has occurred and is continuing, that constitutes non-financial trade secrets or non-financial proprietary information, (b) in respect of which access or inspection by, or disclosure to, the Administrative Agent or any Lender (or their respective representatives or contractors) is prohibited by Requirements of Law or any binding agreement with a non-affiliated third party or (c) that is subject to attorney-client or similar privilege or constitutes attorney work product.
Section 5.09 Compliance with Laws .
Each of Holdings and the Borrower will, and will cause each of their respective Subsidiaries, to, comply with its Organizational Documents and all applicable Requirements of Law (including Environmental Laws and ERISA) with respect to it, its property and operations, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. Each of Holdings and the Borrower will, and will cause each of their respective Subsidiaries and their respective officers, directors, employees and, to the knowledge of the Borrower, their respective agents, to comply in all material respects with Anti-Corruption Laws, the USA PATRIOT Act and applicable Sanctions.
Section 5.10 Use of Proceeds .
The Borrower will use the proceeds of the Initial Term Loans on the Effective Date to consummate the Transactions (including to pay all or a portion of Transaction Costs related thereto) contemplated hereunder to occur on the Effective Date. The Borrower will use the proceeds of the Revolving Loans for working capital and for other general corporate purposes, including capital expenditures, cash collateralizing letters of credit, Permitted Acquisitions, Restricted Payments, refinancing of Indebtedness and any other transactions not prohibited by this Agreement.
Section 5.11 Additional Subsidiaries .
(a) If (i) any additional Restricted Subsidiary is formed or acquired after the Effective Date, (ii) any Restricted Subsidiary ceases to be an Excluded Subsidiary or (iii) the Borrower, at its option, elects to cause a Domestic Subsidiary, or to the extent reasonably acceptable to the Administrative Agent, a Foreign Subsidiary that is not a Wholly Owned Subsidiary (including any consolidated Affiliate in which the Borrower and its Subsidiaries own no Equity Interest) to become a Subsidiary Loan Party, then, Holdings and the Borrower will, within 30 days (or such longer period as may be agreed to by the Administrative Agent in its sole discretion) after such newly formed or acquired Restricted Subsidiary is formed or acquired or such Restricted Subsidiary ceases to be an Excluded Subsidiary or the Borrower has made such election, notify the Administrative Agent thereof, and Holdings and the Borrower will cause such Restricted Subsidiary (unless such Restricted Subsidiary is an Excluded Subsidiary) to satisfy the Collateral and Guarantee Requirement with respect to such Restricted Subsidiary and with respect to any Equity Interest in or Indebtedness of such Restricted Subsidiary owned by or on behalf of any Loan Party within 30 days after such notice (or such longer period as the Administrative Agent shall agree) and the Administrative Agent shall have received a completed Perfection Certificate (or supplement thereof) with respect to such Restricted Subsidiary signed by a Responsible Officer, together with all attachments contemplated thereby.
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(b) Within 60 days (or such longer period as otherwise provided in this Agreement or as the Administrative Agent may agree) after the Borrower identifies any new Material Subsidiary pursuant to Section 5.03(b), all actions (if any) required to be taken with respect to such Subsidiary in order to satisfy the Collateral and Guarantee Requirement shall have been taken with respect to such Subsidiary, to the extent not already satisfied pursuant to Section 5.11(a).
(c) Notwithstanding the foregoing, in the event any real property would be required to be mortgaged pursuant to this Section 5.11, Holdings and the Borrower shall be required to comply with the Collateral and Guarantee Requirement as it relates to such real property within 90 days, following the formation or acquisition of such real property or such Restricted Subsidiary or the identification of such new Material Subsidiary, or such longer time period as agreed by the Administrative Agent in its sole discretion.
Section 5.12 Further Assurances .
(a) Solely with respect to the Effective Date, Holdings and the Borrower will, and will cause each Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents), that may be required under any applicable law and that the Administrative Agent or the Required Lenders may reasonably request, to cause the Collateral and Guarantee Requirement to be and remain satisfied, all at the expense of the Loan Parties.
(b) If, after the Effective Date, any material assets (other than Excluded Assets), including any owned (but not leased or ground-leased) Material Real Property or improvements thereto or any interest therein, are acquired by the Borrower or any other Loan Party or are held by any Subsidiary on or after the time it becomes a Loan Party pursuant to Section 5.11 (other than assets constituting Collateral under a Security Document that become subject to the Lien created by such Security Document upon acquisition thereof or constituting Excluded Assets), the Borrower will notify the Administrative Agent thereof, and, if requested by the Administrative Agent, Holdings and the Borrower will cause such assets to be subjected to a Lien securing the Secured Obligations and will take and cause the other Loan Parties to take, such actions as shall be necessary and reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section and as required pursuant to the Collateral and Guarantee Requirement, all at the expense of the Loan Parties and subject to the last paragraph of the definition of the term Collateral and Guarantee Requirement. In the event any Material Real Property is mortgaged pursuant to this Section 5.12(b), the Borrower or such other Loan Party, as applicable, shall be required to comply with the Collateral and Guarantee Requirement and paragraph (a) of this Section 5.12 within 90 days following the acquisition of such Material Real Property or such longer time period as agreed by the Administrative Agent in its sole discretion.
Section 5.13 Designation of Subsidiaries .
The Borrower may at any time after the Effective Date designate any Restricted Subsidiary of the Borrower as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Restricted Subsidiary; provided that (i) immediately after giving effect to such designation, the Borrower shall be in compliance, on a Pro Forma Basis, with the Financial Performance Covenants then in effect for the Test
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Period then last ended, (ii) immediately after giving effect to such designation, no Event of Default shall have occurred and be continuing, (iii) any Unrestricted Subsidiary that has been designated as a Restricted Subsidiary after the Effective Date cannot subsequently be re-designated as an Unrestricted Subsidiary, (iv) no Subsidiary may be designated as an Unrestricted Subsidiary or continue as an Unrestricted Subsidiary if it is the legal owner of Material Intellectual Property or if it is a Restricted Subsidiary (or similar applicable term) under any other Material Indebtedness, (v) no Unrestricted Subsidiary may hold any Equity Interests or Indebtedness of, or any lien on any property of, Holdings or any Subsidiary of Holdings (other than another Unrestricted Subsidiary) and (vi) immediately after giving effect to such designation, the Consolidated EBITDA of all Unrestricted Subsidiaries at such time shall not, in the aggregate, exceed 5.0% of the Consolidated EBITDA of Holdings and its Subsidiaries at the time of such designation. The designation of any Subsidiary as an Unrestricted Subsidiary after the Effective Date shall constitute an Investment by the Borrower therein at the date of designation in an amount equal to the fair market value of the Borrowers or its Subsidiarys (as applicable) investment therein. The designation of any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the incurrence at the time of designation of any Investment, Indebtedness or Liens of such Subsidiary existing at such time.
Section 5.14 Certain Post-Closing Obligations .
As promptly as practicable, and in any event within the time periods after the Effective Date specified in Schedule 5.14 or such later date as the Administrative Agent agrees to in writing in its sole discretion, the Borrower and each other Loan Party shall deliver the documents or take the actions specified on Schedule 5.14 that would have been required to be delivered or taken on the Effective Date, in each case except to the extent otherwise agreed by the Administrative Agent pursuant to its authority as set forth in the definition of the term Collateral and Guarantee Requirement. With respect to time periods applicable to entering into Control Agreements, the applicable Loan Parties shall have those time periods specified in clause (f) of the term Collateral and Guarantee Requirement.
Section 5.15 Lines of Business .
The Borrower and its Restricted Subsidiaries, taken as a whole, will not fundamentally and substantively alter the character of their business, taken as a whole, from the business conducted by them on the Effective Date and other business activities which are extensions thereof or otherwise incidental, reasonably related or ancillary to any of the foregoing.
Section 5.16 Lenders Meetings .
The Borrower will conduct a meeting (a) in person (at Borrowers chief executive officer or another location agreed to by the Borrower) once per fiscal year beginning with the fiscal year ending on December 31, 2017 and (b) by teleconference each fiscal quarter beginning with the fiscal quarter ending on June 30, 2017 (but excluding the fiscal quarter in which the annual in person meeting is held) with the Administrative Agent and the Lenders to discuss the financial results and the financial condition of the Holdings and its Subsidiaries, along with any other material developments relating to the business of Holdings and its Subsidiaries, at which meeting appropriate members of management of the Borrower shall be present together with such other officers of the Loan Parties and their Subsidiaries as may be reasonably requested by the Administrative Agent to participate in such meeting; provided that such request to be made within a reasonable period of time prior to the scheduled date of such meeting (taking into account the business cycle and activities of the Loan Parties and their Subsidiaries). Such meeting shall be held reasonably promptly following delivery of the applicable financial statements at a time convenient to the Administrative Agent and the Borrower.
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Section 5.17 Changes in Fiscal Periods .
Holdings may, upon written notice to the Administrative Agent, change its fiscal year to any other fiscal year acceptable to the Administrative Agent, in which case, Holdings and the Administrative Agent will, and are hereby authorized by the Lenders to, make any adjustments to this Agreement that are necessary to reflect such change in fiscal year.
ARTICLE VI
NEGATIVE COVENANTS
From and after the Effective Date and until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees, expenses and other amounts payable (other than contingent amounts not yet due) under any Loan Document have been paid in full, each of Holdings (with respect to Sections 6.03(b) and (c) only) and the Borrower covenants and agrees with the Lenders that:
Section 6.01 Indebtedness; Certain Equity Securities .
(a) The Borrower will not, and will not permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except:
(i) Indebtedness of the Borrower and any of the Restricted Subsidiaries under the Loan Documents;
(ii) Indebtedness outstanding on the Effective Date and listed on Schedule 6.01, and any Permitted Refinancing thereof;
(iii) Guarantees by the Borrower and its Restricted Subsidiaries in respect of Indebtedness of the Borrower or any Restricted Subsidiary otherwise permitted hereunder; provided that (A) such Guarantee is otherwise permitted by Section 6.04, (B) no Guarantee by any Restricted Subsidiary of any Junior Financing shall be permitted unless such Restricted Subsidiary shall have also provided a Guarantee of the Loan Document Obligations pursuant to the Guarantee Agreement, (C) if the Indebtedness being Guaranteed is subordinated to the Loan Document Obligations, such Guarantee shall be subordinated to the Guarantee of the Loan Document Obligations on terms at least as favorable to the Lenders as those contained in the subordination of such Indebtedness and (D) in the case of any Guarantee by a Restricted Subsidiary that is not a Loan Party of any Indebtedness of a Loan Party, such non-Loan Party Restricted Subsidiary would otherwise be permitted to incur such Indebtedness being Guaranteed pursuant to this Section 6.01;
(iv) Indebtedness of the Borrower owing to any Restricted Subsidiary or of any Restricted Subsidiary owing to any other Restricted Subsidiary or the Borrower, to the extent permitted by Section 6.04; provided that all such Indebtedness of any Loan Party owing to any Restricted Subsidiary that is not a Loan Party shall (a) be subordinated to the Loan Document Obligations (but only to the extent permitted by applicable law and not giving rise to material adverse tax consequences) on terms (i) at least as favorable to the Lenders as those set forth in the Master Intercompany Note or (ii) otherwise satisfactory to the Administrative Agent and (b) together with any Investments made by a Loan Party in Restricted Subsidiaries that are not Loan Parties pursuant to Section 6.04(c), not exceed $2,000,000 in the aggregate;
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(v) (A) Indebtedness (including Capital Lease Obligations and purchase money indebtedness) incurred, issued or assumed by the Borrower or any Restricted Subsidiary to finance the acquisition, purchase, lease, construction, repair, replacement or improvement of fixed or capital property, equipment or other assets; provided that such Indebtedness is incurred concurrently with or within 270 days after the applicable acquisition, purchase, lease, construction, repair, replacement or improvement, and (B) any Permitted Refinancing of any Indebtedness set forth in the immediately preceding clause (A) (or successive Permitted Refinancings thereof); provided , further , that the aggregate principal amount of Indebtedness that is outstanding in reliance on this clause (v) (excluding any Capital Lease Obligations incurred pursuant to a sale and leaseback transaction permitted under Section 6.06) shall not exceed $3,000,000;
(vi) Indebtedness in respect of Swap Agreements incurred in the ordinary course of business and not for speculative purposes;
(vii) [reserved];
(viii) Indebtedness of the Borrower, any Restricted Subsidiary or any Person that becomes a Restricted Subsidiary incurred, issued or assumed after the Effective Date in connection with any Permitted Acquisition; provided that (A) such Indebtedness is unsecured (other than assumed Indebtedness secured by Liens permitted pursuant to Section 6.02(k)), in the case of incurred or issued Indebtedness, subject to the Required Additional Debt Terms; and (B) the aggregate principal amount of Indebtedness under this clause (viii) does not exceed, in the aggregate, $2,000,000 at any one time outstanding;
(ix) [reserved];
(x) Indebtedness in respect of Cash Management Obligations and other Indebtedness in respect of netting services, automated clearinghouse arrangements, overdraft protections and similar arrangements, in each case, in connection with deposit accounts or from the honoring of a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business;
(xi) unsecured Indebtedness in the form of Earn-Outs, deferred compensation, incentive non-competes or notes owing to sellers, in each case, in connection with a Permitted Acquisition; provided that (A) the aggregate principal amount of Indebtedness under this clause (xi) does not exceed, in the aggregate, $15,000,000 at any one time outstanding, (b) such Indebtedness is subordinated to the Loan Document Obligations on terms and conditions satisfactory to the Administrative Agent, (C) in the case of Earn-Outs, the amount thereof is calculated in accordance with GAAP and the Earn-Out is not a disguised installment payment of the initial purchase price in respect of the applicable Permitted Acquisition and (D) such Indebtedness (excluding Earn-Outs) does not mature earlier than the Latest Maturity Date or have a Weighted Average Life to Maturity shorter than the remaining Weighted Average Life to Maturity of the Term Loans;
(xii) Indebtedness consisting of obligations under indemnification obligations, obligations in respect of purchase price adjustments and other contingent obligations that in each case, (A) do not include Earn-Outs or other similar arrangements incurred or (B) are assumed in connection with any Permitted Acquisition, any other Investment or any Disposition, in each case, permitted under this Agreement;
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(xiii) unsecured Junior Financing of the Borrower and the Subsidiary Loan Parties, subject to compliance with the Required Additional Debt Terms; provided that (A) no Default or Event of Default shall have occurred or be continuing or shall result therefrom, (B) such Indebtedness is subordinated to the Loan Document Obligations on terms and conditions satisfactory to the Administrative Agent and (C) the aggregate principal amount of Indebtedness under this clause (xiii) does not exceed, in the aggregate, $15,000,000 at any one time outstanding;
(xiv) [reserved];
(xv) Indebtedness consisting of (A) the financing of insurance premiums or (B) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business;
(xvi) Indebtedness of the Borrower and its Restricted Subsidiaries in respect of letters of credit in an aggregate face amount not to exceed $2,000,000 at any time outstanding;
(xvii) [reserved];
(xviii) [reserved];
(xix) [reserved];
(xx) [reserved];
(xxi) Indebtedness of any Restricted Subsidiary that is not a Loan Party; provided that the aggregate principal amount of Indebtedness of which the primary obligor or a guarantor is a Restricted Subsidiary that is not a Loan Party outstanding in reliance of this clause (xxi) shall not exceed $2,000,000;
(xxii) Indebtedness incurred by the Borrower or any of the Restricted Subsidiaries in respect of warehouse receipts, bankers acceptances or similar instruments issued or created in the ordinary course of business or consistent with past practice, including in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other reimbursement-type obligations regarding workers compensation claims;
(xxiii) Indebtedness (contingent or otherwise) owing to sureties arising from bid, performance or surety bonds or letters of credit supporting such bid, performance or surety bonds issued on behalf of any Loan Party or its respective Subsidiaries as support for, among other things, their contracts with customers, whether such indebtedness is owing directly or indirectly by such Loan Party or any such Subsidiary, in each case in the ordinary course of business or consistent with past practice;
(xxiv) (x) Indebtedness representing deferred compensation or stock-based compensation owed to employees, consultants or independent contractors of Holdings, the Borrower or its Restricted Subsidiaries incurred in the ordinary course of business or consistent with past practice and (y) Indebtedness consisting of obligations of the Borrower (or any direct or indirect parent thereof) or its Restricted Subsidiaries under deferred compensation to employees, consultants or independent contractors of the Borrower (or any direct or indirect parent thereof) or its Restricted Subsidiaries or other similar arrangements incurred by such Persons in connection with the Transactions, Permitted Acquisitions or any other Investment permitted by this Agreement;
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(xxv) [reserved];
(xxvi) [reserved];
(xxvii) Capital Lease Obligations arising under any sale-leaseback transaction permitted hereunder in reliance upon Section 6.05(f);
(xxviii) unsecured Indebtedness of Holdings and its Subsidiaries owing to future, current or former employees, officers, managers, consultants or directors of Holdings, its Subsidiaries and any direct or indirect parent entity thereof (or any spouses, former spouses, or estates of any of the foregoing) to finance the repurchase by Holdings and its Subsidiaries of equity interests of Holdings (or any direct or indirect parent entity thereof) and its Subsidiaries that has been issued to such Persons upon the death or separation from employment thereof, so long as (x) no Event of Default has occurred and is continuing at the time of issuance or, to the extent permitted by Section 6.07(a), would result from the incurrence of such indebtedness and (y) the amount of all such Indebtedness does not exceed $1,500,000 in the aggregate at any time outstanding;
(xxix) additional Indebtedness incurred by the Borrower or any of its Restricted Subsidiaries in an aggregate principal amount not to exceed $5,000,000 at any one time outstanding; and
(xxx) all premiums (if any), interest (including post-petition interest), fees, expenses, charges and additional or contingent interest on obligations described in clauses (i) through (xxix) above.
(b) The Borrower will not, and will not permit any Restricted Subsidiary to, issue any preferred Equity Interests or any Disqualified Equity Interests, except (A) in the case of the Borrower, preferred Equity Interests that are Qualified Equity Interests and (B) preferred Equity Interests issued to and held by the Borrower or any Restricted Subsidiary; provided that in the case of this clause (B) any such issuance of preferred Equity Interests that are not Qualified Equity Interests shall be deemed to be incurred Indebtedness and subject to the provisions set forth in Section 6.01(a) and (b) (and shall only be permitted if the incurrence of such Indebtedness would have been permitted thereunder).
For purposes of determining compliance with any U.S. dollar denominated restriction on the incurrence of Indebtedness, the U.S. dollar equivalent principal amount of Indebtedness denominated in a foreign currency will be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed, in the case of revolving credit debt; provided , however , that if such Indebtedness is a Permitted Refinancing incurred to extend, replace, refund, refinance, renew or defease other Indebtedness denominated in a foreign currency, and such extension, replacement, refunding, refinancing, renewal or defeasance would cause the applicable U.S. dollar denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such extension, replacement, refunding, refinancing, renewal or defeasance such U.S. dollar denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such Permitted Refinancing does not exceed the principal amount of such Indebtedness being extended, replaced, refunded, refinanced, renewed or defeased. Notwithstanding any other provision of this Section 6.01, the maximum amount of Indebtedness any Person may incur pursuant to this Section 6.01 shall not be deemed exceeded by fluctuations in the exchange rate of currencies. The principal
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amount of any Permitted Refinancing shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of any extension, replacement, refunding, refinancing, renewal or defeasance of any Indebtedness.
Section 6.02 Liens .
The Borrower will not, and will not permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned (but not leased or ground-leased) or hereafter acquired (but not leased or ground-leased) by it, except:
(a) Liens securing the Secured Obligations;
(b) Permitted Encumbrances;
(c) Liens existing on the Effective Date and set forth on Schedule 6.02, and any modifications, replacements, renewals or extensions thereof; provided that such modified, replacement, renewal or extension Lien does not extend to any additional property other than (1) after-acquired property that is affixed or incorporated into the property covered by such Lien and (2) proceeds and products thereof;
(d) Liens securing Indebtedness permitted under Section 6.01(a)(v); provided that (A) such Liens attach concurrently with or within 270 days after the acquisition, repair, replacement, construction or improvement (as applicable) of the property subject to such Liens, (B) such Liens do not at any time encumber any property other than the property financed by such Indebtedness except for replacements, additions, accessions and improvements to such property and the proceeds and the products thereof, and any lease of such property (including accessions thereto) and the proceeds and products thereof and (C) with respect to Capital Lease Obligations, such Liens do not at any time extend to or cover any assets (except for replacements, additions, accessions and improvements to or proceeds of such assets) other than the assets subject to such Capital Lease Obligations; provided , further , that individual financings of equipment provided by one lender may be cross collateralized to other financings of equipment provided by such lender;
(e) (i) easements, leases, licenses, subleases or sublicenses granted to others (including licenses and sublicenses of Intellectual Property) that do not (A) interfere in any material respect with the business of the Borrower and its Restricted Subsidiaries, taken as a whole, or (B) secure any Indebtedness and (ii) any interest or title of a lessor or licensee under any lease or license entered into by the Borrower or any Restricted Subsidiary in the ordinary course of its business and covering only the assets so leased or licensed;
(f) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
(g) Liens (A) of a collection bank arising under Section 4-210 of the Uniform Commercial Code, or any comparable or successor provision, on items in the course of collection or (B) attaching to pooling, commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business; or (C) in favor of a banking or other financial institution or entity, or electronic payment service provider, arising as a matter of law encumbering deposits (including the right of setoff) and that are within the general parameters customary in the banking or finance industry;
(h) Liens (A) on cash advances or escrow deposits in favor of the seller of any property to be acquired in an Investment permitted pursuant to Section 6.04 to be applied against the
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purchase price for such Investment or otherwise in connection with any escrow arrangements with respect to any such Investment or any Disposition permitted under Section 6.05 (including any letter of intent or purchase agreement with respect to such Investment or Disposition), or (B) consisting of an agreement to dispose of any property in a Disposition permitted under Section 6.05, in each case, solely to the extent such Investment or Disposition, as the case may be, would have been permitted on the date of the creation of such Lien;
(i) Liens on property or other assets of any Restricted Subsidiary that is not a Loan Party, which Liens secure Indebtedness of such Restricted Subsidiary or another Restricted Subsidiary that is not a Loan Party, in each case permitted under Section 6.01(a);
(j) Liens granted by a Restricted Subsidiary that is not a Loan Party in favor of any Restricted Subsidiary and Liens granted by a Loan Party in favor of any other Loan Party;
(k) Liens existing on property or other assets at the time of its acquisition or existing on the property or other assets of any Person at the time such Person becomes a Restricted Subsidiary, in each case after the Effective Date and any modifications, replacements, renewals or extensions thereof; provided that (A) such Lien was not created in contemplation of such acquisition or such Person becoming a Restricted Subsidiary and (B) such Lien does not extend to or cover any other assets or property (other than the proceeds or products thereof and other than after-acquired property subject to a Lien securing Indebtedness and other obligations incurred prior to such time and which Indebtedness and other obligations are permitted hereunder that require or include, pursuant to their terms at such time, a pledge of after-acquired property, it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition);
(l) any interest or title of a lessor or sublessor under leases or subleases (other than leases constituting Capital Lease Obligations) entered into by the Borrower or any Restricted Subsidiary in the ordinary course of business;
(m) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale or purchase of goods by any of the Borrower or any Restricted Subsidiaries in the ordinary course of business;
(n) Liens deemed to exist in connection with Investments in repurchase agreements under clause (e) of the definition of the term Permitted Investments;
(o) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(p) Liens that are contractual rights of setoff (A) relating to the establishment of depository relations with banks not given in connection with the incurrence of Indebtedness, (B) relating to pooled deposit or sweep accounts to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and its Restricted Subsidiaries or (C) relating to purchase orders and other agreements entered into with customers of the Borrower or any Restricted Subsidiary in the ordinary course of business;
(q) Liens on cash and Permitted Investments securing Cash Management Obligations of the Borrower or any Restricted Subsidiary established in the ordinary course of business and in an aggregate amount not to exceed $4,000,000 (less that aggregate amount of Secured Obligations constituting Secured Swap Obligations at such time);
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(r) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;
(s) Liens on cash collateral not to exceed 105% of the face amount of letters of credit permitted under Section 6.01(a)(xvi);
(t) Liens on real property other than the Mortgaged Properties but only to the extent that the aggregate fair market value of all such real property (other than Mortgaged Properties) subject to the foregoing Liens does not exceed $500,000;
(u) [reserved];
(v) Liens securing Indebtedness permitted under Section 6.01(a)(viii);
(w) Liens on cash and Permitted Investments used to satisfy or discharge Indebtedness; provided such satisfaction or discharge is permitted hereunder;
(x) receipt of progress payments and advances from customers in the ordinary course of business to the extent the same creates a Lien on the related inventory and proceeds thereof;
(y) Liens on Equity Interests of any joint venture (a) securing obligations of such joint venture or (b) pursuant to the relevant joint venture agreement or arrangement;
(z) [reserved]; and
(aa) other Liens securing obligations otherwise permitted under this Agreement, so long as the fair market value of the assets securing such obligations shall not exceed $3,000,000 in the aggregate.
Section 6.03 Fundamental Changes; Holdings Covenant .
(a) The Borrower will not, and will not permit any other Restricted Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve (which, for the avoidance of doubt, shall not restrict the Borrower or any Restricted Subsidiary from changing its organizational form pursuant to clause (ii)(B) below), except that:
(i) any Restricted Subsidiary may merge or consolidate with (A) the Borrower; provided that the Borrower shall be the continuing or surviving Person or (B) any one or more other Restricted Subsidiaries; provided that when any Subsidiary Loan Party is merging or consolidating with another Restricted Subsidiary (1) the continuing or surviving Person shall be a Subsidiary Loan Party or (2) if the continuing or surviving Person is not a Subsidiary Loan Party, the acquisition of such Subsidiary Loan Party by such surviving Restricted Subsidiary is otherwise permitted under Section 6.04;
(ii) (A) any Restricted Subsidiary that is not a Loan Party may merge or consolidate with or into any other Restricted Subsidiary that is not a Loan Party and (B) any Restricted Subsidiary may change its legal form if the Borrower determines in good faith that such action is in the best interests of the Borrower and its Restricted Subsidiaries and is not materially disadvantageous to the Lenders;
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(iii) any Restricted Subsidiary may make a Disposition of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or another Restricted Subsidiary; provided that if the transferor in such a transaction is a Loan Party, then (A) the transferee must be a Loan Party, (B) to the extent constituting an Investment, such Investment must be a permitted Investment in a Restricted Subsidiary that is not a Loan Party in accordance with Section 6.04 or (C) to the extent constituting a Disposition to a Restricted Subsidiary that is not a Loan Party, (w) such Disposition is for fair market value (as determined in good faith by the Borrower), (x) the amount of all Dispositions under this clause (iii)(C) shall not exceed, in the aggregate, $500,000, (y) any promissory note or other non-cash consideration received in respect thereof is a permitted Investment in a Restricted Subsidiary that is not a Loan Party in accordance with Section 6.04 and (z) such Disposition shall not include the disposition of any Material Intellectual Property;
(iv) the Borrower may merge or consolidate with any other Person; provided that the Borrower shall be the continuing or surviving Person;
(v) [reserved];
(vi) Holdings, the Borrower and any Restricted Subsidiary may effect the IPO Reorganization Transactions or any transaction related thereto or contemplated thereby; provided that after giving effect to any such transactions the interests of the Lenders (including, without limitation, the security interests of the Secured Parties in the Collateral), taken as a whole, would not be impaired;
(vii) any Restricted Subsidiary may merge, consolidate or amalgamate with any other Person in order to effect an Investment permitted pursuant to Section 6.04; provided that the continuing or surviving Person shall be the Borrower or a Restricted Subsidiary, which together with each of the Restricted Subsidiaries, shall have complied with the requirements of Sections 5.11 and 5.12; and
(viii) any Restricted Subsidiary may effect a merger, dissolution, liquidation consolidation or amalgamation to effect a Disposition permitted pursuant to Section 6.05.
(b) Holdings will not conduct, transact or otherwise engage in any business or operations other than (i) the ownership and/or acquisition of the Equity Interests of the Borrower, (ii) the maintenance of its legal existence, including the ability to incur fees, costs and expenses relating to such maintenance, (iii) participating in tax, accounting and other administrative matters as a member of the consolidated group of Holdings and the Borrower, (iv) the performance of its obligations under and in connection with the Loan Documents, (v) any public offering of its common stock or any other issuance or registration of its Equity Interests for sale or resale not prohibited by this Agreement, including the costs, fees and expenses related thereto, (vi) making any dividend or distribution or other transaction similar to a Restricted Payment and not otherwise prohibited by Section 6.08, or any Investment in the Borrower, (vii) the incurrence of any Indebtedness related to the actions and transactions permitted under this clause (b) and permitted by Section 6.01(a)(xi) , (xii) , (xiv) or (xviii) as if such Indebtedness were incurred by the Borrower or a Restricted Subsidiary, (viii) incurring fees, costs and expenses relating to overhead and general operating including professional fees for legal, tax and accounting issues and paying taxes, (ix) providing indemnification to officers and members of the Board of Directors, (x) activities incidental to the consummation of the Transactions and (xi) activities incidental to the businesses or activities described in clauses (i) to (ix) of this paragraph. Holdings will not permit any Lien to exist on the Equity Interests of the Borrower, other than Liens permitted by Section 6.02(a) (other than any non-consensual Liens permitted under Section 6.02).
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(c) Holdings will not own or acquire any material assets (other than Equity Interests as referred to in paragraph (b)(i) above, cash and Permitted Investments, intercompany Investments in the Borrower permitted hereunder) or incur any liabilities (other than liabilities as referred to in paragraph (b) above, liabilities imposed by law, including tax liabilities, and other liabilities incidental to its existence and business and activities permitted by this Agreement).
Section 6.04 Investments, Loans, Advances, Guarantees and Acquisitions .
The Borrower will not, and will not permit any Restricted Subsidiary to, make or hold any Investment, except:
(a) an Investment that constitutes a Permitted Investment at the time such Permitted Investment is made;
(b) loans or advances to officers, members of the Board of Directors and employees of Holdings, the Borrower and its Restricted Subsidiaries (i) for reasonable and customary business-related travel, entertainment, relocation and analogous ordinary business purposes, (ii) in connection with such Persons purchase of Equity Interests of Holdings (or any direct or indirect parent thereof) and (iii) for purposes not described in the foregoing clauses (i) and (ii), in an aggregate principal amount (with respect to clauses (i) through (iii)) outstanding at any time not to exceed $1,500,000;
(c) (A) Investments by any Loan Party in any other Loan Party and (B) Investments by the Borrower in any Restricted Subsidiary and Investments by any Restricted Subsidiary in any of the Borrower or any other Restricted Subsidiary; provided that, in the case of any Investment by a Loan Party in a Restricted Subsidiary that is not a Loan Party, (i) no Event of Default shall have occurred and be continuing or would result therefrom and (ii) all such Investments by Loan Parties in Restricted Subsidiaries that are not Loan Parties shall not exceed $2,000,000 (less the amount of Indebtedness owed by Loan Parties to Subsidiaries that are not Loan Parties pursuant to Section 6.01(a)(iv)));
(d) Investments consisting of extensions of trade credit and accommodation guarantees in the ordinary course of business;
(e) Investments (i) existing or contemplated on the Effective Date and set forth on Schedule 6.04(e) and any modification, replacement, renewal, reinvestment or extension thereof and (ii) Investments existing on the Effective Date by the Borrower or any Restricted Subsidiary in the Borrower or any Restricted Subsidiary and any modification, renewal or extension thereof; provided that, in each case, the amount of the original Investment is not increased except by the terms of such Investment to the extent as set forth on Schedule 6.04(e) or as otherwise permitted by this Section 6.04;
(f) Investments in Swap Agreements incurred in the ordinary course of business and not for speculative purposes;
(g) promissory notes and other non-cash consideration received in connection with Dispositions permitted by Section 6.05;
(h) Permitted Acquisitions; provided that in the case of any Permitted Acquisition of targets that do not become Loan Parties (or of subsidiaries or equity interests that are not acquired by Loan Parties), the aggregate cash consideration paid for Permitted Acquisitions of targets that
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do not become Loan Parties (or of assets that are acquired by non-Loan Parties) shall not in the aggregate exceed $5,000,000 plus the Net Proceeds from the issuance of such Qualified Equity Interests (which Qualified Equity Interests shall not increase the Available Equity Amount or constitute any Cure Amount and are Not Otherwise Applied);
(i) Investments in Unrestricted Subsidiaries or in joint ventures of any Loan Party in an aggregate amount not to exceed $2,000,000;
(j) Investments in the ordinary course of business consisting of Uniform Commercial Code Article 3 endorsements for collection or deposit and Uniform Commercial Code Article 4 customary trade arrangements with customers in the ordinary course of business;
(k) Investments (including debt obligations and Equity Interests) received in connection with the bankruptcy or reorganization of suppliers and customers or in settlement of delinquent obligations of, or other disputes with, customers and suppliers or upon the foreclosure with respect to any secured Investment or other transfer of title with respect to any secured Investment;
(l) loans and advances to Holdings (or any direct or indirect parent thereof) in lieu of, and not in excess of the amount of (after giving effect to any other loans, advances or Restricted Payments in respect thereof), Restricted Payments to the extent permitted to be made to Holdings (or such parent) in accordance with Section 6.07(a);
(m) additional Investments; provided that (i) at the time any such Investment or other acquisition is made no Event of Default shall have occurred and be continuing or would result therefrom, (ii) the aggregate outstanding amount of such Investment made in reliance on this clause (m), together with the aggregate amount of all consideration paid in connection with all other Investments and acquisitions made in reliance on this clause (m) (including the aggregate principal amount of all Indebtedness assumed in connection with any such other Investment previously made under this clause (m)), shall not exceed the sum of (A) the Available Amount that is Not Otherwise Applied as in effect immediately prior to the time of making of such Investment, plus (B) the Available Equity Amount that is Not Otherwise Applied as in effect immediately prior to the time of making of such Investment plus (C) the Net Proceeds from the issuance of such Qualified Equity Interests (which Qualified Equity Interests shall not increase the Available Equity Amount or constitute any Cure Amount and are Not Otherwise Applied) and (iii) other than with respect to clause (C), the Borrower shall be in compliance, on a Pro Forma Basis, with the Financial Performance Covenants then in effect for the Test Period then last ended;
(n) [reserved];
(o) [reserved];
(p) advances of payroll payments to employees in the ordinary course of business;
(q) [reserved];
(r) Investments of a Subsidiary acquired after the Effective Date or of a Person merged or consolidated with any Subsidiary in accordance with this Section 6.04 and Section 6.03 after the Effective Date or that otherwise becomes a Subsidiary ( provided that if such Investment is made under Section 6.04(h), existing Investments in subsidiaries of such
112
Subsidiary or Person shall comply with the requirements of Section 6.04(h)) to the extent that such Investments were not made in contemplation of or in connection with such acquisition, merger or consolidation and were in existence on the date of such acquisition, merger or consolidation;
(s) receivables owing to the Borrower or any Restricted Subsidiary, if created or acquired in the ordinary course of business;
(t) Investments (A) for utilities, security deposits, leases and similar prepaid expenses incurred in the ordinary course of business and (B) trade accounts created, or prepaid expenses accrued, in the ordinary course of business;
(u) non-cash Investments in connection with tax planning and reorganization activities; provided that after giving effect to any such activities, the interests (including, without limitation, the security interests of the Secured Parties in the Collateral), taken as a whole, would not be impaired;
(v) [reserved];
(w) Investments consisting of Indebtedness, Liens, fundamental changes, Dispositions and Restricted Payments permitted (other than by reference to this Section 6.04(w)) under Sections 6.01, 6.02, 6.03, 6.05 and 6.07, respectively;
(x) contributions to a rabbi trust for the benefit of employees, directors, consultants, independent contractors or other service providers or other grantor trust subject to claims of creditors in the case of a bankruptcy of the Borrower;
(y) to the extent that they constitute Investments, purchases and acquisitions of inventory, supplies, materials or equipment or purchases, acquisitions, licenses or leases of other assets, Intellectual Property, or other rights, in each case in the ordinary course of business;
(z) Investments by an Unrestricted Subsidiary (that has not previously been a Restricted Subsidiary Loan Party) entered into prior to the day such Unrestricted Subsidiary is redesignated as a Restricted Subsidiary pursuant to the definition of Unrestricted Subsidiary;
(aa) so long as no Event of Default shall have occurred and be continuing or would result therefrom, other Investments in an aggregate amount not to exceed $2,000,000; provided that amounts permitted under this clause (aa) may be increased by any available capacity under Section 6.07(a)(xv); and
(bb) Investments arising as a result of sale-leaseback transactions permitted by Section 6.06 hereto.
Notwithstanding the foregoing, no Material Intellectual Property owned by any Loan Party may be contributed as an Investment by any Loan Party to any non-Loan Party.
Section 6.05 Asset Sales .
The Borrower will not, and will not permit any Restricted Subsidiary to, (i) sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it or (ii) permit any Restricted Subsidiary to issue any additional Equity Interest in such Restricted Subsidiary
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(other than issuing directors qualifying shares, nominal shares issued to foreign nationals to the extent required by applicable Requirements of Law and other than issuing Equity Interests to the Borrower or a Restricted Subsidiary in compliance with Section 6.04(c)) (each, a Disposition and the term Dispose as a verb has the corresponding meaning), except:
(a) Dispositions of obsolete, damaged, used, surplus or worn out property, whether now owned or hereafter acquired, and Dispositions of non-core assets or property (including assets or of property no longer used or useful, or economically practicable to maintain, in the conduct of the core or principal business of the Borrower and its Restricted Subsidiaries but excluding non-core assets or property acquired in connection with any Permitted Acquisition or other Investment not prohibited hereunder) (including allowing any registration or application for registration of any Intellectual Property (excluding Material Intellectual Property) that is no longer used or useful, or economically practicable to maintain, to lapse, go abandoned, or be invalidated);
(b) Dispositions (other than with respect to Material Intellectual Property) of (i) inventory and other assets in the ordinary course of business or consistent with past practice or no longer used in the ordinary course of business and (ii) immaterial assets (considered in the aggregate) in the ordinary course of business;
(c) Dispositions of equipment to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) an amount equal to Net Proceeds of such Disposition are promptly applied to the purchase price of such replacement property, in each case, in the ordinary course of business;
(d) Dispositions of property to the Borrower or a Restricted Subsidiary; provided that if the transferor in such a transaction is a Loan Party, then either (i) the transferee must be a Loan Party or (ii) to the extent constituting an Investment, such Investment must be a permitted Investment in a Restricted Subsidiary that is not a Loan Party in accordance with Section 6.04;
(e) Dispositions permitted by Section 6.03, Investments permitted by Section 6.04, Restricted Payments permitted by Section 6.07 and Liens permitted by Section 6.02;
(f) Dispositions of property pursuant to sale-leaseback transactions permitted by Section 6.06 hereto;
(g) Dispositions of Permitted Investments in the ordinary course of business;
(h) Dispositions of accounts receivable in connection with the collection or compromise thereof (including sales to factors or other third parties) in the ordinary course of business;
(i) leases, subleases, service agreements, product sales, abandonments, licenses, sublicenses or other disposals, in each case, (i) other than in respect of Intellectual Property and (ii) in the ordinary course of business and that does not materially interfere with the business of the Borrower and its Restricted Subsidiaries, taken as a whole;
(j) transfers of property subject to Casualty Events;
(k) Dispositions of property (other than Material Intellectual Property) to Persons other than Restricted Subsidiaries (including the sale or issuance of Equity Interests of a
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Restricted Subsidiary) for fair market value (as determined by a Responsible Officer of the Borrower in good faith) not otherwise permitted under this Section 6.05, so long as no Event of Default shall have occurred and be continuing or would result from any such Disposition; provided that (i) with respect to any Disposition pursuant to this clause (k) for a purchase price in excess of $1,000,000, the Borrower or any Restricted Subsidiary shall receive not less than 75% of such consideration in the form of cash and (ii) any Designated Non-Cash Consideration received by the Borrower or such Restricted Subsidiary in respect of such Disposition having an aggregate fair market value (as determined by a Responsible Officer of the Borrower in good faith), taken together with all other Designated Non-Cash Consideration received pursuant to this clause (k), shall not exceed $3,000,000 in the aggregate (with the fair market value (as determined by a Responsible Officer of the Borrower in good faith) of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value);
(l) Dispositions of Investments in joint ventures to the extent required by, or made pursuant to customary buy/sell arrangements between, the joint venture parties set forth in joint venture arrangements and similar binding arrangements;
(m) Dispositions or forgiveness of accounts receivable in the ordinary course of business in connection with the collection or compromise thereof;
(n) Dispositions of any assets (including Equity Interests) (A) acquired in connection with any Permitted Acquisition, which assets are not used or useful to the core or principal business of the Borrower and its Restricted Subsidiaries, so long as the aggregate fair market value (as determined by a Responsible Officer of the Borrower in good faith) of all such assets subject to Dispositions made in reliance on this clause (A) does not exceed $10,000,000 and (B) made to obtain the approval of any applicable antitrust authority in connection with a Permitted Acquisition;
(o) transfers of condemned property as a result of the exercise of eminent domain or other similar powers to the respective Governmental Authority or agency that has condemned the same (whether by deed in lieu of condemnation or otherwise), and transfers of property arising from foreclosure or similar action or that have been subject to a casualty to the respective insurer of such real property as part of an insurance settlement;
(p) [reserved];
(q) any disposition of property (i) between or among Loan Parties (other than Holdings) or (ii) between or among any non-Loan Parties;
(r) any Disposition of any Material Intellectual Property to any Person that is not a Loan Party so long as the Administrative Agent shall have consented to such Disposition in its sole discretion; and
(s) any Disposition of other assets for fair market value not to exceed $2,000,000 in the aggregate; and
(t) transfer pricing and cost sharing arrangements among any Loan Party and any non-Loan Party.
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Section 6.06 Sale and Leaseback Transactions .
The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any arrangement, directly or indirectly, with any Person whereby it shall sell or transfer any tangible property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred, except for any such sale of any fixed or capital assets by the Borrower or any Restricted Subsidiary that is made for cash consideration in an amount not less than the fair market value (as determined in good faith by the Borrower) of such fixed or capital asset and is consummated within 270 days after the Borrower or such Restricted Subsidiary, as applicable, acquires or completes the construction of such fixed or capital asset, so long as (x) no Event of Default shall have occurred and be continuing or would result therefrom and (y) the aggregate fair market value (as determined by a Responsible Officer of the Borrower in good faith) of all property sold or transferred pursuant to sale and leaseback transactions otherwise permitted under this Section 6.06 is not in excess of $1,000,000.
Section 6.07 Restricted Payments; Certain Payments of Indebtedness .
(a) The Borrower will not, and will not permit any Restricted Subsidiary to, make or pay, directly or indirectly, any Restricted Payment, except:
(i) each Restricted Subsidiary may make Restricted Payments to the Borrower or any other Restricted Subsidiary; provided that in the case of any such Restricted Payment by a Restricted Subsidiary that is not a Wholly Owned Subsidiary of the Borrower, such Restricted Payment is made to the Borrower, any Restricted Subsidiary and to each other owner of Equity Interests of such Restricted Subsidiary based on their relative ownership interests of the relevant class of Equity Interests (it being understood and agreed that any cash distributed to a Subsidiary that is an owner of Equity Interests but is not a Loan Party shall be deemed to utilize on a dollar for dollar basis the basket for Investments by Loan Parties in non-Loan Parties under Section 6.04(c));
(ii) the Borrower and each Restricted Subsidiary may make dividend payments or other distributions payable solely in the Equity Interests (other than Disqualified Equity Interests) of such Person;
(iii) [reserved];
(iv) non-cash repurchases of Equity Interests in Holdings (or any direct or indirect parent of Holdings), the Borrower or any Restricted Subsidiary deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price payable in connection with the exercise of such options or warrants;
(v) so long as no Event of Default has occurred and is continuing or would immediately result therefrom, Restricted Payments to Holdings, which Holdings may use to redeem, acquire, retire, repurchase or settle its Equity Interests (or any options, warrants, restricted stock or stock appreciation rights or similar securities issued with respect to any such Equity Interests) or to service Indebtedness incurred by Holdings to finance the redemption, acquisition, retirement, repurchase or settlement of such Equity Interest (or make Restricted Payments to allow any of Holdings direct or indirect parent companies to so redeem, retire, acquire or repurchase their Equity Interests or to service Indebtedness incurred by Holdings to finance the redemption, acquisition, retirement, repurchase or settlement of such Equity Interests
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or to service Indebtedness incurred to finance the redemption, retirement, acquisition or repurchase of such Equity Interests), held directly or indirectly by current or former officers, managers, members of the Board of Directors or employees (or their respective spouses, former spouses, successors, executors, administrators, heirs, legatees or distributees) of Holdings (or any direct or indirect parent thereof), the Borrower and its Restricted Subsidiaries, in each case upon the death, disability, retirement or termination of employment of any such Person or otherwise in accordance with any stock option or stock appreciation rights plan, any management, director and/or employee stock ownership or incentive plan, stock subscription plan, employment termination agreement or any other employment agreements or equity holders agreement in an aggregate amount together with the aggregate amount of loans and advances to Holdings made pursuant to Section 6.04(l) in lieu of Restricted Payments permitted by this clause (v) not to exceed $1,000,000 in any calendar year with unused amounts in any calendar year being carried over to succeeding calendar years; provided that (A) the aggregate amount of all such Restricted Payments made on or after the Effective Date shall not exceed $5,000,000 and (B) such amount in any calendar year may be increased by an amount not to exceed the cash proceeds of key man life insurance policies received by the Borrower (or by Holdings and contributed to the Borrower) or the Restricted Subsidiaries after the Effective Date;
(vi) the Borrower and its Restricted Subsidiaries may make Restricted Payments in cash to Holdings:
(A) cash dividends or other distributions on the stock of the Borrower to Holdings paid and declared solely for the purpose of funding, without duplication, (i) payments by Holdings in respect of taxes directly payable by Holdings attributable to its ownership of the Borrower, including any franchise or similar taxes directly payable by Holdings, (ii) so long as Holdings and the Borrower are treated as flow-through entities for U.S. federal income Tax purposes, any federal, state and local income Taxes required to be paid by the direct or indirect parent of Holdings on its taxable income attributable to the Borrower and its Subsidiaries for any taxable year, (1) calculated by multiplying such income by the maximum combined tax rate applicable to a corporation or individual, whichever is higher, whose sole asset is its indirect interest in Borrower, (2) taking into account the character of income or gain and any allowable federal income tax deduction for state and local taxes, and (3) taking into account any carryovers of losses previously allocated by Holdings to such parent, to the extent such losses would be deductible in determining such parents tax liability for such year if such parents only items of income, gain and loss were those allocated to it by Holdings; provided that payments hereunder attributable to the taxable income of Borrowers Unrestricted Subsidiaries shall be permitted only to the extent such Unrestricted Subsidiaries have made a corresponding payment to the Borrower and/or its Restricted Subsidiaries;
(B) the proceeds of which shall be used by Holdings to pay (or to make Restricted Payments to allow any direct or indirect parent of Holdings to pay but only to the extent any such Restricted Payments in respect of any direct or indirect parent of Holdings are actually paid in cash and reduce Consolidated Net Income of Holdings for the applicable period when paid) (1) [reserved], (2) any reasonable and customary indemnification claims made by members of the Board of Directors or officers, employees, directors or managers, consultants or independent contractors of Holdings (or any parent thereof) directly attributable to the ownership or operations of Holdings, the Borrower and its Restricted Subsidiaries, (3) [reserved] and (4) amounts due and payable pursuant to any investor management agreement entered into with the Sponsor on or after the Effective Date in an aggregate amount not to exceed $1,000,000 in any fiscal year of Holdings, so long as no Event of Default specified in Section 7.01(a), (b), (h) or (i) shall have occurred and be continuing or would result from such payment;
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(C) the proceeds of which shall be used by Holdings to pay ordinary course administrative, overhead and related expenses (including franchise Taxes (but not including income or similar Taxes) to extent directly attributable to the operations or ownership of the Borrower and its Subsidiaries;
(D) to finance any Investment made by Holdings that, if made by the Borrower, would be permitted to be made pursuant to Section 6.04; provided that (A) such Restricted Payment shall be made substantially concurrently with the closing of such Investment and (B) Holdings shall, immediately following the closing thereof, cause (1) all property acquired (whether assets or Equity Interests) to be contributed to the Borrower or a Subsidiary Loan Party or (2) the Person formed or acquired to merge into or consolidate with the Borrower or any of the Subsidiary Loan Parties to the extent such merger or consolidation is permitted in Section 6.03) in order to consummate such Investment, in each case in accordance with the requirements of Sections 5.11 and 5.12;
(E) the proceeds of which shall be used to pay (or to make Restricted Payments to allow Holdings or any direct or indirect parent thereof to pay) fees and expenses related to any equity offering not prohibited by this Agreement;
(F) [reserved];
(G) the proceeds of which are used to make concurrent payments permitted by clauses (b)(iv) and (b)(v) of this Section 6.07;
(vii) [reserved];
(viii) redemptions in whole or in part of any of its Equity Interests for another class of its Equity Interests (other than Disqualified Equity Interests); provided that such new Equity Interests contain terms and provisions at least as advantageous to the Lenders in all respects material to their interests as those contained in the Equity Interests redeemed thereby;
(ix) [reserved];
(x) the Borrower may make Restricted Payments to allow Holdings to (a) pay cash in lieu of the issuance of fractional Equity Interests in connection with any dividend, split or combination thereof or any Permitted Acquisition (or other similar Investment) and (b) honor any conversion request by a holder of convertible Indebtedness and make cash payments in lieu of fractional shares in connection with any such conversion and may make payments on convertible Indebtedness in accordance with its terms;
(xi) (A) without duplication of any Restricted Payment made pursuant to clause (B) below, Restricted Payments that the Borrower, in good faith, determines are reasonably necessary to effectuate the IPO Reorganization Transactions and (B) without duplication of any Restricted Payments made pursuant to Section 6.07(a)(vi)(A)(ii), any customary payments required to be made pursuant to any tax receivables agreements entered into in connection with an with an up-C IPO by any IPO Shell Company entered into in connection with the IPO Reorganization Transactions, but excluding any accelerated lump sum amount payable by reason of any early termination of any such agreement or otherwise, to the extent such amount exceeds the amount that would have been payable under such tax receivable agreement in the absence of such acceleration;
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(xii) payments made or expected to be made by Holdings, the Borrower or any Restricted Subsidiary in respect of withholding or similar Taxes payable upon exercise of Equity Interests by any future, present or former employee, director, officer, manager or consultant (or their respective controlled Affiliates or permitted transferees) and any repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants or required withholding or similar taxes;
(xiii) the distribution, by dividend or otherwise, of shares of Equity Interests (other than Disqualified Equity Interests);
(xiv) the declaration and payment of Restricted Payment on Holdings or the Borrowers common stock (or the payment of Restricted Payments to any direct or indirect parent company of Holdings to fund a payment of dividends on such companys common stock), following consummation of an IPO, of up to 6.0% per annum of the net cash proceeds of such IPO received by or contributed to the Borrower, other than public offerings with respect to the IPO Entitys common stock registered on Form S-8; and
(xv) so long as no Event of Default shall have occurred and be continuing or would result therefrom, additional Restricted Payments in an amount not to exceed $3,000,000.
(b) The Borrower will not, and will not permit any Restricted Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Junior Financing, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Junior Financing, or any other payment (including any payment under any Swap Agreement) that has a substantially similar effect to any of the foregoing, except:
(i) payment of regularly scheduled interest and principal payments, mandatory offers to repay, repurchase or redeem, mandatory prepayments of principal premium and interest, and payment of fees, expenses and indemnification obligations, with respect to such Junior Financing, other than payments in respect of any Junior Financing prohibited by the subordination provisions thereof;
(ii) Permitted Refinancing of Indebtedness to the extent permitted by Section 6.01;
(iii) the conversion of any Junior Financing to Equity Interests (other than Disqualified Equity Interests) of Holdings or any of its direct or indirect parent;
(iv) [reserved];
(v) [reserved];
(vi) [reserved];
(vii) [reserved]; and
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(viii) prepayment of Junior Financing owed to the Borrower or a Restricted Subsidiary or the prepayment of Permitted Refinancing of such Indebtedness with the proceeds of any other Junior Financing; provided , that, no Loan Party shall make any prepayment of Junior Financing owed to any Restricted Subsidiary that is not a Loan Party pursuant to this clause (viii).
Section 6.08 Transactions with Affiliates .
The Borrower will not, and will not permit any Restricted Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (i) (A) transactions between or among the Borrower or any Restricted Subsidiary or any entity that becomes a Restricted Subsidiary as a result of such transaction and (B) transactions involving aggregate payment or consideration of less than $2,500,000, (ii) on terms substantially as favorable to the Borrower or such Restricted Subsidiary as would be obtainable by such Person at the time in a comparable arms-length transaction with a Person other than an Affiliate, (iii) in connection with the IPO Reorganization Transactions, that the Borrower, in good faith, determines are reasonably necessary to effectuate the IPO Reorganization Transactions or any transaction related thereto or contemplated thereby, (iv) the payment of management, consulting, advisory and monitoring fees to the Investors (or management companies of the Investors) in an aggregate amount in any fiscal year not to exceed the amount permitted to be paid pursuant to Section 6.07(a)(vi)(B)(4), (v) issuances of Equity Interests of the Borrower to the extent otherwise permitted by this Agreement, (vi) employment and severance arrangements between the Borrower and its Restricted Subsidiaries and their respective officers and employees in the ordinary course of business (including loans and advances pursuant to Sections 6.04(b) and 6.04(n)), (vii) payments by the Borrower and its Restricted Subsidiaries pursuant to tax sharing agreements among Holdings (and any such parent thereof), , the Borrower and its Restricted Subsidiaries on customary terms to the extent attributable to the ownership or operation of the Borrower and its Restricted Subsidiaries, to the extent such payments are permitted by Section 6.07, (viii) the payment of customary fees and reasonable out-of-pocket costs to, and indemnities provided on behalf of, members of the Board of Directors, officers and employees of Holdings (or any direct or indirect parent thereof), the Borrower and the Restricted Subsidiaries in the ordinary course of business to the extent attributable to the ownership or operation of the Borrower and its Restricted Subsidiaries, (ix) transactions pursuant to permitted agreements in existence or contemplated on the Effective Date and set forth on Schedule 6.08 or any amendment thereto to the extent such an amendment is not adverse to the Lenders in any material respect, (x) Restricted Payments permitted under Section 6.07 and loans and advances in lieu thereof pursuant to Section 6.04(l), (xi) payments to or from, and transactions with, any joint venture in the ordinary course of business (including, without limitation, any cash management activities related thereto), (xii) transactions with customers, clients, suppliers, contractors, joint venture partners or purchasers or sellers of goods or services that are Affiliates, in each case in the ordinary course of business and which are fair to the Borrower and the Restricted Subsidiaries, in the reasonable determination of the Borrower, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party, (xiii) customary payments by the Borrower and any Restricted Subsidiaries to the Sponsor made for any financial advisory, consulting, financing, underwriting or placement services or in respect of other investment banking activities (including in connection with acquisitions, divestitures or financings), which payments are approved by a majority of the disinterested members of the Board of Directors of the Borrower in good faith and (xiv) transfer pricing arrangements (including any cost sharing) by and among the Loan Parties and their Restricted Subsidiaries in the ordinary course of business.
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Section 6.09 Restrictive Agreements .
The Borrower will not, and will not permit any Restricted Subsidiary to enter into any agreement, instrument, deed or lease that prohibits or limits the ability of any Loan Party to create, incur, assume or suffer to exist any Lien upon any of their respective properties or revenues, whether now owned or hereafter acquired, for the benefit of the Secured Parties with respect to the Secured Obligations or under the Loan Documents; provided that the foregoing shall not apply to:
(a) restrictions and conditions imposed by (1) Requirements of Law, (2) any Loan Document and (3) any documentation governing Indebtedness incurred pursuant to Section 6.01(a)(xxi) and any Permitted Refinancing of any such Indebtedness; provided that, in the case of this clause (3), such restrictions and conditions apply only to the Subsidiary or assets that have incurred Indebtedness as permitted thereunder;
(b) [reserved];
(c) restrictions and conditions contained in agreements relating to the sale of a Subsidiary or any assets pending such sale; provided that such restrictions and conditions apply only to the Subsidiary or assets that is or are to be sold and such sale is permitted hereunder;
(d) customary provisions in leases, licenses and other contracts restricting the assignment thereof;
(e) restrictions imposed by any agreement relating to secured Indebtedness permitted by this Agreement to the extent such restriction applies only to the property securing such Indebtedness;
(f) any restrictions or conditions set forth in any agreement in effect at any time any Person becomes a Restricted Subsidiary (but not any modification or amendment expanding the scope of any such restriction or condition); provided that such agreement was not entered into in contemplation of such Person becoming a Restricted Subsidiary and the restriction or condition set forth in such agreement does not apply to the Borrower or any Restricted Subsidiary;
(g) restrictions or conditions in any Indebtedness permitted pursuant to Section 6.01 that is incurred or assumed by Restricted Subsidiaries that are not Loan Parties to the extent such restrictions or conditions are no more restrictive in any material respect than the restrictions and conditions in the Loan Documents or, in the case of Junior Financing, are market terms at the time of issuance and are imposed solely on such Restricted Subsidiary and its Subsidiaries;
(h) restrictions on cash (or Permitted Investments) or other deposits imposed by agreements entered into in the ordinary course of business, in each case constituting Permitted Encumbrances;
(i) restrictions set forth on Schedule 6.09 and any extension, renewal, amendment, modification or replacement thereof, except to the extent any such amendment, modification or replacement expands the scope of any such restriction or condition;
(j) customary provisions in joint venture agreements and other similar agreements applicable to joint ventures permitted by Section 6.04 solely to the extent of the Equity Interests of or property held in the subject joint venture;
(k) customary restrictions contained in leases, subleases, licenses, sublicenses or asset sale agreements otherwise permitted hereby;
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(l) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Holdings, the Borrower or any Restricted Subsidiary; and
(m) customary provisions related to creditworthiness of the tenant contained in real property leases entered into by Subsidiaries, so long as the Borrower has determined in good faith that such creditworthiness provisions could not reasonably be expected to impair the ability of the Borrower and its Subsidiaries to meet their ongoing obligations.
Section 6.10 Financial Performance Covenants .
(a) Total Net Recurring Revenue Leverage Ratio . For any Test Period ended on or before September 30, 2019, permit the Total Net Recurring Revenue Leverage Ratio as of the last day of any Test Period set forth below to be greater than the ratio set forth below opposite such Test Period below:
Test Period Ended |
Total Net Recurring
Revenue Leverage Ratio |
|||
September 30, 2017 |
0.65:1.00 | |||
December 31, 2017 |
0.60:1.00 | |||
March 31, 2018 |
0.60:1.00 | |||
June 30, 2018 |
0.60:1.00 | |||
September 30, 2018 |
0.60:1.00 | |||
December 31, 2018 |
0.55:1.00 | |||
March 31, 2019 |
0.55:1.00 | |||
June 30, 2019 |
0.55:1.00 |
(b) Total Net Leverage Ratio . For any Test Period ended after September 30, 2019, permit the Total Net Leverage Ratio as of the last day of any Test Period set forth below to be greater than the ratio set forth below opposite such Test Period below:
Test Period Ended |
Total Net Leverage Ratio | |||
September 30, 2019 |
6.000:1.000 | |||
December 31, 2019 |
5.875:1.000 | |||
March 31, 2020 |
5.750:1.000 | |||
June 30, 2020 |
5.500:1.000 | |||
September 30, 2020 |
5.375:1.000 | |||
December 31, 2020 |
5.250:1.000 | |||
March 31, 2021 |
5.125:1.000 | |||
June 30, 2021 |
5.000:1.000 | |||
September 30, 2021 |
4.812:1.000 | |||
December 31, 2021 |
4.625:1.000 | |||
March 31, 2022 |
4.437:1.000 | |||
June 30, 2022 |
4.250:1.000 | |||
September 30, 2022 |
4.125:1.000 | |||
December 31, 2022 |
4.000:1.000 | |||
March 31, 2023 |
3.875:1.000 | |||
June 30, 2023 |
3.750:1.000 |
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(c) Liquidity . Permit Liquidity, as of the last day of any calendar month, to be less than $10,000,000.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01 Events of Default .
If any of the following events (any such event, an Event of Default ) shall occur:
(a) any Loan Party shall fail to pay any principal or any premium (including the Prepayment Premium) of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) any Loan Party shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in paragraph (a) of this Section 7.01) payable under any Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five (5) Business Days;
(c) any representation or warranty made or deemed made by or on behalf of Holdings, the Borrower or any of the Restricted Subsidiaries in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made;
(d) (i) Holdings, the Borrower or any of the Restricted Subsidiaries shall fail to observe or perform any covenant, condition or agreement contained in Sections 5.02, 5.04 (with respect to the existence of Holdings, the Borrower or such Restricted Subsidiaries), 5.10, 5.14 or in Article VI (other than the Financial Performance Covenants);
(ii) the Borrower or any of the Restricted Subsidiaries shall fail to observe or perform the Financial Performance Covenants; provided that any Event of Default resulting from failure to comply with Section 6.10 is subject to cure as provided in Section 7.02; or
(iii) Holdings, the Borrower or any of the Restricted Subsidiaries shall fail to observe or perform any covenant, condition or agreement contained in (x) Sections 5.01(a) through 5.01(g), and such failure shall continue unremedied for a period of ten (10) days or (y) Section 6.08, and such failure shall continue unremedied for a period of five (5) Business Days;
(e) Holdings, the Borrower or any of the Restricted Subsidiaries shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in paragraph (a), (b) or (d) of this Section 7.01), and such failure shall continue unremedied for a period of thirty (30) days after the earlier of (i) the date an officer of Holdings, the Borrower or any such Restricted Subsidiary becomes aware of such default and (ii) written notice thereof is delivered by the Administrative Agent to the Borrower; provided that any Default or Event of Default which may occur as a result of the failure to timely meet any delivery requirements under the Loan Documents shall cease to exist upon any delivery otherwise in compliance with such requirements;
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(f) Holdings, the Borrower or any of the Restricted Subsidiaries shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable (after giving effect to any applicable grace period);
(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with all applicable grace periods having expired) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity, provided that this paragraph (g) shall not apply to (i) secured Indebtedness that becomes due as a result of the sale, transfer or other disposition (including as a result of a casualty or condemnation event) of the property or assets securing such Indebtedness (to the extent such sale, transfer or other disposition is not prohibited under this Agreement) or (ii) termination events or similar events occurring under any Swap Agreement that constitutes Material Indebtedness (it being understood that paragraph (f) of this Section 7.01 will apply to any failure to make any payment required as a result of any such termination or similar event);
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, court protection, reorganization or other relief in respect of Holdings, the Borrower or any Restricted Subsidiary or its debts, or of a material part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, examiner, sequestrator, conservator or similar official for Holdings, the Borrower or any Restricted Subsidiary or for a material part of its assets, and, in any such case, such proceeding or petition shall continue undismissed or unstayed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(i) Holdings, the Borrower or any Restricted Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, court protection, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in paragraph (h) of this Section 7.01, (iii) apply for or consent to the appointment of a receiver, trustee, examiner, custodian, sequestrator, conservator or similar official for Holdings, the Borrower or any Restricted Subsidiary or for a material part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding or (v) make a general assignment for the benefit of creditors;
(j) (i) one or more enforceable judgments for the payment of money in an aggregate amount in excess of $2,000,000 (to the extent not covered by insurance as to which the insurer has been notified of such judgment or order and has not denied coverage) shall be rendered against Holdings, the Borrower and any of the Restricted Subsidiaries or any combination thereof and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, or (ii) any judgment creditor shall legally attach or levy upon assets of a Loan Party that are material to the businesses and operations of Holdings, the Borrower and its Restricted Subsidiaries, taken as a whole, to enforce any such judgment;
(k) an ERISA Event occurs that has resulted or would reasonably be expected to result in a Material Adverse Effect;
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(l) any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by any Loan Party not to be, a valid and perfected Lien on any material portion of the Collateral, with the priority required by the applicable Security Documents, except (i) as a result of the sale or other disposition of the applicable Collateral to a Person that is not a Loan Party in a transaction permitted under the Loan Documents, (ii) as a result of the Administrative Agents failure to (A) maintain possession of any stock certificates, promissory notes or other instruments delivered to it under the Security Documents or (B) file Uniform Commercial Code continuation statements, (iii) as to Collateral consisting of real property to the extent that such losses are covered by a lenders title insurance policy in favor of the Administrative Agent and such insurer has not denied coverage, and (iv) as a result of acts or omissions of the Administrative Agent (other than actions or omissions taken as a direct result of the advice of or at the direction of Holdings, the Borrower or any Subsidiary);
(m) any material provision of any Loan Document or any Guarantee of the Loan Document Obligations shall for any reason be asserted in writing by any Loan Party not to be a legal, valid and binding obligation of any Loan Party thereto other than as expressly permitted hereunder or thereunder;
(n) any material Guarantees of the Loan Document Obligations by any Loan Party pursuant to the Guarantee Agreement shall cease to be in full force and effect (in each case, other than in accordance with the terms of the Loan Documents); or
(o) a Change of Control shall occur;
then, and in every such event (other than an event described in paragraph (h) or (i) of this Section 7.01), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal (including the Prepayment Premium in respect thereof) of the Loans so declared to be due and payable (including the Prepayment Premium in respect thereof), together with accrued interest (including the PIK Interest) thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event described in paragraph (h) or (i) of this Section 7.01, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. For the avoidance of doubt, any Default or Event of Default which may have occurred shall cease to exist upon the cure of such Default or Event of Default (if capable of cure) by compliance with the applicable requirement or covenant causing such Default or Event of Default, including with respect to an Event of Default pursuant to (x) Section 7.01(a) or Section 7.01(b), upon payment in full of any overdue amounts and interest thereon, if applicable, and (y) the failure to timely meet any delivery requirements for financial statements under the Loan Documents, upon any delivery otherwise in compliance with such requirement; provided that the foregoing shall not apply with respect to any Default or Event of Default from and after the acceleration of any of the Loan Document Obligations hereunder or the other exercise or reservation of any of the Administrative Agents or the Secured Parties rights or remedies hereunder or under applicable law.
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Section 7.02 Right to Cure .
(a) Notwithstanding anything to the contrary contained in Section 7.01 (but subject to the provisions of this Section 7.02), in the event that the Borrower fails to comply with the requirements of the Financial Performance Covenants set forth in Section 6.10(b) and/or (c) as of the last day of any applicable fiscal quarter or month, as applicable, of Holdings, at any time after the end of such fiscal quarter or month, as applicable, until the expiration of the 10 th Business Day subsequent to the date on which the financial statements with respect to such fiscal quarter or month, as applicable (or the fiscal year ended on the last day of such fiscal quarter with respect to the Financial Performance Covenant set forth in Section 6.10(b), or the fiscal quarter ended on the last day of such month with respect to the Financial Performance Covenant set forth in Section 6.10(c)) are required to be delivered pursuant to Section 5.01(a), (b) or (c), as applicable (the Cure Period ), Holdings shall have the right to issue Qualified Equity Interests for cash or otherwise receive cash contributions to the capital of Holdings as cash common equity or other Qualified Equity Interests (which Holdings shall contribute to the Borrower as cash common equity) (collectively, the Cure Right ), and upon the receipt by the Borrower of the Net Proceeds of such issuance (the Cure Amount ) pursuant to the exercise by Holdings of such Cure Right, (x) the Borrower shall apply the Cure Amount to prepay Term Loan Borrowings pursuant to Section 2.11(c) and the Prepayment Premium pursuant to Section 2.11(h) and (y) the Financial Performance Covenant in Section 6.10(b) and/or (c), as applicable, shall be recalculated giving effect to the following pro forma adjustment:
(i) Consolidated EBITDA shall be increased with respect to such applicable fiscal quarter or month, as applicable, and any four fiscal quarter period that contains such fiscal quarter or month, as applicable, solely for the purpose of measuring such Financial Performance Covenant and not for any other purpose under this Agreement, by an amount equal to the Cure Amount; and
(ii) if, after giving effect to the foregoing pro forma adjustment (without giving effect to any repayment of any Indebtedness with any portion of the Cure Amount or any portion of the Cure Amount on the balance sheet of Holdings, the Borrower and its Restricted Subsidiaries, in each case, with respect to such fiscal quarter only), the Borrower shall then be in compliance with the requirements of such Financial Performance Covenant, the Borrower shall be deemed to have satisfied the requirements of such Financial Performance Covenant as of the relevant date of determination with the same effect as though there had been no failure to comply therewith at such date, and the applicable breach or default of such Financial Performance Covenant that had occurred shall be deemed cured for the purposes of this Agreement;
provided that the Borrower shall have notified the Administrative Agent of the exercise of such Cure Right (such notice, a Cure Notice ) within one (1) Business Day prior to the issuance of the relevant Qualified Equity Interests for cash or the receipt of the cash contributions by Holdings.
(b) Notwithstanding anything herein to the contrary, (i) in any four (4) consecutive fiscal quarter period of Holdings there shall be no more than two (2) fiscal quarters, or, with respect to the Financial Performance Covenant set forth in Section 6.10(c), no more than three (3) months, in which the Cure Right is exercised, (ii) there shall be no more than two (2) consecutive fiscal quarters or, with respect to the Financial Performance Covenant set forth in Section 6.10(c), no more than three (3) consecutive months, in which the Cure Right is exercised, (iii) during the term of this Agreement, the Cure Right shall not be exercised more than five (5) times and (iv) for purposes of this Section 7.02, the Cure Amount shall be no greater than the amount required for purposes of complying with the Financial Performance Covenant in Section 6.10(b) and/or (c), as applicable, and any amounts in excess thereof shall not be deemed to be a Cure Amount. Notwithstanding any other provision in this Agreement to the contrary, the
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Cure Amount received pursuant to any exercise of the Cure Right shall be disregarded for purposes of determining any available basket or ratio under this Agreement (and the Cure Amount shall not be credited as an addition to any basket or ratio or for any other calculation). For the avoidance of doubt, no Cure Amounts shall be applied to reduce the Indebtedness of Holdings, the Borrower and its Restricted Subsidiaries on a Pro Forma Basis for purposes of determining compliance with the Financial Performance Covenant in Section 6.10(b) and/or (c), as applicable, for the fiscal quarter in which such Cure Right was made. If a Cure Notice shall have been delivered in accordance with this Section 7.02, neither the Administrative Agent nor any Lender shall have the right to terminate the Commitments, declare all or any portion of the unpaid principal amount of any outstanding Loans, interest accrued and unpaid thereof, and all amounts owing or payable hereunder or under any other Loan Document to be due and payable and/or exercise any other rights and remedies available under the Loan Documents or applicable law (including, without limitation, any right to foreclose on or take possession of Collateral) solely on the basis of an allegation an Event of Default having occurred and continuing as a result of Borrowers non-compliance with the Financial Performance Covenant in Section 6.10(b) and/or (c), as applicable, with respect to any Test Period until the Cure Period has elapsed; provided that if a Cure Notice shall have been delivered, the Borrower shall not thereafter be permitted to make any Borrowing of Loans until the Borrower has received the related Cure Amount or all Events of Default have been otherwise waived in accordance with the terms of this Agreement.
Section 7.03 Application of Proceeds .
After the exercise of remedies provided for in Section 7.01 , any amounts received on account of the Secured Obligations shall be applied by the Administrative Agent in accordance with Section 5.02 of the Collateral Agreement and/or the similar provisions in the other Security Documents. Notwithstanding the foregoing, Excluded Swap Obligations with respect to any Subsidiary Loan Party shall not be paid with amounts received from such Subsidiary Loan Party or its assets, but appropriate adjustments shall be made with respect to payments from other Loan Parties to preserve the allocation to Secured Obligations otherwise set forth in Section 4.02 of the Collateral Agreement and/or the similar provisions in the other Security Documents.
ARTICLE VIII
ADMINISTRATIVE AGENT
Section 8.01 Appointment and Authority .
(a) Each of the Lenders hereby irrevocably appoints Guggenheim to act on its behalf as the Administrative Agent and Collateral Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent and Collateral Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent and the Collateral Agent and the Lenders, and none of the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions.
(b) The Administrative Agent shall also act as the Collateral Agent under the Loan Documents, and each of the Lenders hereby irrevocably appoints and authorizes and, by their acceptance of the benefits of the Security Documents, each of the other Secured Parties is deemed to appoint and authorize, the Collateral Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Secured Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Collateral Agent and any co-agents, sub-agents and attorneys-in-fact appointed by the
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Administrative Agent and Collateral Agent pursuant to Section 8.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Security Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent, shall be entitled to the benefits of all provisions of this Article VIII and Article IX (including Section 9.03 as though such co-agents, sub-agents and attorneys-in-fact were the collateral agent under the Loan Documents) as if set forth in full herein with respect thereto.
Section 8.02 Rights as a Lender .
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, own securities of, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with Holdings, the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
Section 8.03 Exculpatory Provisions .
The Administrative Agent and the Collateral Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and their duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent and the Collateral Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent or the Collateral Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that neither the Administrative Agent nor the Collateral Agent shall be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent or the Collateral Agent to liability or that is contrary to any Loan Document or applicable Requirements of Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law;
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by any Person serving as the Administrative Agent or the Collateral Agent or any of its Affiliates in any capacity;
(d) shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders or the Required Revolving Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 9.02 ) or (ii) in the
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absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and non-appealable judgment; provided that the Administrative Agent and the Collateral Agent shall be deemed not to have knowledge of any Default unless and until written notice describing such Default is given to the Administrative Agent and the Collateral Agent by the Borrower or a Lender;
(e) shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Security Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent and the Collateral Agent; and
(f) shall not be responsible for or have any liability for, or have any duty to ascertain , inquire into, monitor or enforce compliance with the provisions hereof relating to Disqualified Lenders. Without limiting the generality of the foregoing, the Administrative Agent and the Collateral Agent shall not (x) be obligated to ascertain, monitor or inquire as to whether any Lender or Participant or prospective Lender or Participant is a Disqualified Lender or (y) have any liability with respect to or arising out of any assignment or participation of Loans, or disclosure of confidential information, to any Disqualified Lender.
Section 8.04 Reliance by Administrative Agent .
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the effectiveness of this Agreement or the making of a Loan that, in either case, by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the effectiveness of this Agreement or the making of such Loan, as applicable. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
Section 8.05 Delegation of Duties .
The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities as Administrative Agent.
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Section 8.06 Resignation and Removal of Agents .
The Administrative Agent may resign upon thirty (30) days notice to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with the Borrowers consent (such consent not to be unreasonably withheld or delayed) unless an Event of Default under Section 7.01(a), (b), (h) or (i) has occurred and is continuing, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders, appoint a successor Administrative Agent, which shall be an Approved Bank with an office in New York, New York, or an Affiliate of any such Approved Bank (the date upon which the retiring Administrative Agent is replaced, the Resignation Effective Date ); provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice.
If the Person serving as Administrative Agent is a Defaulting Lender, the Required Lenders and Holdings may, to the extent permitted by applicable law, by notice in writing to such Person remove such Person as Administrative Agent and, with the consent of the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days (the Removal Effective Date ), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (1) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except (i) that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed and (ii) with respect to any outstanding payment obligations) and (2) except for any indemnity payments or other amounts then owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successors appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or removed) Administrative Agent (other than any rights to indemnity payments or other amounts owed to the retiring or removed Administrative Agent as of the Resignation Effective Date or the Removal Effective Date, as applicable), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder and under the other Loan Documents as set forth in this Section. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agents resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 8.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
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Section 8.07 Non-Reliance on Administrative Agent and Other Lenders .
Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
Each Lender, by delivering its signature page to this Agreement and funding its Loans on the Effective Date, or delivering its signature page to an Assignment and Assumption pursuant to which it shall become a Lender hereunder, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan Document and each other document required to be delivered to, or be approved by or satisfactory to, the Administrative Agent or the Lenders.
No Lender shall have any right individually to realize upon any of the Collateral or to enforce any Guarantee of the Secured Obligations, it being understood and agreed that all powers, rights and remedies under the Loan Documents may be exercised solely by the Administrative Agent and Collateral Agent on behalf of the Lenders in accordance with the terms thereof. In the event of a foreclosure by the Administrative Agent or Collateral Agent on any of the Collateral pursuant to a public or private sale or other disposition, the Administrative Agent, the Collateral Agent or any Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition, and the Administrative Agent or Collateral Agent, as agent for and representative of the Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Required Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any collateral payable by the Administrative Agent or Collateral Agent on behalf of the Lenders at such sale or other disposition. Each Lender, whether or not a party hereto, will be deemed, by its acceptance of the benefits of the Collateral and of the Guarantees of the Secured Obligations, to have agreed to the foregoing provisions.
Section 8.08 No Other Duties, Etc.
Anything herein to the contrary notwithstanding, neither the Bookrunner nor any person named on the cover page hereof as a Lead Arranger shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder.
Section 8.09 Administrative Agent May File Proofs of Claim .
In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Secured Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of
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the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.12 and 9.03 ) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.12 and 9.03 .
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Secured Obligations or the rights of any Lender to authorize the Administrative Agent to vote in respect of the claim of any Lender or in any such proceeding.
Section 8.10 No Waiver; Cumulative Remedies; Enforcement .
No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Article VII for the benefit of all the Lenders; provided , however , that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Lender from exercising setoff rights in accordance with Section 9.08 (subject to the terms of Section 2.18), or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided , further , that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Article VII and (ii) in addition to the matters set forth in clauses (b) and (c) of the preceding proviso and subject to Section 2.18 , any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
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Section 8.11 Withholding Taxes .
To the extent required by any applicable Requirements of Law (as determined in good faith by the Administrative Agent), the Administrative Agent may deduct or withhold from any payment to any Lender an amount equivalent to any applicable withholding Tax. If the Internal Revenue Service or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold Tax from amounts paid to or for the account of any Lender for any reason (including because the appropriate form was not delivered or not property executed, or because such Lender failed to notify the Administrative Agent of a change in circumstance that rendered the exemption from, or reduction of withholding Tax ineffective), such Lender shall indemnify and hold harmless the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Loan Parties pursuant to Section 2.17 and without limiting any obligation of the Loan Parties to do so pursuant to such Section) fully for all amounts paid, directly or indirectly, by the Administrative Agent as Taxes or otherwise, together with all expenses incurred, including legal expenses and any other out-of-pocket expenses, whether or not such Tax was correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this Section 8.1 1 . The agreements in this Section 8.11 shall survive the resignation and/or replacement of the Administrative Agent, any assignment of rights by, or the replacement of, a Lender, the termination of this Agreement and the repayment, satisfaction or discharge of all other obligations under any Loan Document.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Notices .
(a) All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by fax or other electronic transmission, as follows:
(i) if to Holdings, the Borrower or the Administrative Agent, to the address, fax number or e-mail address specified for such Person on Schedule 9.01 ; and
(ii) if to any other Lender, to it at its address (or fax number or e-mail address) set forth in its Administrative Questionnaire (including, as appropriate, notices delivered solely to the Person designated by a Lender on its Administrative Questionnaire then in effect for the delivery of notices that may contain Material Non-Public Information relating to the Borrower).
Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by fax shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b).
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(b) Electronic Communications . Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures reasonably approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c) The Platform . THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the Agent Parties ) have any liability to Holdings, the Borrower, any Lender or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrowers or the Administrative Agents transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and non-appealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided , however , that in no event shall any Agent Party have any liability to Holdings, the Borrower, any Lender or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d) Change of Address, Etc . Each of Holdings, the Borrower and the Administrative Agent may change its address, electronic mail address or fax number for notices and other communications or website hereunder by notice to the other parties hereto. Each other Lender may change its address or fax number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, fax number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.
(e) Reliance by Administrative Agent and Lenders . The Administrative Agent, the and the Lenders shall be entitled to rely and act upon any notices purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the
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Administrative Agent, each Lender and the Related Parties from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower in the absence of gross negligence or willful misconduct as determined in a final and non-appealable judgment by a court of competent jurisdiction.
Section 9.02 Waivers; Amendments .
(a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power under this Agreement or any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 9.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. No notice or demand on the Borrower or Holdings in any case shall entitle the Borrower or Holdings to any other or further notice or demand in similar or other circumstances.
(b) Except as provided in Section 2.24 with respect to any Permitted Amendment, neither this Agreement, any Loan Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Holdings, the Borrower, the Administrative Agent (to the extent that such waiver, amendment or modification does not affect the rights, duties, privileges or obligations of the Administrative Agent under this Agreement, the Administrative Agent shall execute such waiver, amendment or other modification to the extent approved by the Required Lenders) and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, in each case with the consent of the Required Lenders; provided that no such agreement shall:
(i) increase the Commitment of any Lender or change any ratable sharing or payment provision that directly and adversely affects any Lender without the written consent of such Lender (it being understood that a waiver of any condition precedent set forth in Section 4.02 or the waiver of any Default, mandatory prepayment or mandatory reduction of the Commitments shall not constitute an extension or increase of any Commitment of any Lender),
(ii) reduce the principal amount of any Loan (it being understood that a waiver of any Default, Event of Default, mandatory prepayment or mandatory reduction of the Commitments shall not constitute a reduction or forgiveness of principal) or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender directly and adversely affected thereby; provided that only the consent of the Required Lenders shall be necessary to waive any obligation of the Borrower to pay default interest pursuant to Section 2.13(c),
(iii) postpone the maturity of any Loan (it being understood that a waiver of any Default, Event of Default, mandatory prepayment or mandatory reduction of the Commitments shall not constitute an extension of any maturity date), or the date of any scheduled amortization payment of the principal amount of any Term Loan under Section 2.10, or any date for the payment of any interest or fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly and adversely affected thereby,
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(iv) change any of the provisions of this Section 9.02 without the written consent of each Lender directly and adversely affected thereby; provided that any such change which is in favor of a Class of Lenders holding Loans maturing after the maturity of other Classes of Lenders (and only takes effect after the maturity of such other Classes of Loans or Commitments) will require the written consent of the Required Lenders with respect to each Class directly and adversely affected thereby,
(v) change any of the percentages set forth in the definitions of Required Lenders, Required Revolving Lenders, or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder or otherwise change, amend, modify or supplement the definitions of Required Lenders, Required Revolving Lenders, in each case, without the written consent of each Lender (or each Lender of such Class, as the case may be),
(vi) release all or substantially all the value of the Guarantees under the Guarantee Agreement (except as expressly provided in the Loan Documents) without the written consent of each Lender (other than a Defaulting Lender),
(vii) release all or substantially all the Collateral from the Liens of the Security Documents, without the written consent of each Lender (other than a Defaulting Lender) except as expressly provided in the Loan Documents, or
(viii) change Section 5.02 of the Collateral Agreement, without the written consent of each Lender (other than a Defaulting Lender);
provided that (A) no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent without the prior written consent of the Administrative Agent, (B) any provision of this Agreement or any other Loan Document may be amended by an agreement in writing entered into by Holdings, the Borrower and the Administrative Agent to cure any ambiguity, omission, defect or inconsistency (x) in a manner not materially adverse to the Lenders or (y) if the Required Lenders have not objected to such amendment within ten Business Days following delivery to the Lenders of written notice of such proposed amendment to cure such ambiguity, omission, defect or inconsistency and (C) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of Lenders holding Loans or Commitments of a particular Class (but not the Lenders holding Loans or Commitments of any other Class) may be effected by an agreement or agreements in writing entered into by Holdings, the Borrower and the requisite percentage in interest of the affected Class of Lenders stating that would be required to consent thereto under this Section if such Class of Lenders were the only Class of Lenders hereunder at the time. Notwithstanding the foregoing, (a) this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent, Holdings and the Borrower (i) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents and (ii) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders and Required Revolving Lenders on substantially the same basis as the Lenders prior to such inclusion and (b) guarantees, Security Documents and related documents in connection with this Agreement may be in a form reasonably
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determined by the Administrative Agent and may be, together with this Agreement and the other Loan Documents, amended and waived with the consent of the Administrative Agent at the request of the Borrower without the need to obtain the consent of any other Lender if such amendment or waiver is delivered in order (i) to comply with local law or advice of local counsel, (ii) to cure ambiguities or defects (x) in a manner not materially adverse to the Lenders or (y) if the Required Lenders have not objected to such amendment or waiver within ten Business Days following delivery to the Lenders of written notice of the proposed amendment or waiver to cure such ambiguity or defect or (iii) to cause such guarantee, collateral security document or other document to be consistent with this Agreement and the other Loan Documents.
(c) In connection with any proposed amendment, modification, waiver or termination (a Proposed Change ) requiring the consent of all Lenders or all directly and adversely affected Lenders, if the consent of the Required Lenders (and, to the extent any Proposed Change requires the consent of Lenders holding Loans of any Class pursuant to clause (iv), (ix) or (xi) of paragraph (b) of this Section 9.02, the consent of a Majority in Interest of the outstanding Loans and unused Commitments of such Class) to such Proposed Change is obtained, but the consent to such Proposed Change of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained as described in paragraph (b) of this Section 9.02 being referred to as a Non-Consenting Lender ), then, so long as the Lender that is acting as Administrative Agent is not a Non-Consenting Lender, the Borrower may, at its sole expense and effort, upon notice to such Non-Consenting Lender and the Administrative Agent, (i) if no Event of Default under Section 7.01(a), (b), (h) or (i) exists, permanently prepay all of the Loans of any Class owing by it to, and terminating any Commitments of, such Non-Consenting Lender or (ii) require such Non-Consenting Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an Eligible Assignee that shall assume such obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment), provided that (a) the Borrower shall have received the prior written consent of the Administrative Agent to the extent such consent would be required under Section 9.04(b) for an assignment of Loans or Commitments, as applicable, which consent shall not unreasonably be withheld, (b) such Non-Consenting Lender shall have received payment of an amount equal to the outstanding par principal amount of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder from the Eligible Assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (c) unless waived, the Borrower or such Eligible Assignee shall have paid to the Administrative Agent the processing and recordation fee specified in Section 9.04(b).
(d) Notwithstanding anything in this Agreement or the other Loan Documents to the contrary, the Revolving Commitments, Term Loans and Revolving Exposure of any Lender that is at the time a Defaulting Lender shall not have any voting or approval rights under the Loan Documents and shall be excluded in determining whether all Lenders (or all Lenders of a Class), all affected Lenders (or all affected Lenders of a Class), a Majority in Interest of Lenders of any Class or the Required Lenders or the Required Revolving Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to this Section 9.02); provided that (x) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that affects any Defaulting Lender more adversely than other affected Lenders shall require the consent of such Defaulting Lender.
(e) Notwithstanding anything in this Agreement or the other Loan Documents to the contrary, each Affiliated Lender (other than an Affiliated Debt Fund) hereby agrees that, for purposes of any plan of reorganization, such Affiliated Lender will be deemed to have voted in the same proportion as non-Affiliated Lenders voting on such matter; provided that such Affiliated Lender shall be entitled to
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vote in accordance with its sole discretion in connection with any plan of reorganization to the extent any such plan of reorganization proposes to treat any Secured Obligations held by such Affiliated Lender in a manner that is less favorable in any material respect to such Affiliated Lender than the proposed treatment of similar Secured Obligations held by Lenders that are not Affiliates of the Borrower.
(f) Notwithstanding anything in this Agreement to the contrary, no amendment or waiver shall, unless signed by Administrative Agent and Required Revolving Lenders (or by Administrative Agent with the consent of Required Revolving Lenders) in addition to the Required Lenders (or by Administrative Agent with the consent of the Required Lenders) (x) amend or waive compliance with the provisions of Article II that relate solely to the revolving credit facility provided for under this Agreement (but any such amendment or waiver which relates to both the revolving credit facility and the term loan facility provided for under this Agreement shall not be subject to this Section 9.02(f)) or (y) (A) amend or waive compliance with the conditions precedent to the obligations of Lenders to make any Revolving Loan in Section 4.02, or (B) waive any Default or Event of Default for the purpose of satisfying the conditions precedent to the obligations of Lenders to make any Revolving Loan in Section 4.02. No amendment shall: (x) amend or waive this Section 9.02(f) or the definitions of the terms used in this Section 9.02(f) insofar as the definitions affect the substance of this Section 9.02(f); (y) change the definition of the term Required Revolving Lenders; or (z) change the percentage of Lenders which shall be required for Revolving Lenders to take any action hereunder, in each case, without the consent of all Revolving Lenders.
(g) If any Lender becomes an Objecting Non-Funding Lender, then the Term Lenders who are not Objecting Non-Funding Lenders shall have the right (unless such Objecting Non-Funding Lender agrees to fund any Revolving Loans in accordance with this Agreement), at their own cost and expense, to purchase (ratably as between the other Lenders, or as they may otherwise agree) from such Objecting Non-Funding Lender via assignment, and to require such Objecting Non-Funding Lender to assign, all of such Objecting Non-Funding Lenders Loans and Commitments. In such case, the purchasing Term Lenders shall purchase such Objecting Non-Funding Lenders Loans and Commitments by paying to such Objecting Non-Funding Lender a price equal to the principal amount thereof plus accrued and unpaid interest thereon including any PIK Interest plus, solely in connection with the failure to consent to a proposed amendment, the Prepayment Premium. No consent of any Loan Party shall be required for any assignment in accordance with this Section 9.02(g). In connection with any such assignment, the Administrative Agent, such Objecting Non-Funding Lender and the purchasing Term Lenders shall otherwise comply with Section 9.04, except that neither such Objecting Non-Funding Lender nor any purchasing Term Lender shall be obligated to pay any processing and recordation fee required pursuant thereto; provided that if such Objecting Non-Funding Lender does not execute and deliver to the Administrative Agent a duly executed Assignment and Assumption reflecting such replacement within five (5) Business Days of the date on which the assignee purchasing Term Lenders execute and deliver such Assignment and Assumption to such Objecting Non-Funding Lender, then such Objecting Non-Funding Lender shall be deemed to have executed and delivered such Assignment and Assumption without any further action by such Objecting Non-Funding Lender.
(h) If any Lender becomes an Objecting Non-Funding Lender, then, to the extent that the Term Lenders who are not Objecting Non-Funding Lenders have been provided a reasonable opportunity to purchase the Loans and Commitments of such Objecting Non-Funding Lender (which shall not be less than ten (10) Business Days) and have declined or failed to make such purchase, the Borrower shall have the right (unless such Objecting Non-Funding Lender agrees to fund any Revolving Loans in accordance with this Agreement), at their own cost and expense, to replace such Objecting Non-Funding Lender by requiring such Objecting Non-Funding Lender to assign its Loans and Commitments to one or more assignees reasonably acceptable to the Administrative Agent, except to the extent such replacement Lender is the Administrative Agent, the Collateral Agent, any Affiliate of the Administrative Agent or the
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Collateral Agent, an Affiliated Lender or Person who would become an Affiliated Lender upon the completion of such assignment (subject to any other limitations in respect of Affiliated Lenders set forth in this Agreement); provided , that (i) all Obligations of the Borrower owing to such Objecting Non-Funding Lender being replaced shall be paid in full to such Objecting Non-Funding Lender concurrently with such assignment and (ii) the replacement Lender or the Borrower, as the case may be, shall purchase the foregoing by paying to such Objecting Non-Funding Lender a price equal to the principal amount thereof plus accrued and unpaid interest thereon (including any PIK Interest) plus any premium (including the Prepayment Premium). In connection with any such assignment, the Administrative Agent, such Objecting Non-Funding Lender and the replacement Lender shall otherwise comply with Section 9.04, except that neither such Objecting Non-Funding Lender nor the replacement Lender shall be obligated to pay any processing and recordation fee required pursuant thereto; provided that if such Objecting Non-Funding Lender does not execute and deliver to the Administrative Agent a duly executed Assignment and Assumption reflecting such replacement within five (5) Business Days of the date on which the assignee replacement Lender executes and delivers such Assignment and Assumption to such Objecting Non-Funding Lender, then such Objecting Non-Funding Lender shall be deemed to have executed and delivered such Assignment and Assumption without any further action by such Objecting Non-Funding Lender. Guggenheim, to the extent that it is the Administrative Agent at any time that this Section 9.02(h) is invoked, agrees to use its commercially reasonable efforts to assist the Borrower (upon the Borrowers request) in arranging a replacement Lender hereunder.
Section 9.03 Expenses; Indemnity; Damage Waiver .
(a) The Borrower shall pay, if the Effective Date occurs and the Transactions have been consummated, (i) all reasonable and documented out-of-pocket costs and expenses incurred by the Administrative Agent and its Affiliates (without duplication) (limited, in the case of legal fees and expenses, to, the reasonable, documented fees, charges and disbursements of Latham and Watkins LLP and to the extent reasonably determined by the Administrative Agent to be necessary, the reasonable, documented fees, charges and disbursements of one local counsel in each applicable jurisdiction and, in the case of an actual conflict of interest where the Indemnitee affected by such conflict notifies the Borrower of the existence of such conflict and thereafter retains its own counsel after receipt of consent from the Borrower (not to be unreasonably withheld or delayed), one additional conflicts counsel for the affected Indemnitees similarly situated and such other counsel retained with the Borrowers consent (such consent not to be unreasonably withheld or delayed), in each case for the Administrative Agent, in connection with the preparation, execution, delivery and administration of the Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated)) and (ii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of counsel for the Administrative Agent and the Lenders, in connection with the enforcement or protection of any rights or remedies (A) in connection with the Loan Documents (including all such costs and expenses incurred during any legal proceeding, including any proceeding under any Debtor Relief Laws), including its rights under this Section 9.03 or (B) in connection with the Loans made hereunder, including all such out-of-pocket costs and expenses incurred during any workout, restructuring or negotiations in respect of such Loans; provided that such counsel shall be limited to one lead counsel and one local counsel in each applicable jurisdiction (exclusive of any reasonably necessary special counsel) (and, in the case of a conflict of interest, where the Administrative Agent or any Lender affected by such conflict notifies Holdings of the existence of such conflict and thereafter retains its own counsel, one additional counsel) and such other counsel as may be retained with the Borrowers consent (such consent not to be unreasonably withheld or delayed). Notwithstanding the foregoing, the expenses of counsel shall not include any allocated costs of in-house counsel.
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(b) The Borrower shall indemnify the Administrative Agent, each Lender, the Lead Arranger, the Bookrunner and each Related Party of any of the foregoing Persons (each such Person being called an Indemnitee ) against, and hold each Indemnitee harmless from (without duplication), any and all losses, claims, damages, liabilities (in each case, regardless of whether any such Indemnitee is a party thereto and whether any such proceeding is brought by the Borrower or any other person) and reasonable and documented out-of-pocket fees and expenses (limited, in the case of legal fees and expenses, to the reasonable and documented fees, charges and disbursements of one counsel for all Indemnitees and to the extent reasonably determined by the Administrative Agent to be necessary, one local counsel in each relevant material (and in the case of an actual conflict of interest, where the Indemnitee affected by such conflict notifies the Borrower of the existence of such conflict and thereafter retains its own counsel, one additional conflicts counsel) for the affected Indemnitees), incurred by or asserted against any Indemnitee by any third party or by the Borrower, Holdings or any Subsidiary arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any Loan Document or any other agreement or instrument contemplated hereby or thereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated thereby, (ii) any Loan or the use of the proceeds therefrom, (iii) to the extent in any way arising from or relating to any of the foregoing, any actual or alleged presence or Release or threat of Release of Hazardous Materials on, at, to or from any Mortgaged Property or any other property currently or formerly owned or operated by Holdings, the Borrower or any Subsidiary, or any other Environmental Liability related in any way to Holdings, the Borrower or any Subsidiary, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower, Holdings or any Subsidiary or any of their respective Affiliates and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities, costs or related expenses (x) resulted from the gross negligence, bad faith or willful misconduct of such Indemnitee or its Related Parties (as determined by a court of competent jurisdiction in a final and non-appealable judgment), (y) resulted from a material breach of the Loan Documents by such Indemnitee or its Related Parties (as determined by a court of competent jurisdiction in a final and non-appealable judgment) or (z) arise from disputes between or among Indemnitees (other than disputes involving claims against the Administrative Agent, the Lead Arranger or the Bookrunner, in each case, in their respective capacities) that does not arise from an act or omission by Holdings, the Borrower, any Subsidiary or any of their respective Affiliates. This Section 9.03(b) shall not apply with respect to Taxes, other than Taxes that represent losses, damages, etc. incurred in connection with any non-Tax claim.
(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent or any Lender under paragraph (a) or (b) of this Section 9.03, each Lender severally agrees to pay to the Administrative Agent or such Lender, as the case may be, such Lenders pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought or, if indemnification is sought after the date upon which all Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such outstanding Loans and Commitments as in effect immediately prior to such date) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent or such Lender in its capacity as such. For purposes hereof, a Lenders pro rata share shall be determined based upon its share of the aggregate Revolving Exposures, outstanding Term Loans and unused Commitments at such time. The obligations of the Lenders under this paragraph (c) are subject to the last sentence of Section 2.02(a) (which shall apply mutatis mutandis to the Lenders obligations under this paragraph (c)).
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(d) To the extent permitted by applicable law, neither Holdings nor the Borrower shall assert, and each hereby waives, any claim against any Indemnitee (i) for any direct or actual damages arising from the use by unintended recipients of information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems (including the Internet) in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such direct or actual damages are determined by a court of competent jurisdiction by final, non-appealable judgment to have resulted from the gross negligence, bad faith or willful misconduct of, or a material breach of the Loan Documents by, such Indemnitee or its Related Parties or (ii) on any theory of liability, for special, indirect, consequential, incidental, exemplary or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the Financing Transactions, any Loan or the use of the proceeds thereof.
(e) All amounts due under this Section 9.03 shall be payable not later than ten (10) Business Days after written demand therefor; provided , however , that any Indemnitee shall promptly refund an indemnification payment received hereunder to the extent that there is a final judicial determination that such Indemnitee was not entitled to indemnification with respect to such payment pursuant to this Section 9.03.
Section 9.04 Successors and Assigns .
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender, and the acknowledgement of the Administrative Agent (and any attempted assignment or transfer by the Borrower without such consent shall be null and void), (ii) no assignment shall be made to any Defaulting Lender or any of its Subsidiaries, or any Persons who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (ii) and (iii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 9.04. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section 9.04), the Indemnitees and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraphs (b)(ii), (f) and (h) below, any Lender may assign to one or more Eligible Assignees all or any portion of its rights and obligations under this Agreement (including all or any portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent (except with respect to assignments to competitors of the Borrower) not to be unreasonably withheld or delayed) of (A) the Borrower; provided that no consent of the Borrower shall be required for an assignment (v) of a Revolving Loan by a Revolving Lender to any other Revolving Lender or any Affiliate or Approved Fund of any Revolving Lender, (w) [reserved], (x) by a Term Lender to any Eligible Assignee pursuant to clauses (a), (b) or (c) of the definition thereof or (y) if a Default or an Event of Default under Section 7.01(a), (b), (d)(ii), (h) or (i) has occurred and is continuing; provided , further , that the Borrower shall have the right to withhold its consent to any assignment if in order for such assignment to comply with applicable law, the Borrower would be required to obtain the consent of, or make any filing or registration with, any Governmental Authority and (B) the Administrative Agent; provided that no consent of the Administrative Agent shall be required for an assignment of a Term Loan to (x) a Lender, an Affiliate of a Lender or an Approved Fund or (y) subject to Section 9.04(f) and (g), an Affiliated Lender, Holdings, the Borrower or any of its Restricted Subsidiaries. Notwithstanding anything in this Section 9.04 to the contrary, if the Borrower has not given the Administrative Agent written notice of its objection within ten (10) Business Days after written notice of such assignment, the Borrower shall be deemed to have consented to such assignment.
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(ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lenders Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the trade date specified in the Assignment and Assumption with respect to such assignment or, if no trade date is so specified, as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall, in the case of Revolving Loans, not be less than $1,000,000 (and integral multiples thereof) or, in the case of a Term Loan, $1,000,000 (and integral multiples thereof), unless the Borrower and the Administrative Agent otherwise consent (in each case, such consent not to be unreasonably withheld or delayed); provided that no such consent of the Borrower shall be required if an Event of Default under Section 7.01(a), (b), (h) or (i) has occurred and is continuing, (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement; provided that this clause (B) shall not be construed to prohibit assignment of a proportionate part of all the assigning Lenders rights and obligations in respect of one Class of Commitments or Loans, (C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption via an electronic settlement system acceptable to the Administrative Agent or, if previously agreed with the Administrative Agent, manually execute and deliver to the Administrative Agent an Assignment and Assumption, and, in each case, together with a processing and recordation fee of $3,500; provided that the Administrative Agent, in its sole discretion, may elect to waive or reduce such processing and recordation fee; provided , further , that any such Assignment and Assumption shall include a representation by the assignee that the assignee is not a Disqualified Lender or an Affiliate of a Disqualified Lender; provided , further , that assignments made pursuant to Section 2.19(b) or Section 9.02(c) shall not require the signature of the assigning Lender to become effective and (D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent any tax forms required by Section 2.17(f) and an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain Material Non-Public Information about the Borrower, the Loan Parties and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the assignees compliance procedures and applicable laws, including Federal and state securities laws.
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v) of this Section 9.04, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of (and subject to the obligations and limitations of) Sections 2.15, 2.16, 2.17 and 9.03 and to any fees payable hereunder that have accrued for such Lenders account but have not yet been paid). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c)(i) of this Section 9.04.
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(iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal and interest amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the Register ). Notwithstanding the foregoing, in no event shall the Administrative Agent be obligated to ascertain, monitor or inquire as to whether any Lender is an Affiliated Lender, nor shall the Administrative Agent be obligated to monitor the aggregate amount of the Loans held by Affiliated Lenders. The entries in the Register shall be conclusive absent manifest error, and Holdings, the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. In addition, the Administrative Agent shall maintain on the Register information regarding the designation, and revocation of designation, of any Lender as a Defaulting Lender. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignees completed Administrative Questionnaire and any tax forms required by Section 2.17(f) (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section 9.04 and any written consent to such assignment required by paragraph (b) of this Section 9.04, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(vi) The words execution, signed, signature and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act or any other similar state laws based on the Uniform Electronic Transactions Act.
(c) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other Persons (other than to a Person that is not an Eligible Assignee) (a Participant ) in all or a portion of such Lenders rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lenders obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) Holdings, the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and any other Loan Documents and to approve any amendment, modification or waiver of any provision of this Agreement and any other Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that directly and adversely affects such Participant. Subject to paragraph (c)(iii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the obligations and limitations thereof and Section 2.19, it being understood that any tax forms required by Section 2.17(f) shall be provided solely to the participating Lender) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section 9.04. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.18(c) as though it were a Lender.
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(ii) Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and related interest amounts) of each participants interest in the Loans or other obligations under this Agreement (the Participant Register ). The entries in the Participant Register shall be conclusive, absent manifest error, and the parties hereto shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. No Lender shall have any obligation to disclose all or any portion of its Participant Register to any Person (including the identity of any Participant or any information relating to a Participants interest in any Commitments, Loans or other obligations under the Loan Documents) except to the extent that the relevant parties, acting reasonably and in good faith, determine that such disclosure is necessary in connection with a Tax audit or other proceeding to establish that any Loan or other obligation under the Loan Documents is in registered form for U.S. federal income tax purposes.
(iii) A Participant shall not be entitled to receive any greater payment under Section 2.15, 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation.
(d) Any Lender may, without the consent of the Borrower or the Administrative Agent, at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or other central bank, and this Section 9.04 shall not apply to any such pledge or assignment of a security interest, provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(e) In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
(f) Notwithstanding anything to the contrary herein, any Lender may, at any time, assign all or a portion of its rights and obligations under this Agreement to an Affiliated Lender subject to the following limitations:
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(i) Affiliated Lenders (other than Affiliated Debt Funds) will not receive information provided solely to Lenders by the Administrative Agent or any Lender and will not be permitted to attend or participate in meetings attended solely by the Lenders and the Administrative Agent, other than the right to receives notices of Borrowings, notices of prepayments and other administrative notices in respect of its Loans or Commitments required to be delivered to Lenders pursuant to Article II;
(ii) for purposes of any amendment, waiver or modification of any Loan Document (including such modifications pursuant to Section 9.02), for determining whether the Required Lenders or the Required Revolving Lenders have directed or required the Administrative Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under any Loan Document, or, subject to Section 9.02(e), any plan of reorganization pursuant to the Bankruptcy Code (a Reorganization Plan ), that in either case does not adversely affect such Affiliated Lender in any material respect as compared to other Lenders, or that would deprive such Affiliated Lender of its pro rata share of any payments to which it is entitled, Affiliated Lenders will be deemed to have voted in the same manner as the Lenders holding a majority of claims (excluding the claims of Affiliated Lenders) voting on such matter; and each Affiliated Lender hereby acknowledges, agrees and consents that (a) if, for any reason, its vote to accept or reject any plan pursuant to the Bankruptcy Code is not deemed to have been so voted, then such vote will be (x) deemed not to be in good faith and (y) designated pursuant to Section 1126(e) of the Bankruptcy Code such that the vote is not counted in determining whether the applicable class has accepted or rejected such plan in accordance with Section 1126(c) of the Bankruptcy Code, (b) each Affiliated Lender hereby irrevocably appoints the Administrative Agent (such appointment being coupled with an interest) as such Affiliated Lenders attorney-in-fact, with full authority in the place and stead of such Affiliated Lender and in the name of Affiliated Lender from time to time in the Administrative Agents discretion to take any action and to execute any instrument that the Administrative Agent may deem reasonably necessary or appropriate to carry out the provisions of this clause (ii) and clause (vi) below, including to ensure that any vote of such Affiliated Lender on any Reorganization Plan is withdrawn or otherwise not counted; provided that Affiliated Debt Funds will not be subject to such voting limitations and will be entitled to vote as any other Lender and (c) to the extent any Lenders (other than the Affiliated Lenders) holding the same Class of Loans as the affected Affiliated Lenders (such Lenders being, Non-Restricted Persons ) would receive superior treatment as part of any Reorganization Plan, as compared to any Affiliated Lender, pursuant to any investment made, or other action taken, by such Non-Restricted Person in accordance with such Reorganization Plan (but excluding the Loans), then such Affiliated Lenders consent shall not be required, so long as such Affiliated Lender was afforded the opportunity to ratably participate in such investment or to take such action pursuant to the Reorganization Plan. For the avoidance of doubt, the Lenders and each Affiliated Lender (in its capacity as a Term Loan Lender) agree and acknowledge that the provisions set forth in this clause (ii) of Section 9.04(f) constitute, to the extent set forth in this clause (ii), a subordination agreement as such term is contemplated by, and utilized in, Section 510(a) of the Bankruptcy Code, and, as such, would be enforceable for all purposes in any case where a Credit Party has filed for protection under the Bankruptcy Code;
(iii) Affiliated Lenders may not purchase Revolving Loans, including pursuant to this Section 9.04;
(iv) the aggregate principal amount of Term Loans purchased by assignment pursuant to this Section 9.04 held at any one time by Affiliated Lenders (other than Affiliated Debt Funds) may not exceed 25.0% of the aggregate principal amount of all Term Loans outstanding at the time of such purchase, after giving effect to any substantially simultaneous cancellations thereof;
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(v) Affiliated Lenders shall clearly identify themselves as an Affiliated Lender in the loan assignment documentation. In no event shall the Administrative Agent be obligated to ascertain, monitor or inquire as to whether any lender is an Affiliated Lender or Affiliated Debt Fund nor shall the Administrative Agent be obligated to monitor the number of Affiliated Lenders or Affiliated Debt Funds or the aggregate amount of Term Loans held by Affiliated Lenders or Affiliated Debt Funds;
(vi) (x) Affiliated Lenders (other than Affiliated Debt Funds) will not be permitted to (1) vote on matters requiring a Required Lender vote, and the Term Loans held by Affiliated Lenders (other than Affiliated Debt Funds) shall be disregarded in determining (I) other Lenders commitment percentages and (II) matters submitted to Lenders for consideration that do not require the consent of each Lender or each affected Lender (other than pursuant to a Reorganization Plan) or do not adversely affect such Affiliated Lender in any material respect as compared to other Lenders that are not Affiliated Lenders; provided that the commitments of any Affiliated Lender shall not be increased, and except pursuant to a Reorganization Plan the Interest Payment Dates and the dates of any scheduled amortization payments (including at maturity) owed to any Affiliated Lender hereunder will not be extended and the amounts owning to any Affiliated Lender hereunder will not be reduced without the consent of such Affiliated Lender or (2) challenge any Agents or Lenders attorney client privilege as a result of its status as a Lender and (y) notwithstanding anything in Section 9.02 or the definition of Required Lenders to the contrary, for purposes of determining whether the Required Lenders have (i) consented (or not consented) to any amendment, modification, waiver, consent or other action with respect to any of the terms of any Loan Document or any departure by any Loan Party therefrom, (ii) otherwise acted on any matter related to any Loan Document or (iii) directed or required the Administrative Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under any Loan Document, all Term Loans held by Affiliated Debt Funds may not account for more than 49.9% in the aggregate of the Term Loans of consenting Lenders included in determining whether the Required Lenders have consented to any action pursuant to Section 9.02;
(vii) in connection with each assignment pursuant to this Section 9.04(f), the assigning Lender and the Affiliated Lender purchasing such Lenders Loans shall render customary big boy letters to each other regarding information that is not known to such assigning Lender that may be material to the decision by such assigning Lender to enter into such assignment to such Affiliated Lender; and
(viii) if Affiliated Lenders receive a pro rata debt buyback offer from the Borrower, Affiliated Lenders shall be required to accept it if, and to the extent, as a result thereof, the principal amount of the Term Loans held by Affiliated Lenders would exceed 25% of the total principal amount of the Term Loans of all Lenders after giving effect to such buyback.
(g) Any Lender may, at any time, assign all or a portion of its Term Loans (but not Revolving Loans) to Holdings or any of its Subsidiaries, through Dutch auctions or other offers to purchase open to all Lenders on a pro rata basis in accordance with procedures of the type described in Section 2.11(a)(ii) or other customary procedures acceptable to the Administrative Agent, provided that (i) no Event of Default pursuant to Section 7.01(a), (b), (h) or (i) exists, (ii) the Borrower shall not make any Borrowing of Revolving Loans to fund such assignment, (iii) any Term Loans that are so assigned will be automatically and irrevocably cancelled and the aggregate principal amount of the tranches and installments of the relevant Term Loans then outstanding shall be reduced by an amount equal to the principal amount of such Term Loans, (iv) each offer to purchase Term Loans through a Dutch auction or otherwise shall be open and offered to all Term Loan Lenders on a pro rata basis and (v) each Lender making such assignment to Holdings or any of its Subsidiaries acknowledges and agrees that in
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connection with such assignment, (1) Holdings or its Subsidiaries then may have, and later may come into possession of Material Non-Public Information, (2) such Lender has independently and, without reliance on Holdings, any of its Subsidiaries, the Administrative Agent or any of their respective Affiliates, made its own analysis and determination to enter into such assignment notwithstanding such Lenders lack of knowledge of the Material Non-Public Information and (3) none of Holdings, its Subsidiaries, the Administrative Agent, or any of their respective Affiliates shall have any liability to such Lender, and such Lender hereby waives and releases, to the extent permitted by Requirements of Law, any claims such Lender may have against Holdings, its Subsidiaries, the Administrative Agent, and their respective Affiliates, under applicable laws or otherwise, with respect to the nondisclosure of the Material Non-Public Information. Each Lender entering into such an assignment further acknowledges that the Material Non-Public Information may not be available to the Administrative Agent or the other Lenders.
(h) Notwithstanding the foregoing, no assignment may be made or participation sold to a Disqualified Lender without the prior written consent of the Borrower; provided that, (i) no consent of the Borrower shall be required for an assignment to any Disqualified Lender if an Event of Default under Section 7.01(h) or (i) has occurred and is continuing, (ii) no consent of the Borrower shall be required for an assignment to any Disqualified Lender described in clause (i) of the definition thereof and, to the extent that it relates to an Affiliate of a Disqualified Lender described in clause (i) of the definition thereof, any Disqualified Lender described in clause (iii) thereof, if an Event of Default under Section 7.01(a) or (b) has occurred and is continuing and (iii) upon inquiry by any Lender to the Administrative Agent as to whether a specified potential assignee or prospective participant is on the list of Disqualified Lenders, the Administrative Agent shall be permitted to disclose to such Lender whether such specific potential assignee or prospective participant is on the list of Disqualified Lenders; provided , further , that inclusion on the list of Disqualified Lenders shall not apply retroactively to disqualify any persons that have previously acquired an assignment or participation in the Loan if such person was not included on the list of Disqualified Lenders at the time of such assignment or participation. Notwithstanding anything contained in this Agreement or any other Loan Document to the contrary, if any Lender was a Disqualified Lender at the time of the assignment of any Loans or Commitments to such Lender, following written notice from the Borrower to such Lender and the Administrative Agent: (1) such Lender shall promptly assign all Loans and Commitments held by such Lender to an Eligible Assignee; provided that (A) the Administrative Agent shall not have any obligation to the Borrower, such Lender or any other Person to find such a replacement Lender, (B) the Borrower shall not have any obligation to such Disqualified Lender or any other Person to find such a replacement Lender or accept or consent to any such assignment to itself or any other Person subject to the Borrowers consent in accordance with Section 9.04(b)(i) and (C) the assignment of such Loans and/or Commitments, as the case may be, shall be at par plus accrued and unpaid interest including PIK Interest and fees; (2) such Lender shall not have any voting or approval rights under the Loan Documents and shall be excluded in determining whether all Lenders (or all Lenders of any Class), all affected Lenders (or all affected Lenders of any Class), a Majority in Interest of Lenders of any Class or the Required Lenders or Required Revolving Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 9.02); provided that (x) the Commitment of any Disqualified Lender may not be increased or extended without the consent of such Lender and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that affects any Disqualified Lender adversely and in a manner that is disproportionate to other affected Lenders shall require the consent of such Disqualified Lender; and (3) no Disqualified Lender is entitled to receive information provided solely to Lenders by the Administrative Agent or any Lender or will be permitted to attend or participate in meetings attended solely by the Lenders and the Administrative Agent, other than the right to receive notices or Borrowings, notices or prepayments and other administrative notices in respect of its Loans or Commitments required to be delivered to Lenders pursuant to Article II.
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(i) Notwithstanding the foregoing, any Affiliated Lender shall be permitted, at its option, to contribute any Term Loans so assigned to such Affiliated Lender pursuant to this Section 9.04 to Holdings or any of its Subsidiaries for purposes of cancellation, which contribution may be made (including, with the Borrowers consent, to the Borrower, whether through Holdings or otherwise), in exchange for Qualified Equity Interests of the Borrower or Indebtedness of the Borrower to the extent such Indebtedness is permitted to be incurred pursuant to Section 6.01 at such time.
(j) Notwithstanding anything to the contrary contained in this Agreement, at no point may the aggregate number of Affiliated Lenders and Affiliated Debt Funds holding Term Loans equal or exceed the aggregate number of Term Loan Lenders (other than any Term Loan Lenders constituting Affiliated Lenders and Affiliated Debt Funds).
(k) Any assignment or participation that does not comply with this Section 9.04 shall be void ab initio and, promptly following the Administrative Agent becoming aware that any such assignment has been made in breach of this Section 9.04, the Register shall be modified by the Administrative Agent to reverse such assignment.
Section 9.05 Survival .
All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to any Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans and all other amounts payable hereunder, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof.
Section 9.06 Counterparts; Integration; Effectiveness .
This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent or the Lenders constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Subject to satisfaction of the other conditions set forth in Section 4.01 , this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.
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Section 9.07 Severability .
Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section 9.07 , if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent then such provisions shall be deemed to be in effect only to the extent not so limited.
Section 9.08 Right of Setoff .
If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency and whether direct or indirect, absolute or contingent, matured or unmatured) at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower then due and owing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such Indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.22 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Secured Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The applicable Lender shall notify the Borrower and the Administrative Agent of such setoff and application; provided that any failure to give or any delay in giving such notice shall not affect the validity of any such setoff and application under this Section. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. Notwithstanding the foregoing, no amount set off from any Loan Party (other than the Borrower) shall be applied to any Excluded Swap Obligation of such Loan Party (other than the Borrower).
Section 9.09 Governing Law; Jurisdiction; Consent to Service of Process .
(a) This Agreement shall be construed in accordance with and governed by the laws of the State of New York.
(b) Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York sitting in New York County, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in any Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to any Loan Document against Holdings or the Borrower or their respective properties in the courts of any jurisdiction.
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(c) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to any Loan Document in any court referred to in paragraph (b) of this Section 9.09. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in any Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
Section 9.10 WAIVER OF JURY TRIAL .
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT, BREACH OF DUTY, COMMON LAW STATUTE OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10 . EACH PARTY HERETO FURTHER REPRESENTS AND WARRANTS THAT IS HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSOLATION WITH LEGAL COUNSEL.
Section 9.11 Headings .
Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
Section 9.12 Confidentiality .
Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to its and its Affiliates directors, officers, employees, trustees and agents, including accountants, legal counsel and other agents and advisors and any numbering, administration or settlement service providers (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential and any failure of such Persons acting on behalf of the Administrative Agent or the relevant Lender to comply with this Section 9.12 shall constitute a breach of this Section 9.12 by the Administrative Agent or the relevant Lender, as applicable), (ii) to the extent requested by any regulatory authority or self-regulatory authority, required by applicable law or by any subpoena or similar legal process or in connection with the exercise of
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remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder; provided that (x) solely to the extent permitted by law and other than in connection with routine audits and reviews by regulatory and self-regulatory authorities, each Lender and the Administrative Agent shall notify the Borrower as promptly as practicable of any such requested or required disclosure in connection with any legal or regulatory proceeding and (y) in the case of clause (ii) only, each Lender and the Administrative Agent shall use commercially reasonable efforts to ensure that such Information is kept confidential in connection with the exercise of such remedies, and provided , further , that in no event shall any Lender or the Administrative Agent be obligated or required to return any materials furnished by the Borrower or any Subsidiary of Holdings, (iii) to any other party to this Agreement, (iv) subject to an agreement containing confidentiality undertakings substantially similar to those of this Section 9.12, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (B) any actual or prospective counterparty (or its advisors) to any Swap Agreement or derivative transaction relating to any Loan Party or its Subsidiaries and its obligations under the Loan Documents or (C) any pledgee referred to in Section 9.04(d), (v) if required by any rating agency; provided that prior to any such disclosure, such rating agency shall have agreed in writing to maintain the confidentiality of such Information, (vi) to service providers providing administrative and ministerial services solely in connection with the administration of the Loan Documents and the facilities (e.g., identities of parties, maturity dates, interest rates, etc.) on a confidential basis, or (vii) (x) to a Person that is an investor or prospective investor in a securitization or other financing, separate account or commingled fund so long such investor or prospective investor agrees that its access to information regarding the Loan Parties and the Loans and Commitments is solely for purposes of evaluating an investment in such securitization or other financing, separate account or commingled fund and who agrees to treat such information as confidential or (y) to a Person that is a trustee, collateral agent, collateral manager, servicer, noteholder, equity holder or secured party in a securitization in connection with the administration, servicing and evaluation of, and reporting on, the assets serving as collateral for such securitization, (viii) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 9.12 or (y) becomes available to the Administrative Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than Holdings, the Borrower or any Subsidiary, which source is not known by the recipient of such information to be subject to a confidentiality obligation, or (ix) to the extent that such information was already in the Administrative Agents possession prior to any duty or other undertaking of confidentiality or is independently developed by the Administrative Agent without the use of such information, to the Administrative Agents Affiliates and to its and their respective officers, directors, partners, employees, legal counsel, independent auditors and other experts or agents who need to know such information in connection with the Transactions and who are informed of the confidential nature of such information and who are subject to customary confidentiality obligations of professional practice or who agree to be bound by the terms of this paragraph (or language substantially similar to this paragraph) (with the Administrative Agent, to the extent within its control, responsible for such persons compliance with this paragraph). For the purposes hereof, Information means all information received from or on behalf of Holdings or the Borrower relating to Holdings, the Borrower, any other Subsidiary or their business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by Holdings, the Borrower or any Subsidiary; provided that, in the case of information received from Holdings, the Borrower or any Subsidiary after the Effective Date, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 9.12 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Notwithstanding the foregoing, no such information shall be disclosed to a Disqualified Lender that constitutes a Disqualified Lender at the time of such disclosure without the Borrowers prior written consent.
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In addition, each of the Agents and the Lenders may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry and service providers to the Agents and the Lenders in connection with the administration of this Agreement, the other Loan Documents and the Loans. Notwithstanding anything herein to the contrary, the information subject to this Section 9.12 shall not include, and each of the Agents and the Lenders may disclose without limitation of any kind, any information with respect to the tax treatment and tax structure (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the Loans, the Transactions and the other transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Agents or the Lenders relating to such tax treatment and tax structure; provided that, with respect to any document or similar item that in either case contains information concerning such tax treatment or tax structure as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to such tax treatment or tax structure.
(a) EACH LENDER ACKNOWLEDGES THAT INFORMATION (AS DEFINED IN THIS SECTION 9.12(a)) FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING HOLDINGS, THE BORROWER, THE LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
(b) ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS FURNISHED BY THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT, WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT HOLDINGS, THE BORROWER, THE LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
Section 9.13 USA PATRIOT Act .
Each Lender that is subject to the USA PATRIOT Act and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the USA PATRIOT Act.
Section 9.14 Release of Liens and Guarantees .
(a) A Subsidiary Loan Party shall automatically be released from its obligations under the Loan Documents, and all security interests created by the Security Documents in Collateral owned by such Subsidiary Loan Party shall be automatically released, (1) upon the consummation of any transaction or designation permitted by this Agreement as a result of which such Subsidiary Loan Party
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ceases to be a Restricted Subsidiary (including pursuant to a permitted merger with a Subsidiary that is not a Loan Party or a designation as an Unrestricted Subsidiary) or becomes an Excluded Subsidiary or (2) upon the request of the Borrower, in connection with a transaction permitted under this Agreement, as a result of which such Subsidiary Loan Party ceases to be a Wholly Owned Subsidiary; provided that, if so required by this Agreement, the Required Lenders shall have consented to such transaction and the terms of such consent shall not have provided otherwise. Upon any sale or other transfer by any Loan Party (other than to Holdings, the Borrower or any Subsidiary Loan Party) of any Collateral in a transaction permitted under this Agreement, or upon the effectiveness of any written consent to the release of the security interest created under any Security Document in any Collateral, the security interests in such Collateral created by the Security Documents shall be automatically released. Upon the release of Holdings or any Subsidiary Loan Party from its Guarantee in compliance with this Agreement, the security interest in any Collateral owned by Holdings or such Subsidiary created by the Security Documents shall be automatically released. Upon the designation of a Restricted Subsidiary as an Unrestricted Subsidiary in compliance with this Agreement, the security interest created by the Security Documents in the Equity Interests of such Subsidiary shall automatically be released. Upon termination of the aggregate Commitments and payment in full of all Secured Obligations (other than contingent indemnification obligations), all obligations under the Loan Documents and all security interests created by the Security Documents shall be automatically released. In connection with any termination or release pursuant to this Section 9.14 , the Administrative Agent or the Collateral Agent, as the case may be, shall execute and deliver to any Loan Party, at such Loan Partys expense, all documents that such Loan Party shall reasonably request to evidence such termination or release so long as the Borrower or applicable Loan Party shall have provided the Administrative Agent or the Collateral Agent, as the case may be, such certifications or documents as the Administrative Agent or the Collateral Agent, as the case may be, shall reasonably request in order to demonstrate compliance with this Agreement.
(b) The Administrative Agent or the Collateral Agent, as the case may be, will, at the Borrowers expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to subordinate its Lien on any property granted to or held by the Administrative Agent or the Collateral Agent, as the case may be, under any Loan Document to the holder of any Lien on such property that is permitted by Section 6.02(d) .
(c) Each of the Lenders irrevocably authorizes the Administrative Agent or the Collateral Agent, as the case may be, to provide any release or evidence of release, termination or subordination contemplated by this Section 9.14 . Upon request by the Administrative Agent or the Collateral Agent, as the case may be, at any time, the Required Lenders will confirm in writing the Administrative Agents authority or the Collateral Agents authority, as the case may be, to release or subordinate its interest in particular types or items of property, or to release any Loan Party from its obligations under any Loan Document, in each case in accordance with the terms of the Loan Documents and this Section 9.14 .
Section 9.15 No Advisory or Fiduciary Responsibility .
In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each of the Borrower and Holdings acknowledges and agrees that (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent, the Lead Arranger, the Bookrunner and the Lenders are arms-length commercial transactions between the Borrower, Holdings and their respective Affiliates, on the one hand, and the Administrative Agent, the Lead Arranger, the Bookrunner and the Lenders on the other hand, (B) each of the Borrower and Holdings has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) each of the Borrower and Holdings is capable of evaluating, and understands and accepts, the terms, risks and
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conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the Administrative Agent, the Lead Arranger, the Bookrunner and the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not and will not be acting as an advisor, agent or fiduciary for the Borrower, Holdings, any of their respective Affiliates or any other Person and (B) none of the Administrative Agent, the Lead Arranger, the Bookrunner or the Lenders has any obligation to the Borrower, Holdings or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent, the Lead Arranger, the Bookrunner and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, Holdings and their respective Affiliates, and none of the Administrative Agent, the Lead Arranger, the Bookrunner or the Lenders has any obligation to disclose any of such interests to the Borrower, Holdings or any of their respective Affiliates. To the fullest extent permitted by law, each of the Borrower and Holdings hereby waives and releases any claims that it may have against the Administrative Agent, the Lead Arranger, the Bookrunner and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
Section 9.16 Interest Rate Limitation .
Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable law (the Maximum Rate ). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the obligations hereunder.
[R EMAINDER OF P AGE I NTENTIONALLY L EFT B LANK ]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
PLURALSIGHT HOLDINGS, LLC, as Holdings | ||
By: |
/s/ Aaron Skonnard |
|
Name: |
Aaron Skonnard |
|
Title: |
President and Chief Executive Officer |
|
PLURALSIGHT, LLC, as Borrower |
||
By: |
/s/ Aaron Skonnard |
|
Name: |
Aaron Skonnard |
|
Title: |
President and Chief Executive Officer |
GUGGENHEIM CORPORATE FUNDING, LLC, as Administrative Agent and Collateral Agent | ||
By: |
/s/ Kevin M. Robinson |
|
Name: |
Kevin M. Robinson |
|
Title: |
Attorney-in-Fact |
CAREY CREDIT INCOME FUND, as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Sub-Advisor | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
MAVERICK ENTERPRISES, INC., as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Investment Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
NZC GUGGENHEIM FUND LLC, as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
GUGGENHEIM PRIVATE DEBT FUND | ||
2.0-I, LLC, as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
GUGGENHEIM PRIVATE DEBT FUND | ||
2.0, LLC, as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact |
Signature page to Credit Agreement
GUGGENHEIM PRIVATE DEBT FUND NOTE ISSUER 2.0, LLC, as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
MIDLAND NATIONAL LIFE INSURANCE COMPANY, as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE, as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
SWISS CAPITAL GPIM PRIVATE DEBT FUND L.P., as a Lender | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Investment Advisor | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact |
Signature page to Credit Agreement
EXHIBIT A
Form of Assignment and Assumption
This Assignment and Assumption (this Assignment and Assumption ) is dated as of the Effective Date set forth below and is entered into by and between the Assignor named below (the Assignor ) and the Assignee named below (the Assignee ). It is understood and agreed that the rights and obligations of the Assignor and the Assignee hereunder are several and not joint. Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (the Credit Agreement ), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex A attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignors rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including, without limitation, Guarantees included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned by the Assignor to the Assignee pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as, the Assigned Interest ). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.
1. Assignor: | [Assignor Name] [and is a Defaulting Lender] | |
2. Assignee: |
[Assignee Name]
[and is an Affiliate/Approved Fund/Affiliated Debt Fund of [Lender Name]]
Assignees are Affiliated Lenders: |
|
3. Borrower: | Pluralsight, LLC |
A-1
Facility Assigned |
Aggregate amount
of Commitment/Loans for all Lenders |
Amount of
Commitment/Loans Assigned |
Percentage Assigned of Commitment/Loans |
CUSIP Number |
||||
1 | $ | $ | ||||||
$ | $ | |||||||
$ | $ |
7. Effective Date: 2 , 20 |
1 | Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g., Revolving Commitment, Term Commitment, Revolving Loan, Term Loan, etc.). |
2 | To be inserted by Administrative Agent and which shall be the effective date of recordation of transfer in the register therefor. |
A-2
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR: | ||
[NAME OF ASSIGNOR] | ||
By |
|
|
Name: Title: |
ASSIGNOR : | ||
[ NAME OF ASSIGNEE ] | ||
By | ||
Name: | ||
Title: |
[Consented to and] 3 Accepted: | ||
Guggenheim Corporate Funding, LLC, as Administrative Agent | ||
By: |
|
|
Name: Title: |
||
[Consented to:] 4 | ||
Pluralsight, LLC, as Borrower |
||
By: |
|
|
Name: Title: |
3 | To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement. |
4 | To be added only if the consent of the Borrower is required by the terms of the Credit Agreement. |
A-3
ANNEX A
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties .
1.1 Assignor . The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is [not] a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document, or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2 Assignee . The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 9.04 of the Credit Agreement (subject to such consents, if any, as may be required under the Credit Agreement) and is not a Disqualified Lender or an Affiliate of a Disqualified Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 5.01(a) , (b) or (c) thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest, (vi) it has independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest, (vii) if it is a Lender that is not a United States Person, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee and (viii) if it is an Affiliated Lender, it has indicated its status as such in the space provided on the first page of the Assignment and Assumption; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
A-4
2. Payments . From and after the Effective Date referred to in this Assignment and Assumption, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
A-5
EXHIBIT B
Form of Guarantee Agreement
[Remainder of Page Intentionally Left Blank]
B-1
EXHIBIT C
Form of Perfection Certificate
[Remainder of Page Intentionally Left Blank]
C-1
EXHIBIT D
Form of Collateral Agreement
[Remainder of Page Intentionally Left Blank]
D-1
EXHIBIT F
Form of Compliance Certificate
[Date]
This Compliance Certificate ( Certificate ) is furnished to the Administrative Agent pursuant to Section 5.01(e) of the Credit Agreement (as amended, modified, restated or supplemented from time to time in accordance with the terms thereof, the Credit Agreement ), dated as of June [ 🌑 ], 2017, by and among Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.
The officer executing this Certificate is a Financial Officer of Holdings (the Specified Officer ) and as such is duly authorized to execute and deliver this Certificate on behalf of Holdings. By executing this Certificate, the Specified Officer hereby certifies, in such persons capacity as a Financial Officer of Holdings and not in any individual capacity, as of the date hereof, that:
1. The financial statements most recently delivered in accordance with Section 5.01[(a)][(b)] 5 of the Credit Agreement have been prepared in accordance with the requirements of the Credit Agreement;
2. No Default exists as of the date of this Certificate, except as set forth below or as previously disclosed to Administrative Agent in accordance with Section 5.02(a) of the Credit Agreement:
|
|
|
6 |
3. Schedule I hereto sets forth reasonably detailed calculations evidencing the Borrowers compliance with the Financial Performance Covenants, which calculations are true, complete and correct and made in accordance with the relevant provisions of the Credit Agreement.
4. [Schedule II hereto sets forth data and computations demonstrating the Borrowers calculation of (i) Excess Cash Flow for the fiscal year ended [ ] and (ii) the Net Proceeds received during such Fiscal Year by or on behalf of the Borrower or any of its Restricted Subsidiaries in respect of any event described in clause (a) of the definition of the term Prepayment Event in the Credit Agreement and the portion of such Net Proceeds that has been invested or are intended to be reinvested in accordance with the proviso in Section 2.11(c) of the Credit Agreement, all of which data and computations are true, complete and correct and made in accordance with the relevant provisions of the Credit Agreement.] 7
5 | Select as applicable. |
6 | Specify the details thereof and any action taken or proposed to be taken with respect thereto. |
7 | Bracketed language and Schedule II to be included only in connection with the delivery of audited financial statements for each fiscal year of Holdings (commencing with the fiscal year ending December 31, 2019). |
F-1
5. [With respect to any cost savings, operating expense reductions or synergies included in the calculation of Consolidated EBITDA pursuant to clause (b) of the definition thereof, (i) such cost savings, operating expense reductions and synergies are reasonably identifiable and factually supportable and (ii) no cost savings, operating expense reductions or synergies have been added pursuant to clause (b) of the definition of Consolidated EBITDA in the Credit Agreement to the extent duplicative of any expenses or charges relating to such cost savings, operating expense reductions, other operating improvements or synergies that are included in clause (a) of the definition of Consolidated EBITDA or in the definition of Pro Forma Adjustment or Pro Forma Basis in the Credit Agreement (it being understood and agreed that run rate shall mean the full recurring benefit that is associated with any action taken).] 8
[ Signature page follows ]
8 | Bracketed language to be included if applicable. |
F-2
The foregoing certifications are made and delivered as of the date first set forth above.
PLURALSIGHT HOLDINGS, LLC |
By: |
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Name: |
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Title: |
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F-3
Schedule I 9
to Compliance Certificate
Calculations as of , 20
Total Leverage Ratio (Section 6.10 of the Credit Agreement) |
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1. Consolidated Total Indebtedness: |
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a. the aggregate amount of Indebtedness of Holdings, the Borrower and its Restricted Subsidiaries outstanding on such date, determined on a consolidated basis in accordance with GAAP (but excluding the effects of any discounting of Indebtedness resulting from the application of the acquisition method accounting in connection with the Transactions or any Permitted Acquisition (or other Investment not prohibited under the Credit Agreement)) consisting only of Indebtedness for borrowed money, drawn but unreimbursed obligations under letters of credit, letters of guaranty and bankers acceptances, obligations in respect of Capitalized Leases, debt obligations evidenced by promissory notes or similar instruments and earn-outs or similar obligations and all Purchase Money Obligations; provided that earn-outs or similar obligations shall be included to the extent such outstanding earn-outs and similar obligations become a liability on the balance sheet of the Borrower and its Restricted Subsidiaries in accordance with GAAP; provided, further, that the first $5,000,000 in the aggregate of such Earn-outs and other similar obligations shall be excluded from such calculation, unless such Earn-outs or other obligations not in excess of $5,000,000 are earned, unpaid and past due |
$ | |
2. Consolidated Net Income of the Borrower and its Subsidiaries: |
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a. the net income (loss) of Holdings, the Borrower and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, excluding, without duplication |
$ | |
b. the sum of: |
9 | To the extent of any inconsistency between this Compliance Certificate and the Credit Agreement, the terms of the Credit Agreement shall prevail. |
F-4
i. extraordinary (as defined by GAAP prior to the issuance of FASB Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items) items for such period |
$ | |
ii. the cumulative effect of a change in accounting principles during such period |
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iii. any Transaction Costs incurred during such period |
$ | |
iv. any fees and expenses (including any transaction or retention bonus or similar payment) incurred during such period, or any amortization thereof for such period, in connection with any acquisition (including any acquisition of a franchisee), non-recurring costs to acquire equipment to the extent not capitalized in accordance with GAAP, Investment, recapitalization, asset disposition, non-competition agreement, issuance or repayment of debt, issuance of equity securities, refinancing transaction or amendment or other modification of or waiver or consent relating to any debt instrument (in each case, including the Transaction Costs and any such transaction consummated prior to the Effective Date and any such transaction undertaken but not completed) and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case whether or not successful (including, for the avoidance of doubt, the effects of expensing all transaction-related expenses in accordance with FASB Accounting Standards Codification 805 and gains or losses associated with FASB Accounting Standards Codification 460) |
$ | |
v. any income (loss) (and all fees and expenses or charges relating thereto) for such period attributable to the early extinguishment of Indebtedness, hedging agreements or other derivative instruments |
$ |
F-5
vi. accruals and reserves that are established or adjusted as a result of the Transactions or any Permitted Acquisition or other Investment not prohibited under the Credit Agreement in accordance with GAAP (including any adjustment of estimated payouts on Earn-Outs) or changes as a result of the adoption or modification of accounting policies during such period |
$ | |
vii. stock-based award compensation expenses |
$ | |
viii. any income (loss) attributable to deferred compensation plans or trusts |
$ | |
ix. any income (loss) from Investments recorded using the equity method |
$ | |
x. the amount of any expense required to be recorded as compensation expense related to contingent transaction consideration |
$ | |
xi. any unrealized or realized gain or loss due solely to fluctuations in currency values and the related tax effects, determined in accordance with GAAP |
$ | |
xii. (i) the net income of any Person that is not a Subsidiary of such Person or is an Unrestricted Subsidiary or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the Borrower or a Restricted Subsidiary thereof in respect of such period and (ii) the net income shall include any ordinary course dividend distribution or other payment in cash received from any Person in excess of the amounts included in clause (ix) above |
$ | |
c. Sum of Lines 2(b)(i) through 2(b)(xii) |
$ | |
d. Line 2(a) minus clause 2(c) |
$ | |
3. Without duplication and to the extent already deducted (and not added back) in arriving at such Consolidated Net Income, the sum of the following amounts for such period: |
F-6
a. total interest expense and, to the extent not reflected in such total interest expense, the sum of (A) premium payments, debt discount, fees, charges and related expenses incurred in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets plus (B) the portion of rent expense with respect to such period under Capitalized Leases that is treated as interest expense in accordance with GAAP plus (C) the implied interest component of synthetic leases with respect to such period plus (D) any losses on hedging obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of interest income and gains on such hedging obligations or such derivative instruments plus (E) bank and letter of credit fees and costs of surety bonds in connection with financing activities, plus (F) amortization or write-off of deferred financing fees, debt issuance costs, debt discount or premium, terminated hedging obligations and other commissions, financing fees and expenses and, adjusted, to the extent included, to exclude any refunds or similar credits received in connection with the purchasing or procurement of goods or services under any purchasing card or similar program |
$ | |
b. provision for taxes based on income, profits or capital and sales taxes, including federal, foreign, state, franchise, excise, and similar taxes paid or accrued during such period (including in respect of repatriated funds) including penalties and interest related to such taxes or arising from any tax examinations, tax distributions, and, without duplication of any other tax distributions permitted under the Credit Agreement, cash payments made pursuant to any tax receivables agreements entered into in connection with an up-C IPO structure that are permitted pursuant to Section 6.07(a)(xi)(B) of the Credit Agreement |
$ | |
c. Non-Cash Charges |
$ | |
d. operating expenses incurred on or prior to the Effective Date attributable to (A) salary obligations paid to employees terminated prior to the Effective Date and (B) wages paid to executives in excess of the amounts the Borrower and/or any of its Restricted Subsidiaries are required to pay pursuant to their respective employment agreements |
$ |
F-7
e. extraordinary (as defined by GAAP prior to the issuance of FASB Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items) losses or charges in any LTM Period or Test Period, as applicable |
$ | |
f. unusual or non-recurring expenses, losses or charges; provided that any unusual expenses, losses or charges shall not to exceed the greater of (x) $1,000,000 and (y) 5% of Consolidated EBITDA (determined before giving effect to such amounts), in each case in any LTM Period or Test Period, as applicable |
$ | |
g. severance, relocation costs, recruiting fees, signing costs, retention or completion bonuses and curtailments or modifications to pension and post-retirement employee benefit plans (including any settlement of pension liabilities), charges related to deferred stock compensation plans, contract terminations and professional and consulting fees incurred in connection with any of the foregoing |
$ | |
h. restructuring charges, accruals or reserves (including restructuring and integration costs related to acquisitions and adjustments to existing reserves), integration and facilities opening costs and other business optimization expenses and operating improvements (including related to new product introductions and any operating expenses, losses or charges directly attributable to the implementation of cost savings initiatives), transition costs, costs related to the discontinuance of any portion of the business or operations, internal costs in respect of strategic initiatives and costs related to closure/consolidation of facilities, in each case whether or not classified as restructuring expense on the consolidated financial statements, when aggregated with the amounts in Line 4 below not to exceed the greater of (x) $2,000,000 and (y) 20% of Consolidated EBITDA (determined before giving effect to such amounts), in each case in any LTM Period or Test Period, as applicable |
$ |
F-8
i. the amount of any non-controlling interest consisting of income attributable to non-controlling interests of third parties in any Non-Wholly Owned Subsidiary deducted (and not added back in such period) in calculating Consolidated Net Income |
$ | |
j. (A) the amount of board of directors, management, monitoring, consulting and advisory fees, indemnities and related expenses paid or accrued in such period to (or on behalf of) the Sponsor (including any termination fees payable in connection with the early termination of management and monitoring agreements) and (B) the amount of expenses relating to payments made to option holders of Holdings or any of its direct or indirect parent companies in connection with, or as a result of, any distribution being made to shareholders of such Person or its direct or indirect parent companies, which payments are being made to compensate such option holders as though they were shareholders at the time of, and entitled to share in, such distribution, in each case to the extent permitted in the Loan Documents |
$ | |
k. losses on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business) in an aggregate amount not to exceed $1,500,000 in any LTM Period or Test Period, as applicable |
$ | |
l. any non-cash loss attributable to the mark to market movement in the valuation of any Equity Interests, and hedging obligations or other derivative instruments (in each case, including pursuant to Financial Accounting Standards Codification No. 815Derivatives and Hedging but only to the extent the cash impact resulting from such loss has not been realized) |
$ | |
m. any loss relating to amounts paid in cash prior to the stated settlement date of any hedging obligation that has been reflected in Consolidated Net Income for such period |
$ | |
n. any gain relating to hedging obligations associated with transactions realized in the current period that has been reflected in Consolidated Net Income in prior periods and excluded from Consolidated EBITDA pursuant to Lines 6(f) and (g) below |
$ |
F-9
o. any costs or expenses incurred by Holdings, the Borrower or any Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, any severance agreement or any stock subscription or shareholder agreement, to the extent that such costs or expenses are non-cash or otherwise funded with cash proceeds contributed to the capital of Holdings or Net Proceeds of an issuance of Equity Interests of Holdings (other than Disqualified Equity Interests) |
$ | |
p. any net pension or other post-employment benefit costs representing amortization of unrecognized prior service costs, actuarial losses, including amortization of such amounts arising in prior periods, amortization of the unrecognized net obligation (and loss or cost) existing at the date of initial application of FASB Accounting Standards Codification 715, and any other items of a similar nature |
$ | |
q. charges, losses, lost profits, expenses (including litigation expenses, fee and charges) or write-offs to the extent indemnified or insured by a third party, including expenses or losses covered by indemnification provisions or by any insurance provider in connection with the Transactions, a Permitted Acquisition or any other acquisition or Investment, disposition or any Casualty Event, in each case, to the extent that coverage has not been denied and so long as such amounts are actually reimbursed in cash within one year after the related amount is first added to Consolidated EBITDA pursuant to this Line 3(q) (and if not so reimbursed within one year, such amount shall be deducted from Consolidated EBITDA during the next measurement period) |
$ | |
r. cash receipts (or any netting arrangements resulting in reduced cash expenses) not included in Consolidated EBITDA in any period to the extent non-cash gains relating to such receipts were deducted in the calculation of Consolidated EBITDA pursuant to Line 6 below for any previous period and not added back |
$ |
F-10
s. earn-out and contingent consideration obligations (including to the extent accounted for as bonuses or otherwise) and adjustments thereof and purchase price adjustments, in each case in connection with acquisitions or Investments permitted under the Credit Agreement in an aggregate amount not to exceed $10,000,000 in any LTM Period or Test Period, as applicable, in each case, for such amounts payable in cash and reducing Consolidated Net Income during the applicable period |
$ | |
t. Initial Public Company Costs |
$ | |
u. Sum of Lines 3(a) through 3(t) |
$ | |
4. without duplication, the amount of run rate cost savings, operating expense reductions and synergies related to any Specified Transaction, any restructuring, cost saving initiative or other action taken, committed to be taken or with respect to which substantial steps have been taken, committed to be taken or planned to be taken that are projected by the Borrower in good faith to be realized (in the good faith determination of the Borrower) within 12 months after the end of the relevant LTM Period or Test Period, as applicable (including actions initiated prior to the Effective Date) (which cost savings, operating expense reductions and synergies shall be added to Consolidated EBITDA until fully realized and calculated on a pro forma basis as though such cost savings, operating expense reductions and synergies had been realized on the first day of the relevant period), net of the amount of actual benefits realized from such actions; provided that (A) such cost savings, operating expense reductions and synergies are reasonably identifiable and factually supportable and (B) no cost savings, operating expense reductions or synergies shall be added pursuant to this Line 4 to the extent duplicative of any expenses or charges relating to such cost savings, operating expense reductions, other operating improvements or synergies that are included above or in the definition of Pro Forma Adjustment or Pro Forma Basis (it being understood and agreed that run rate shall mean the full recurring benefit that is associated with any action taken); provided further that the amounts in this Line 4 and Line 3(h) above shall not exceed the greater of (x) $3,000,000 and (y) 20% of Consolidated EBITDA (determined before giving effect to any such amounts), in each case in any LTM Period or Test Period, as applicable |
$ | |
5. Sum of Line 3(u) and Line 4 |
$ |
F-11
6. without duplication and to the extent included in arriving at such Consolidated Net Income, the sum of the following amounts for such period: |
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a. extraordinary (as defined by GAAP prior to the issuance of FASB Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items) gains and unusual or non-recurring gains |
$ | |
b. non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Consolidated Net Income or Consolidated EBITDA in any prior period) |
$ | |
c. gains on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business) |
$ | |
d. any non-cash gain attributable to the mark to market movement in the valuation of any Equity Interests, and hedging obligations or other derivative instruments (in each case, including pursuant to Financial Accounting Standards Codification No. 815Derivatives and Hedging but only to the extent the cash impact resulting from such gain has not been realized) |
$ | |
e. any gain relating to amounts received in cash prior to the stated settlement date of any hedging obligation that has been reflected in Consolidated Net Income in such period |
$ | |
f. any loss relating to hedging obligations associated with transactions realized in the current period that has been reflected in Consolidated Net Income in prior periods and excluded from Consolidated EBITDA pursuant to Lines A3(m) and (n) above |
$ | |
g. the amount of any non-controlling interest consisting of loss attributable to non-controlling interests of third parties in any Non-Wholly Owned Subsidiary added (and not deducted in such period) to Consolidated Net Income |
$ | |
7. Sum of Line A6(a) to Line A6(g) |
$ |
F-12
8. any income from investments recorded using the equity method of accounting or the cost method of accounting, without duplication and to the extent not included in arriving at Consolidated Net Income, except to the extent such income was attributable to income that would be deducted pursuant to Line 6 if it were income of Holdings, the Borrower or its Restricted Subsidiaries |
$ | |
9. any losses from investments recorded using the equity method of accounting or the cost method of accounting, without duplication and to the extent not deducted in arriving at Consolidated Net Income, except to the extent such loss was attributable to losses that would be added back pursuant to Lines 3 and 4 above if it were a loss of Holdings, the Borrower or a Restricted Subsidiary |
$ | |
10. an amount, with respect to investments recorded using the equity method of accounting or the cost method of accounting and without duplication of any amounts added pursuant to Line 8 above, equal to the amount attributable to each such investment that would be added to Consolidated EBITDA pursuant to Lines 3 and 4 above if instead attributable to Holdings, the Borrower or a Restricted Subsidiary, pro-rated according to Holdings, the Borrower or the applicable Subsidiarys percentage ownership in such investment |
$ | |
11. an amount, with respect to investments recorded using the equity method of accounting or the cost method of accounting and without duplication of any amounts deducted pursuant to Line 9 above, equal to the amount attributable to each such investment that would be deducted from Consolidated EBITDA pursuant to Line 6 above if instead attributable to Holdings, the Borrower or a Restricted Subsidiary, pro-rated according to Holdings, the Borrower or the applicable Subsidiarys percentage ownership in such investment, in each case, as determined on a consolidated basis for the Borrower and the Subsidiaries in accordance with GAAP |
$ | |
12. the amount of any Capitalized Software Expenditures for such period 10 |
$ |
10 | With respect to Lines 1 through 12, in each case, as determined on a consolidated basis for Holdings, the Borrower and its Restricted Subsidiaries in accordance with GAAP; provided that: |
(I) to the extent included in Consolidated Net Income, there shall be excluded in determining Consolidated EBITDA currency translation gains and losses related to currency remeasurements of assets or liabilities (including the net loss or gain resulting from hedging agreements for currency exchange risk and revaluations of intercompany balances),
F-13
13. changes in short term deferred revenue |
$ | |
14. Consolidated EBITDA: Line 2(d) plus Line 5 minus Line 7 plus Line 8 minus Line 9 plus Line 10 minus Line 11 minus Line 12 plus (increases) or minus (decreases) Line 13 |
$ | |
15. Ratio of Line 1(a) to Line 14 |
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16. Line 14 ratio must not exceed |
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17. The Borrower is in compliance (circle yes or no) |
Yes/No |
(II) | to the extent included in Consolidated Net Income, there shall be excluded in determining Consolidated EBITDA for any period any adjustments resulting from the application of Financial Accounting Standards Codification No. 815Derivatives and Hedging, |
(III) | there shall be included in determining Consolidated EBITDA for any period, without duplication, (A) to the extent not included in Consolidated Net Income, the Acquired EBITDA of any Person, property, business or asset acquired by Holdings, the Borrower or any Restricted Subsidiary during such period (other than any Unrestricted Subsidiary) to the extent not subsequently sold, transferred or otherwise disposed of (but not including the Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired) (each such Person, property, business or asset acquired, including pursuant to the Transactions or pursuant to a transaction consummated prior to the Effective Date, and not subsequently so disposed of, an Acquired Entity or Business ), and the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during such period (each, a Converted Restricted Subsidiary ), in each case based on the Acquired EBITDA of such Pro Forma Entity for such period (including the portion thereof occurring prior to such acquisition or conversion) determined on a historical Pro Forma Basis and (B) an adjustment in respect of each Pro Forma Entity equal to the amount of the Pro Forma Adjustment with respect to such Pro Forma Entity for such period (including the portion thereof occurring prior to such acquisition or conversion) as specified in the Pro Forma Adjustment certificate delivered to the Administrative Agent (for further delivery to the Lenders); |
(IV) | there shall be (A) to the extent included in Consolidated Net Income, excluded in determining Consolidated EBITDA for any period the Disposed EBITDA of any Person, property, business or asset (other than any Unrestricted Subsidiary) sold, transferred or otherwise disposed of, closed or classified as discontinued operations in accordance with GAAP (other than (x) if so classified on the basis that it is being held for sale unless such sale has actually occurred during such period and (y) for periods prior to the applicable sale, transfer or other disposition, if the Disposed EBITDA of such Person, property, business or asset is positive (i.e., if such Disposed EBITDA is negative, it shall be added back in determining Consolidated EBITDA for any period)) by Holdings, the Borrower or any Restricted Subsidiary during such period (each such Person, property, business or asset so sold, transferred or otherwise disposed of, closed or classified, a Sold Entity or Business ), and the Disposed EBITDA of any Restricted Subsidiary that is converted into an Unrestricted Subsidiary during such period (each, a Converted Unrestricted Subsidiary ), in each case based on the Disposed EBITDA of such Sold Entity or Business or Converted Unrestricted Subsidiary for such period (including the portion thereof occurring prior to such sale, transfer, disposition, closure, classification or conversion) determined on a historical Pro Forma Basis and (B) to the extent not included in Consolidated Net Income, included in determining Consolidated EBITDA for any period in which a Sold Entity or Business is disposed, an adjustment equal to the Pro Forma Disposal Adjustment with respect to such Sold Entity or Business (including the portion thereof occurring prior to such disposal) as specified in the Pro Forma Disposal Adjustment certificate delivered to the Administrative Agent (for further delivery to the Lenders); and |
(V) | to the extent included in Consolidated Net Income, there shall be excluded in determining Consolidated EBITDA any expense (or income) as a result of adjustments recorded to contingent consideration liabilities relating to the Transaction or any Permitted Acquisition (or other Investment permitted under the Credit Agreement). |
F-14
[Schedule II
to Compliance Certificate
Calculations for the Fiscal Year ended , 20
A. Excess Cash Flow
1. The sum, without duplication, of: |
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a. Consolidated Net Income for such period (Line 2(d) in Schedule I to the Certificate) |
$ | |
b. an amount equal to the amount of all Non-Cash Charges to the extent deducted in arriving at such Consolidated Net Income |
$ | |
c. decreases in Consolidated Working Capital and long-term account receivables for such period |
$ | |
d. an amount equal to the aggregate net non-cash loss on dispositions by the Borrower and its Restricted Subsidiaries during such period (other than dispositions in the ordinary course of business) to the extent deducted in arriving at such Consolidated Net Income |
$ | |
e. to the extent not included in Consolidated Net Income, dividends or other distributions or returns on capital received in cash by the Borrower or any Restricted Subsidiary from an Unrestricted Subsidiary |
$ | |
2. The sum, without duplication, of: |
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a. an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income (including any amounts included in Consolidated Net Income of proceeds received or due from business interruption insurance or reimbursement of expenses and charges that are covered by indemnification and other reimbursement provisions in connection with any acquisition or other Investment or any disposition of any asset permitted under the Credit Agreement to the extent such amounts are due but not received during such period) and cash charges included in clauses (a) through (j) of the definition of Consolidated Net Income in the Credit Agreement (other than cash charges in respect of Transaction Costs paid on or about the Effective Date to the extent financed with the proceeds of Indebtedness incurred on the Effective Date or an equity investment on the Effective Date) |
$ |
F-15
b. the amount of capital expenditures made in cash or accrued during such period, except to the extent that such capital expenditures were financed with the proceeds of (x) Indebtedness of Holdings, the Borrower or its Restricted Subsidiaries (other than Revolving Loans) or (y) the proceeds of the issuance of Equity Interests |
$ | |
c. the aggregate amount of all principal payments of Indebtedness (including (1) the principal component of payments in respect of Capitalized Leases and (2) the amount of any mandatory prepayment of Term Loans, in each case to the extent required due to a Disposition that resulted in an increase to Consolidated Net Income and not in excess of the amount of such increase, but excluding (x) all other prepayments of Term Loans and (y) all prepayments of revolving loans (including Revolving Loans) except, in respect of revolving loans other than the Revolving Loans, to the extent there is an equivalent permanent reduction in commitments thereunder |
$ | |
d. an amount equal to the aggregate net non-cash gain on dispositions by the Borrower and its Restricted Subsidiaries during such period (other than dispositions in the ordinary course of business) to the extent included in arriving at such Consolidated Net Income |
$ | |
e. increases in Consolidated Working Capital and long-term account receivables for such period |
$ | |
f. cash payments by Holdings, the Borrower and its Restricted Subsidiaries during such period in respect of long-term liabilities of Holdings, the Borrower and its Restricted Subsidiaries other than Indebtedness |
$ | |
g. the amount of Investments (other than Investments in Permitted Investments) and acquisitions not prohibited by the Credit Agreement to the extent that (and limited to the amount of) such Investments and acquisitions were financed with Revolving Loans or made with internally generated cash flow of Holdings, the Borrower and its Restricted Subsidiaries |
$ | |
h. the amount of dividends and other Restricted Payments, other than (x) Restricted Payments made using the Retained ECF Builder Basket made in reliance on Section 6.07(a)(vii) of the Credit Agreement and paid in cash during such period and (y) Restricted Payments that reduce Consolidated Net Income in accordance with clauses (ii) and (iii) of the final paragraph of the definition thereof in the Credit Agreement, in each case, to the extent that (and limited to the amount of) such dividends and Restricted Payments were financed with Revolving Loans or made with internally generated cash flow of Holdings, the Borrower and its Restricted Subsidiaries |
$ |
F-16
i. the aggregate amount of payments and expenditures actually made by Holdings, the Borrower and its Restricted Subsidiaries in cash during such period (including expenditures for the payment of financing fees) to the extent that such payments and expenditures are not expensed during such period, in each case to the extent not financed with the proceeds of the issuance of Equity Interests or other long term Indebtedness (excluding Revolving Loans) of Holdings, the Borrower and its Restricted Subsidiaries |
$ | |
j. cash payments by Holdings, the Borrower and its Restricted Subsidiaries during such period in respect of Non-Cash Charges included in the calculation of Consolidated Net Income in any prior period, in each case to the extent not financed with the proceeds of the issuance of Equity Interests or other long term Indebtedness (excluding Revolving Loans) of Holdings, the Borrower and its Restricted Subsidiaries |
$ | |
k. the aggregate amount of any premium, make-whole or penalty payments actually paid in cash by Holdings, the Borrower and its Restricted Subsidiaries during such period that are required to be made in connection with any prepayment of Indebtedness |
$ | |
l. at the option of the Borrower, and without duplication of amounts deducted from Excess Cash Flow in prior periods, the aggregate consideration required to be paid in cash by Holdings, the Borrower or any of the Restricted Subsidiaries pursuant to binding contracts, commitments or purchase orders (the Contract Consideration), in each case, entered into prior to or during such period, relating to Permitted Acquisitions, other Investments (other than Investments in Permitted Investments) or capital expenditures to be consummated or made during a subsequent Test Period (and in the case of Planned Expenditures, the subsequent Test Period); provided, that to the extent the aggregate amount of internally generated cash actually utilized to finance such Permitted Acquisitions, Investments or capital expenditures during such Test Period is less than the Contract Consideration and |
$ |
F-17
Planned Expenditures, the amount of such shortfall shall be added to the calculation of Excess Cash Flow at the end of such Test Period; provided, further, that to the extent deducted from Excess Cash Flow in any Test Period. such Contract Consideration and/or Planned Expenditure is not deducted again in any subsequent Test Period |
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m. the amount of cash rent payments made in such period to the extent they exceed the amount of rent payments deducted in determining Consolidated Net Income for such period |
$ | |
n. the amount of taxes (including penalties and interest) paid in cash, the amount of dividends and other restricted payments that Holdings, the Borrower and/or the Restricted Subsidiaries may make pursuant to Section 6.07(a)(vi)(A) or (B) of the Credit Agreement as a result of such event, and/or tax reserves set aside or payable (without duplication) in such period to the extent they exceed the amount of tax expense deducted in determining Consolidated Net Income for such period |
$ | |
3. Sum of Line A1 (a) through A 1(e) |
$ | |
4. Sum of Line A2(a) through A2(n) |
$ | |
5. Excess Cash Flow: Line A3 minus Line A4 |
$ | |
6. Required Excess Cash Flow Payment Percentage |
% 11 | |
7. Line A5 multiplied by Line A6 |
$ | |
8. The aggregate amount of prepayments and repurchases of Term Loans (and, to the extent the Revolving Commitments are reduced in a corresponding amount pursuant to Section 2.08 of the Credit Agreement, Revolving Loans) made pursuant to Section 2.11(a) of the Credit Agreement or otherwise in a manner not prohibited by Section 9.04(g) of the Credit Agreement during such fiscal year or after such fiscal year and prior to the time such prepayment is due (without duplication to subsequent years) (provided that such reduction as a result of prepayments pursuant to Section 2.11(a)(ii) or Section 9.04(g) of the Credit Agreement shall (x) be limited to the actual amount of such cash prepayment and (y) only be applicable if the applicable prepayment offer was made to all Lenders) (excluding all such prepayments or repurchases funded with the proceeds of other long term Indebtedness other than Revolving Loans or the issuance of Equity Interests) |
$ |
11 | Insert applicable percentage per Section 2.11(d) of the Credit Agreement by reference to Total Leverage Ratio calculated in accordance with Schedule I. |
F-18
10. Line A7 minus Line A8 (Required Excess Cash Flow Payment) |
$ |
F-19
EXHIBIT I
Form of Specified Discount Prepayment Notice
Date: [ ● ], 20
To: Guggenheim Corporate Funding, LLC, as Auction Agent
Ladies and Gentlemen:
This Specified Discount Prepayment Notice is delivered to you pursuant to Section 2.11(a)(ii)(B) of that certain Credit Agreement, dated as of June [●], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement.
Pursuant to Section 2.11(a)(ii)(B) of the Credit Agreement, [ ● ] 1 hereby offers to make a Discounted Term Loan Prepayment to each Term Lender [and to each Lender of the [●, 20●] 2 tranche[s] of Term Loans] on the following terms:
1. This Borrower Offer of Specified Discount Prepayment is available only to each Term Lender [and to each Lender of the [●, 20●] 3 tranche[s] of Term Loans].
2. The maximum aggregate outstanding amount of the Discounted Term Loan Prepayment that will be made in connection with this offer shall not exceed $[ ● ] of Term Loans [and $[ ● ] of the [●, 20●] 4 tranche[(s)] of Term Loans] (the Specified Discount Prepayment Amount ). 5
3. The percentage discount to par value at which such Discounted Term Loan Prepayment will be made is [ ● ]% in respect of the Term Loans [and [ ● ]% in respect of the [●, 20●] 6 tranche[(s)] of Term Loans] (the Specified Discount ).
To accept this offer, you are required to submit to the Administrative Agent a Specified Discount Prepayment Response on or before 5:00 p.m. New York time on the date that is three (3) Business Days following the date of delivery of this notice pursuant to Section 2.11(a)(ii)(B) of the Credit Agreement.
1 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
2 | List multiple tranches if applicable. |
3 | List multiple tranches if applicable. |
4 | List multiple tranches if applicable. |
5 | Minimum of $1,000,000 and whole increments of $500,000. |
6 | List multiple tranches if applicable. |
I-1
[ ● ] 7 hereby represents and warrants to the Administrative Agent [and the Term Lenders][, the Term Lenders and each Lender of the [●, 20 ●] 8 tranche[s] of Term Loans] as follows:
1. [ ● ] 9 will not make a Borrowing of Revolving Loans to fund this Discounted Term Loan Prepayment.
2. [At least ten (10) Business Days have passed since the consummation of the most recent Discounted Term Loan Prepayment as a result of a prepayment made by [ ● ] 10 on the applicable Discounted Prepayment Effective Date.][At least three (3) Business Days have passed since the date [ ● ] 11 was notified that no Term Lender was willing to accept any prepayment of any Term Loan and/or Other Term Loan at the Specified Discount, within the Discount Range or at any discount to par value, as applicable, or in the case of Borrower Solicitation of Discounted Prepayment Offers, the date of the [ ● ] 12 s election not to accept any Solicited Discounted Prepayment Offers], provided , further , that any Term Loan that is prepaid will be automatically and irrevocably cancelled. 13
The Borrower acknowledges that the Auction Agent and the relevant Term Lenders are relying on the truth and accuracy of the foregoing representations and warranties in connection with their decision whether or not to accept the offer set forth in this Specified Discount Prepayment Notice and the acceptance of any prepayment made in connection with this Specified Discount Prepayment Notice.
The Borrower requests that Auction Agent promptly notify each of the relevant Term Lenders party to the Credit Agreement of this Specified Discount Prepayment Notice.
[Remainder of Page Intentionally Left Blank]
7 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
8 | List multiple tranches if applicable. |
9 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
10 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
11 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
12 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
13 | Insert applicable representation. |
I-2
IN WITNESS WHEREOF, the undersigned has executed this Specified Discount Prepayment Notice as of the date first above written.
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14 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
I-3
EXHIBIT J
Form of Specified Discount Prepayment Response
Date: [ ● ], 20
To: Guggenheim Corporate Funding, LLC, as Auction Agent
Ladies and Gentlemen:
Reference is made to (a) that certain Credit Agreement, dated as of June [●], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ), and (b) that certain Specified Discount Prepayment Notice, dated [ ● ], 20 , from [ ● ] 1 (the Specified Discount Prepayment Notice ). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Specified Discount Prepayment Notice or, to the extent not defined therein, in the Credit Agreement.
The undersigned [Term Lender] [Lender] hereby gives you irrevocable notice, pursuant to Section 2.11(a)(ii)(B) of the Credit Agreement, that it is willing to accept a prepayment of the following [tranches of] Term Loans held by such [Term Lender] [Lender] at the Specified Discount in an aggregate outstanding amount as follows:
[Term Loans$[ ● ]]
[[●, 20●] 2 tranche[s] of Term Loans$[ ● ]]
The undersigned [Term Lender] [Lender] hereby expressly consents and agrees to a prepayment of its [Term Loans][[ ●, 20●] 3 tranche[s]] pursuant to Section 2.11(a)(ii)(B) of the Credit Agreement at a price equal to the [applicable] Specified Discount in the aggregate outstanding amount not to exceed the amount set forth above, as such amount may be reduced in accordance with the Specified Discount Proration, and as otherwise determined in accordance with and subject to the requirements of the Credit Agreement.
The undersigned [Term Lender] [Lender] hereby represents and warrants to [ ● ] 4 as follows:
1. The undersigned [Term Lender] [Lender] has independently and, without reliance on Holdings, any of its Subsidiaries, the Administrative Agent or any of their respective Affiliates, made its own analysis and determination to accept a prepayment pursuant to the terms of this Specified Discount Prepayment Response notwithstanding undersigned [Term Lender] [Lender]s lack of knowledge of any Excluded Information; and
1 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
2 | List multiple tranches if applicable. |
3 | List multiple tranches if applicable. |
4 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
J-1
2. None of Holdings, its Subsidiaries, the Administrative Agent, or any of their respective Affiliates shall have any liability to the undersigned [Term Lender] [Lender], and the undersigned [Term Lender] [Lender] hereby waives and releases, to the extent permitted by Requirements of Law, any claims the undersigned [Term Lender] [Lender] may have against Holdings, its Subsidiaries, the Administrative Agent, and their respective Affiliates, under applicable laws or otherwise, with respect to the nondisclosure of any Excluded Information.
[Remainder of Page Intentionally Left Blank]
J-2
IN WITNESS WHEREOF, the undersigned has executed this Specified Discount Prepayment Response as of the date first above written.
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EXHIBIT K
Form of Discount Range Prepayment Notice
Date: [ ● ], 20
To: Guggenheim Corporate Funding, LLC, as Auction Agent
Ladies and Gentlemen:
This Discount Range Prepayment Notice is delivered to you pursuant to Section 2.11(a)(ii)(C) of that certain Credit Agreement, dated as of June [●], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement.
Pursuant to Section 2.11(a)(ii)(C) of the Credit Agreement, [ ● ] 1 hereby requests that each Term Lender [and to each Lender of the [●, 20●] 2 tranche[s] of Term Loans] submit a Discount Range Prepayment Offer. Any Discounted Term Loan Prepayment made in connection with this solicitation shall be subject to the following terms:
1. This Borrower Solicitation of Discount Range Prepayment Offers is extended at the sole discretion of [ ● ] 3 to each Term Lender [and to each Lender of the [●, 20●] 4 tranche[s] of Term Loans].
2. The maximum aggregate outstanding amount of the Discounted Term Loan Prepayment that will be made in connection with this solicitation is $[ ● ] of Term Loans [and $[ ● ] of the [●, 20●] 5 tranche[(s)] of Term Loans] (the Discount Range Prepayment Amount ). 6
3. [ ● ] 7 is willing to make Discount Term Loan Prepayments at a percentage discount to par value greater than or equal to [ ● ]% but less than or equal to [ ● ]% in respect of the Term Loans [and greater than or equal to [ ● ]% but less than or equal to [ ● ]% in respect of the [●, 20●] 8 tranche[(s)] of Term Loans] (the Discount Range ).
1 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as |
2 | applicable. |
3 | List multiple tranches if applicable. |
4 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
5 | List multiple tranches if applicable. List multiple tranches if applicable. |
6 | Minimum of $1,000,000 and whole increments of $500,000. |
7 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
8 | List multiple tranches if applicable. |
K-1
To make an offer in connection with this solicitation, you are required to deliver to the Administrative Agent a Discount Range Prepayment Offer on or before 5:00 p.m. New York time on the date that is three (3) Business Days following the dated delivery of the notice pursuant to Section 2.11(a)(ii)(C) of the Credit Agreement.
[ ● ] 9 hereby represents and warrants to the Auction Agent [and the Term Lenders][, the Term Lenders and each Lender of the [●, 20●] 10 tranche[s] of Term Loans] as follows:
1. [ ● ] 11 will not make a Borrowing of Revolving Loans to fund this Discounted Term Loan Prepayment.
2. [At least ten (10) Business Days have passed since the consummation of the most recent Discounted Term Loan Prepayment as a result of a prepayment made by [ ● ] 12 on the applicable Discounted Prepayment Effective Date.][At least three (3) Business Days have passed since the date [ ● ] 13 was notified that no Term Lender was willing to accept any prepayment of any Term Loan and/or Other Term Loan at the Specified Discount, within the Discount Range or at any discount to par value, as applicable, or in the case of Borrower Solicitation of Discounted Prepayment Offers, the date of [ ● ] 14 s election not to accept any Solicited Discounted Prepayment Offers made by a Term Lender], provided , further , that any Term Loan that is prepaid will be automatically and irrevocably cancelled. 15
[ ● ] 16 acknowledges that the Auction Agent and the relevant Term Lenders are relying on the truth and accuracy of the foregoing representations and warranties in connection with any Discount Range Prepayment Offer made in response to this Discount Range Prepayment Notice and the acceptance of any prepayment made in connection with this Discount Range Prepayment Notice.
[ ● ] 17 requests that Auction Agent promptly notify each of the relevant Term Lenders party to the Credit Agreement of this Discount Range Prepayment Notice.
[Remainder of Page Intentionally Left Blank]
9 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
10 | List multiple tranches if applicable. |
11 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
12 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
13 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
14 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
15 | Insert applicable representation. |
16 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
17 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
K-2
IN WITNESS WHEREOF, the undersigned has executed this Discount Range Prepayment Notice as of the date first above written.
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18 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
K-3
EXHIBIT L
Form of Discount Range Prepayment Offer
Date: [ ● ], 20
To: Guggenheim Corporate Funding, LLC, as Auction Agent
Ladies and Gentlemen:
Reference is made to (a) that certain Credit Agreement, dated as of June [●], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ), and (b) that certain Discount Range Prepayment Notice, dated [ ● ], 20 , from [ ● ] 1 (the Discount Range Prepayment Notice ). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Discount Range Prepayment Notice or, to the extent not defined therein, in the Credit Agreement.
The undersigned [Term Lender][Lender] hereby gives you irrevocable notice, pursuant to Section 2.11(a)(ii)(C) of the Credit Agreement, that it is hereby offering to accept a Discounted Term Loan Prepayment on the following terms:
1. This Discount Range Prepayment Offer is available only for prepayment on the [Term Loans][and the [●, 20●] 2 tranche[s] of Term Loans] held by the undersigned.
2. The maximum aggregate outstanding amount of the Discounted Term Loan Prepayment that may be made in connection with this offer shall not exceed (the Submitted Amount ):
[Term Loans$[ ● ]]
[[●, 20●] 3 tranche[s] of Term Loans$[ ● ]]
3. The percentage discount to par value at which such Discounted Term Loan Prepayment may be made is [ ● ]% in respect of the Term Loans [and [ ● ]% in respect of the [●, 20●] 4 tranche[(s)] of Term Loans] (the Submitted Discount ).
The undersigned [Term Lender] [Lender] hereby expressly consents and agrees to a prepayment of its [Term Loans] [[●, 20●] 5 tranche[s] of Term Loans] indicated above pursuant
1 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
2 | List multiple tranches if applicable. |
3 | List multiple tranches if applicable. |
4 | List multiple tranches if applicable. |
5 |
List multiple tranches if applicable. |
L-1
to Section 2.11(a)(ii)(C) of the Credit Agreement at a price equal to the Applicable Discount and in an aggregate outstanding amount not to exceed the Submitted Amount, as such amount may be reduced in accordance with the Discount Range Proration, if any, and as otherwise determined in accordance with and subject to the requirements of the Credit Agreement.
[Remainder of Page Intentionally Left Blank]
L-2
IN WITNESS WHEREOF, the undersigned has executed this Discount Range Prepayment Notice as of the date first above written.
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L-3
EXHIBIT M
Form of Solicited Discounted Prepayment Notice
Date: [ ● ], 20
To: Guggenheim Corporate Funding, LLC, as Auction Agent
Ladies and Gentlemen:
This Solicited Discounted Prepayment Notice is delivered to you pursuant to Section 2.11(a)(ii)(D) of that certain Credit Agreement, dated as of June [●], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement.
Pursuant to Section 2.11 (a)(ii)(D) of the Credit Agreement, [ ● ] 1 hereby requests that each Term Lender [and to each Lender of the [●, 20●] 2 tranche[s] of Term Loans] submit a Solicited Discounted Prepayment Offer. Any Discounted Term Loan Prepayment made in connection with this solicitation shall be subject to the following terms:
1. This Borrower Solicitation of Discounted Prepayment Offer is extended at the sole discretion of [ ● ] 3 to each Term Lender [and to each Lender of the [●, 20●] 4 tranche[s] of Term Loans].
2. The maximum aggregate outstanding amount of the Discounted Term Loan Prepayment that will be made in connection with this solicitation is (the Solicited Discounted Prepayment Amount ): 5
[Term Loans$[ ● ]]
[[●, 20●] 6 tranche[s] of Term Loans$[ ● ]]
To make an offer in connection with this solicitation, you are required to deliver to the Administrative Agent a Solicited Discounted Prepayment Offer on or before 5:00 p.m. New York time on the date that is three (3) Business Days following delivery of this notice pursuant to Section 2.11(a)(ii)(D) of the Credit Agreement.
1 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
2 | List multiple tranches if applicable. |
3 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
4 | List multiple tranches if applicable. |
5 | Minimum of $1,000,000 and whole increments of $500,000. |
6 | List multiple tranches if applicable. |
M-1
[ ● ] 7 requests that Auction Agent promptly notify each of the relevant Term Lenders party to the Credit Agreement of this Solicited Discounted Prepayment Notice.
[Remainder of Page Intentionally Left Blank]
7 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
M-2
IN WITNESS WHEREOF, the undersigned has executed this Solicited Discounted Prepayment Notice as of the date first above written.
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8 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
M-3
EXHIBIT N
Form of Solicited Discounted Prepayment Offer
Date: [ ● ], 20
To: Guggenheim Corporate Funding, LLC, as Auction Agent
Ladies and Gentlemen:
Reference is made to (a) that certain Credit Agreement, dated as of June [●], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ), and (b) that certain Solicited Discounted Prepayment Notice, dated [ ● ], 20 , from [ ● ] 1 (the Solicited Discounted Prepayment Notice ). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Solicited Discounted Prepayment Notice or, to the extent not defined therein, in the Credit Agreement.
To accept the offer set forth herein, you must submit an Acceptance and Prepayment Notice on or before the third Business Day following your receipt of this notice.
The undersigned [Term Lender] [Lender] hereby gives you irrevocable notice, pursuant to Section 2.11(a)(ii)(D) of the Credit Agreement, that it is hereby offering to accept a Discounted Term Loan Prepayment on the following terms:
1. This Solicited Discounted Prepayment Offer is available only for prepayment on the [Term Loans][[●, 20●] 2 tranche[s] of Term Loans] held by the undersigned.
2. The maximum aggregate outstanding amount of the Discounted Term Loan Prepayment that may be made in connection with this offer shall not exceed (the Offered Amount ):
[Term Loans$[ ● ]]
[[●, 20●] 3 tranche[s] of Term Loans$[ ● ]]
3. The percentage discount to par value at which such Discounted Term Loan Prepayment may be made is [ ● ]% in respect of the Term Loans [and [ ● ]% in respect of the [●, 20●] 4 tranche[(s)] of Term Loans] (the Offered Discount ).
1 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
2 | List multiple tranches if applicable. |
3 | List multiple tranches if applicable. |
4 | List multiple tranches if applicable. |
N-1
The undersigned [Term Lender] [Lender] hereby expressly consents and agrees to a prepayment of its [Term Loans] [[●, 20●] 5 tranche[s] of Term Loans] pursuant to Section 2.11(a)(ii)(D ) of the Credit Agreement at a price equal to the Acceptable Discount and in an aggregate outstanding amount not to exceed such Lenders Offered Amount as such amount may be reduced in accordance with the Solicited Discount Proration, if any, and as otherwise determined in accordance with and subject to the requirements of the Credit Agreement.
[Remainder of Page Intentionally Left Blank]
5 | List multiple tranches if applicable. |
N-2
IN WITNESS WHEREOF, the undersigned has executed this Discount Range Prepayment Notice as of the date first above written.
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EXHIBIT O
Form of Acceptance and Prepayment Notice
Date: [ ● ], 20
To: Guggenheim Corporate Funding, LLC, as Auction Agent
Ladies and Gentlemen:
This Acceptance and Prepayment Notice is delivered to you pursuant to Section 2.11(a)(ii)(D) of that certain Credit Agreement, dated as of June [●], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement.
Pursuant to Section 2.11(a)(ii)(D) of the Credit Agreement, [ ● ] 1 hereby irrevocably notifies you that it accepts offers delivered in response to the Solicited Discounted Prepayment Notice having an Offered Discount equal to or greater than [ ● ]% in respect of the Term Loans [and [ ● ]% in respect of the [●, 20●] 2 tranche[(s)] of Term Loans] (the Acceptable Discount ) in an aggregate amount not to exceed the Solicited Discounted Prepayment Amount.
[ ● ] 3 expressly agrees that this Acceptance and Prepayment Notice shall be irrevocable and is subject to the provisions of Section 2.11(a)(ii)(D) of the Credit Agreement.
[ ● ] 4 hereby represents and warrants to the Auction Agent [and the Term Lenders][and the Term Lenders and each Lender of the [●, 20●] 5 tranche[s] of Term Loans] as follows:
1. [ ● ] 6 will not make a Borrowing of Revolving Loans to fund this Discounted Term Loan Prepayment.
2. [At least ten (10) Business Days have passed since the consummation of the most recent Discounted Term Loan Prepayment as a result of a prepayment made by [ ● ] 7 on the applicable Discounted Prepayment Effective Date.][At least three (3) Business Days have passed since the date [ ● ] 8 was notified that no Term Lender was willing to accept any prepayment of
1 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
2 | List multiple tranches if applicable. |
3 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
4 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
5 | List multiple tranches if applicable. |
6 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
7 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
8 |
To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
O-1
any Term Loan and/or Other Term Loan at the Specified Discount, within the Discount Range or at any discount to par value, as applicable, or in the case of Borrower Solicitation of Discounted Prepayment Offers, the date of the [ ● ] 9 s election not to accept any Solicited Discounted Prepayment Offers made by a Term Lender]; provided , further , that any Term Loan that is prepaid will be automatically and irrevocably cancelled. 10
[ ● ] 11 acknowledges that the Auction Agent and the relevant Term Lenders are relying on the truth and accuracy of the foregoing representations and warranties in connection with the acceptance of any prepayment made in connection with a Solicited Discounted Prepayment Offer.
[ ● ] 12 requests that Auction Agent promptly notify each of the relevant Term Lenders party to the Credit Agreement of this Acceptance and Prepayment Notice.
[Remainder of Page Intentionally Left Blank]
9 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
10 | Insert applicable representation. |
11 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
12 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
O-2
IN WITNESS WHEREOF, the undersigned has executed this Acceptance and Prepayment Notice as of the date first above written.
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13 | To reflect Holdings, the Borrower, or any of their respective Subsidiaries, as applicable. |
O-3
EXHIBIT P-1
FORM OF
UNITED STATES TAX COMPLIANCE CERTIFICATE 1
(For Non-U.S. Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is made to that certain Credit Agreement, dated as of June [ 🌑 ], 2017 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada limited liability company (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Capitalized terms used herein but not otherwise defined herein shall have the meaning given to such terms in the Credit Agreement.
Pursuant to the provisions of Section 2.17(f) and Section 9.04(b) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the Code ), (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (v) no payments in connection with any Loan Document are effectively connected with the undersigneds conduct of a United States trade or business.
The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. person status on Internal Revenue Service Form W-8BEN or W-8BEN-E, as applicable. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate or the applicable Form W-8 changes, or if a lapse in time or change in circumstances renders the information on this certificate or the applicable Form W-8 obsolete, expired or inaccurate in any material respect, the undersigned shall promptly so inform the Borrower and the Administrative Agent in writing and deliver promptly to the Borrower and the Administrative Agent an updated certificate, applicable Form W-8 or other appropriate documentation (including any new documentation reasonably requested by the Borrower or the Administrative Agent) or promptly notify the Borrower and the Administrative Agent of its legal ineligibility to do so in writing, and (2) the undersigned shall furnish the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned or at such times as are reasonably requested by the Borrower or the Administrative Agent.
[Remainder of Page Intentionally Left Blank]
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P-1-2
EXHIBIT P-2
FORM OF
UNITED STATES TAX COMPLIANCE CERTIFICATE 2
(For Non-U.S. Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is made to that certain Credit Agreement, dated as of June [ 🌑 ], 2017 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada limited liability company (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Capitalized terms used herein but not otherwise defined herein shall have the meaning given to such terms in the Credit Agreement.
Pursuant to the provisions of Section 2.17(f) and Section 9.04(b) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any note(s) evidencing such Loan(s)), (iii) neither the undersigned nor any of its direct or indirect partners/members is a bank within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the Code ), (iv) neither the undersigned nor any of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) no payments in connection with any Loan Document are effectively connected with the undersigneds or its direct or indirect partners/members conduct of a United States trade or business.
The undersigned has furnished the Administrative Agent and the Borrower with Internal Revenue Service Form W-8IMY accompanied by one of the following forms from each of its direct or indirect partners/members claiming the portfolio interest exemption: (i) an Internal Revenue Service Form W-8BEN or W-8BEN-E, as applicable, or (ii) an Internal Revenue Service Form W-8IMY accompanied by an Internal Revenue Service Form W-8BEN or W-8BEN-E, as applicable, from each of such partners/members beneficial owners that is claiming the portfolio interest exemption, provided that, for the avoidance of doubt, the foregoing shall not limit the obligation of the Lender to provide, in the case of a partner/member not claiming the portfolio interest exemption, a Form W-8ECI, Form W-9 or Form W-8IMY (including appropriate underlying certificates from each interest holder of such partner/member), in each case establishing such partner/members available exemption from U.S. federal withholding tax. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate or the applicable Form W-8 changes, or if a lapse in time or change in circumstances renders the information on this certificate or the applicable Form W-8 obsolete, expired or inaccurate in any material respect, the undersigned shall promptly so inform the Borrower and the Administrative Agent and deliver promptly to the Borrower and the Administrative Agent an updated certificate, applicable Form W-8 or other appropriate documentation (including any new documentation reasonably requested by the Borrower or the Administrative Agent) or promptly
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notify the Borrower and the Administrative Agent of its legal ineligibility to do so, (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent in writing with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned or at such times as are reasonably requested by either the Borrower or the Administrative Agent.
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EXHIBIT P-3
FORM OF
UNITED STATES TAX COMPLIANCE CERTIFICATE 3
(For Non-U.S. Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is made to that certain Credit Agreement, dated as of June [ 🌑 ], 2017 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada limited liability company (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Capitalized terms used herein but not otherwise defined herein shall have the meaning given to such terms in the Credit Agreement.
Pursuant to the provisions of Section 2.17(f) and Section 9.04(c) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the Code ), (iii) it is not a ten percent shareholder of the Borrower within the meaning of Code Section 871(h)(3)(B), (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (v) no payments in connection with any Loan Document are effectively connected with the undersigneds conduct of a United States trade or business.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. person status on Internal Revenue Service Form W-8BEN or W-8BEN-E, as applicable. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate or the applicable Form W-8 changes, or if a lapse in time or change in circumstances renders the information on this certificate or the applicable Form W-8 obsolete, expired or inaccurate in any material respect, the undersigned shall promptly so inform such Lender in writing and deliver promptly to such Lender an updated certificate, applicable Form W-8 or other appropriate documentation (including any new documentation reasonably requested by such Lender) or promptly notify such Lender in writing of its legal ineligibility to do so, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned or at such times as are reasonably requested by such Lender.
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EXHIBIT P-4
FORM OF
UNITED STATES TAX COMPLIANCE CERTIFICATE 4
(For Non-U.S. Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is made to that certain Credit Agreement, dated as of June [ 🌑 ], 2017 (as amended, restated, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada limited liability company (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Capitalized terms used herein but not otherwise defined herein shall have the meaning given to such terms in the Credit Agreement.
Pursuant to the provisions of Section 2.17(f) and Section 9.04(c) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) neither the undersigned nor any of its direct or indirect partners/members is a bank within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the Code ), (iv) neither the undersigned nor any of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Code Section 871(h)(3)(B), (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) no payments in connection with any Loan Document are effectively connected with the undersigneds or its direct or indirect partners/members conduct of a United States trade or business.
The undersigned has furnished its participating Lender with Internal Revenue Service Form W-8IMY accompanied by one of the following forms from each of its direct or indirect partners/members claiming the portfolio interest exemption: (i) an Internal Revenue Service Form W-8BEN or W-8BEN-E or (ii) an Internal Revenue Service Form W-8IMY accompanied by an Internal Revenue Service Form W-8BEN or W-8BEN-E, as applicable, from each of such partners/members beneficial owners that is claiming the portfolio interest exemption, provided ; that, for the avoidance of doubt, the foregoing shall not limit the obligation of the undersigned to provide, in the case of a partner/member not claiming the portfolio interest exemption, a Form W-8ECI, Form W-9 or Form W-8IMY (including appropriate underlying certificates from each interest holder of such partner/member), in each case establishing such partner/members available exemption from U.S. federal withholding tax. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate or the applicable Form W-8 changes, or if a lapse in time or change in circumstances renders the information on this certificate or the applicable Form W-8 obsolete, expired or inaccurate in any material respect, the undersigned shall promptly so inform such Lender in writing and deliver promptly to such Lender an updated certificate, applicable Form W-8 or other appropriate documentation (including any new documentation reasonably requested by such Lender) or promptly notify such Lender in writing of its legal ineligibility to do so, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned or at such times as are reasonably requested by such Lender.
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EXHIBIT Q
Form of Note
U.S. $[ ] | New York, New York |
[ ], 2017
FOR VALUE RECEIVED, the undersigned, Pluralsight, LLC, a Nevada corporation (the Borrower ), hereby promises to pay [NAME OF LENDER] (the Lender ) or its registered assigns, at the office of Guggenheim Corporate Funding, LLC (the Administrative Agent ) specified pursuant to the Credit Agreement (defined below), on the [Term][Revolving] Maturity Date (such term and each other capitalized term used but not otherwise defined herein having the meaning specified in the Credit Agreement dated as of June [ 🌑 ], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), the Borrower, the Lenders party thereto and the Administrative Agent thereto, in lawful money of the United States of America and in immediately available funds, the lesser of (a) the principal amount of $[ ] and (b) the aggregate unpaid principal amount of all [Term][Revolving] Loans made by the Lender to the Borrower pursuant to the Credit Agreement and to pay interest from the date hereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on the dates, each as provided in the Credit Agreement.
The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates, in accordance with the terms set forth in the Credit Agreement, at the rate or rates provided in the Credit Agreement.
The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The non-exercise by the holder hereof of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance.
All borrowings evidenced by this note (the Note ) and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof, each pursuant to the terms of the Credit Agreement, shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof that shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided , however , that the failure of the holder hereof to make such notation or any error in such notation shall not affect the obligations of the Borrower under this Note.
This Note is one of the promissory notes referred to in the Credit Agreement, which, among other things, contains provisions for the acceleration of the maturity hereof upon the occurrence of certain events, for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This Note is entitled to the benefits of the Credit Agreement and the other Loan Documents. This Note is secured by each Security Document and is entitled to the benefits of the guarantee under the Guarantee Agreement. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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PLURALSIGHT, LLC | ||
By | ||
Name: | ||
Title: |
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LOANS AND PAYMENTS
D ATE | A MOUNT OF [T ERM ][R EVOLVING ] L OAN |
P AYMENT OF P RINCIPAL |
P AYMENT OF I NTEREST | U NPAID P RINCIPAL B ALANCE | N AME OF P ERSON M AKING N OTATION |
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EXHIBIT R
Form of Borrowing Request
Guggenheim Corporate Funding, LLC,
as Administrative Agent for the Lenders referred to below
[ 🌑 ]
Fax: [ 🌑 ]
Email: [ 🌑 ]
[ ], 20[] 1
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement, dated as of June [ 🌑 ], 2017 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Credit Agreement ), among, inter alios, Pluralsight Holdings, LLC, a Delaware corporation ( Holdings ), Pluralsight, LLC, a Nevada corporation (the Borrower ), the Lenders party thereto and Guggenheim Corporate Funding, LLC, as Administrative Agent thereto (the Administrative Agent ). Terms defined in the Credit Agreement are used herein with the same meanings unless otherwise defined herein.
The undersigned hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that it requests the Borrowings under the Credit Agreement to be made on [ ], 20[], and in that connection sets forth below the terms on which the Borrowings are requested to be made:
(A) | Borrower: Pluralsight, LLC |
(B) | Date of Borrowing (which shall be a Business Day): [] |
(C) | Aggregate Amount of Borrowing: 2 $[] |
(D) | Type of Borrowing: 3 [] |
(E) | Class of Borrowing [] |
1 | The Administrative Agent must be notified in writing, which must be received by the Administrative Agent (by hand delivery, fax or other electronic transmission (including .pdf or .tif)) not later than (i) 2:00 p.m. New York City time, three (3) Business Days prior to the requested day of any Borrowing of Eurodollar Loans, or (ii) in the case of any ABR Borrowing, not later than 1:00 p.m., New York City time, one (1) Business Day prior to the date of the proposed Borrowing (or, with respect to up to $2,000,000 of Revolving Loans at any one time outstanding, not later than 1:00 p.m. New York City time on the date of the proposed Borrowing) and, in the case of a proposed ABR Borrowing on the Effective Date, three (3) Business Days prior to the date of the proposed Borrowing (or such shorter period as the Administrative Agent agrees in its discretion) (or, in each case, such later time as is acceptable to the Administrative Agent). |
2 | Subject to Section 2.02(c) of the Credit Agreement. |
3 | State whether a Eurodollar Borrowing or ABR Borrowing. If no Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. |
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(F) | Interest Period 4 (in the case of a Eurodollar Borrowing) [] |
(G) | Amount, Account Number and Location |
Wire Transfer Instructions: |
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ABA No.: |
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Account No.: |
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The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Borrowing:
(A) The representations and warranties of the Loan Parties set forth in the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of the Borrowing; provided that to the extent that any representation and warranty specifically refers to an earlier date, it is true and correct in all material respects as of such earlier date; provided further that, in any representation and warranty that is qualified as to materiality, Material Adverse Effect or similar language is true and correct in all respects as of the date of the Borrowing or on such earlier date, as the case may be.
(B) At the time of and immediately after giving effect to the Borrowing, no Default or Event of Default has occurred and is continuing.
[Notwithstanding anything herein to the contrary, this Borrowing Request shall be subject to and conditioned upon the effectiveness of the Credit Agreement.] 5
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4 | Must be a period contemplated by the definition of Interest Period. If no Interest Period is specified, then the Interest Period shall be of one-months duration. |
5 | Bracketed language to be reflected on Borrowings for the Effective Date. |
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Exhibit 10.21
PLURALSIGHT HOLDINGS, LLC
September 6, 2017
Scott Dorsey
Dear Mr. Dorsey:
This letter agreement (this Agreement) confirms our understanding that Pluralsight Holdings, LLC, a Delaware limited liability company (the Company, we, or us), has engaged you to act in the capacity and to provide the services to the Company as set forth below, upon the terms and conditions set forth below. For your information, the controlling instrument with respect to the business, activities and governance of the Company is the Second Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC dated as of June 9, 2017, as amended, modified, or supplemented from time to time, a copy of which has been provided to you (the LLC Agreement). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings as set forth in the LLC Agreement.
1. Capacity; Services . You shall be a member of the Board of Managers (the Board) of the Company with the authority and duties as set forth in the LLC Agreement and as are normally associated with that position.
2. Unit Award . As consideration for your service as a member of the Board, the Company will award or grant to you 209,000 Incentive Units (representing approximately 0.20%, in total, of the aggregate outstanding Units of the Company on a fully-diluted basis as of the date hereof). The Incentive Units will be subject to the terms and conditions of the LLC Agreement, the Pluralsight Holdings, LLC Incentive Unit Plan dated as of May 24, 2013, as amended, modified, or supplemented from time to time, and an Incentive Unit Offer Letter between you and the Company (the Offer Letter). We anticipate that the strike price for your Incentive Units (as set forth in the Offer Letter) will be an amount equal to $9.42 per Incentive Unit and your applicable Catch-up Amount (as defined in the LLC Agreement) is $2.64 per Incentive Unit, subject to review and confirmation from our tax, legal, and accounting representatives, and subject to Board approval. Additionally, we anticipate that your units will vest over the course of three years on a quarterly basis, beginning on October 1, 2017 (all as further set forth in the Offer Letter).
3. Reimbursement of Expenses . The Company agrees to reimburse you for reasonable out-of-pocket expenses incurred by you for attendance at each meeting of the Board and for such additional reasonable out-of-pocket expenses incurred by you on behalf of the Company in connection with the services provided pursuant to this Agreement as are approved in advance by the Company. Reimbursement of out-of-pocket expenses will be paid promptly by the Company after receipt of reasonable documentation covering such expenses.
4. Information; Confidentiality .
(a) The Company understands and agrees that in performing the services hereunder you will use and rely upon the information provided by the Company and its advisors and that you do not assume responsibility for independent verification of any information, whether publicly available or otherwise
furnished to you concerning the Company including, without limitation, any financial information, forecasts or projections, considered in connection with the rendering of your services. Accordingly, you shall be entitled to assume and rely upon the accuracy and completeness of all such information and are not required to conduct a physical inspection of any of the properties or assets, or to prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities of the Company (except to the extent required to satisfy your fiduciary responsibilities).
(b) During the term of this Agreement, you will have access to and become acquainted with confidential information of the Company and/or any of its subsidiaries, including among other things customer relationships, processes, and compilations of information, records and specifications, which are owned by the Company or any of its subsidiaries. You shall not use or disclose any of the Companys or any of its subsidiaries confidential information in any way that is detrimental to the interests of the Company or any of its subsidiaries, directly or indirectly, either during or after the term of this Agreement, except as required in the course of this Agreement. You agree to use reasonable efforts to ensure that your employees, agents, and representatives similarly maintain the confidentiality of such proprietary and confidential information of the Company and its subsidiaries.
5. Indemnity . The Company agrees to indemnify and hold you harmless to the full extent allowed by law and as set forth in the LLC Agreement against all expense, liability, and loss (including attorneys fees, judgments, fines, excise taxes or penalties and amounts paid in settlement) reasonably incurred by you in connection with your engagement hereunder; provided, however, there shall be excluded from such indemnification any such expense, liability, and loss (a) for acts or omissions involving actual fraud or willful misconduct or (b) with respect to any transaction from which you derived improper personal benefit.
6. Term . Your services hereunder and the term of this Agreement may be terminated at any time (a) by you, upon written notice to the Company, or (b) by the Members of the Company, as provided in the LLC Agreement.
7. Notice . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7).
If to you:
Scott Dorsey
If to the Company:
Pluralsight Holdings, LLC
182 North Union Avenue
Farmington, Utah 84025
Attention: Head of Legal
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8. Independent Contractor . In providing the services hereunder, you are acting as an independent contractor and it is expressly understood and agreed that this Agreement is not intended to create, and does not create, any partnership, agency, joint venture or similar relationship and that no party has the right or ability to contract for or on behalf of any other party or to effect any transaction for the account of any other party. Nothing herein shall be construed to an employee/employer relationship. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be deemed or construed to enlarge your fiduciary duties and responsibilities, if any, including without limitation in your capacity as a member of the Board.
9. Entire Agreement; Amendment and Modification; Waiver . This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
10. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. However, neither this Agreement nor any of the rights of the parties hereunder may otherwise be transferred or assigned by any party hereto, except that if the Company shall merge or consolidate with or into, or sell or otherwise transfer substantially all its assets to, another company which assumes the Companys obligations under this Agreement, the Company may assign its rights hereunder to that company. Any attempted transfer or assignment in violation of this Section 10 shall be void.
11. Legal Matters .
(a) Governing Law . This Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule.
(b) Jurisdiction . Any legal suit, action or proceeding arising out of or based upon or relating to this Agreement or the transactions contemplated hereby shall be instituted in the federal courts of the United States of America or the courts of the State of Utah in each case located in the City of Salt Lake and County of Salt Lake, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified mail in accordance with Section 7 shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
(c) Waiver of Trial by Jury . Each party acknowledges and agrees that any controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each party to this Agreement certifies and acknowledges that (i) no representative of any other party has
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represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (ii) such party has considered the implications of this waiver, (iii) such party makes this waiver voluntarily, and (iv) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 11(c).
(d) Equitable Remedies . The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to equitable relief, including injunctive relief or specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
(e) Fees and Costs . In the event that any party institutes any legal suit, action or proceeding against the other party to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach of this Agreement) or otherwise arising out of or relating to this Agreement, the prevailing party in the suit, action or proceeding shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit, action or proceeding, including reasonable attorneys fees and expenses and court costs.
12. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
13. No Strict Construction. The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
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Please confirm that the foregoing correctly sets forth our agreement with respect to the subject matter hereof by signing and returning to the undersigned a copy of this Letter.
Pluralsight Holdings, LLC | ||
By: | /s/ Aaron Skonnard | |
Name: | Aaron Skonnard | |
Its: | President/Chief Executive Officer |
The foregoing Letter is accepted and agreed to as of the date first set forth above.
/s/ Scott Dorsey |
Scott Dorsey, an individual |
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Exhibit 10.22
PLURALSIGHT HOLDINGS, LLC
October 24, 2017
Karenann Terrell
Dear Ms. Terrell:
This letter agreement (this Agreement) confirms our understanding that Pluralsight Holdings, LLC, a Delaware limited liability company (the Company, we, or us), has engaged you to act in the capacity and to provide the services to the Company as set forth below, upon the terms and conditions set forth below. For your information, the controlling instrument with respect to the business, activities and governance of the Company is the Third Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC dated as of September 12, 2017, as amended, modified, or supplemented from time to time, a copy of which has been provided to you (the LLC Agreement). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings as set forth in the LLC Agreement.
1. Capacity; Services . You shall be a member of the Board of Managers (the Board) of the Company with the authority and duties as set forth in the LLC Agreement and as are normally associated with that position.
2. Unit Award . As consideration for your service as a member of the Board, the Company will award or grant to you 209,000 Incentive Units (representing approximately 0.17%, in total, of the aggregate outstanding Units of the Company on a fully-diluted basis as of the date hereof). The Incentive Units will be subject to the terms and conditions of the LLC Agreement, the Pluralsight Holdings, LLC Incentive Unit Plan dated as of May 24, 2013, as amended, modified, or supplemented from time to time, and an Incentive Unit Offer Letter between you and the Company (the Offer Letter). We anticipate that the strike price for your Incentive Units (as set forth in the Offer Letter) will be an amount equal to $9.42 per Incentive Unit and your applicable Catch-up Amount (as defined in the LLC Agreement) is $1.33 per Incentive Unit, subject to review and confirmation from our tax, legal, and accounting representatives. Additionally, we anticipate that your units will vest over the course of three years on a schedule beginning on October 24, 2017, with the first tranche of units vesting on January 1, 2018 and quarterly thereafter (all as further set forth in the Offer Letter).
3. Reimbursement of Expenses . The Company agrees to reimburse you for reasonable out-of-pocket expenses incurred by you for attendance at each meeting of the Board and for such additional reasonable out-of-pocket expenses incurred by you on behalf of the Company in connection with the services provided pursuant to this Agreement as are approved in advance by the Company. Reimbursement of out-of-pocket expenses will be paid promptly by the Company after receipt of reasonable documentation covering such expenses.
4. Information; Confidentiality .
(a) The Company understands and agrees that in performing the services hereunder you will use and rely upon the information provided by the Company and its advisors and that you do not assume responsibility for independent verification of any information, whether publicly available or otherwise furnished to you concerning the Company including, without limitation, any financial information, forecasts or projections, considered in connection with the rendering of your services. Accordingly, you shall be entitled to assume and rely upon the accuracy and completeness of all such information and are not required to conduct a physical inspection of any of the properties or assets, or to prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities of the Company (except to the extent required to satisfy your fiduciary responsibilities).
(b) During the term of this Agreement, you will have access to and become acquainted with confidential information of the Company and/or any of its subsidiaries, including among other things customer relationships, processes, and compilations of information, records and specifications, which are owned by the Company or any of its subsidiaries. You shall not use or disclose any of the Companys or any of its subsidiaries confidential information in any way that is detrimental to the interests of the Company or any of its subsidiaries, directly or indirectly, either during or after the term of this Agreement, except as required in the course of this Agreement. You agree to use reasonable efforts to ensure that your employees, agents, and representatives similarly maintain the confidentiality of such proprietary and confidential information of the Company and its subsidiaries.
5. Indemnity . The Company agrees to indemnify and hold you harmless to the full extent allowed by law and as set forth in the LLC Agreement against all expense, liability, and loss (including attorneys fees, judgments, fines, excise taxes or penalties and amounts paid in settlement) reasonably incurred by you in connection with your engagement hereunder; provided, however, there shall be excluded from such indemnification any such expense, liability, and loss (a) for acts or omissions involving actual fraud or willful misconduct or (b) with respect to any transaction from which you derived improper personal benefit.
6. Term . Your services hereunder and the term of this Agreement may be terminated at any time (a) by you, upon written notice to the Company, or (b) by the Members of the Company, as provided in the LLC Agreement.
7. Notice . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7).
If to you:
Karenann Terrell
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If to the Company:
Pluralsight Holdings, LLC
182 North Union Avenue
Farmington, Utah 84025
Attention: Head of Legal
8. Independent Contractor . In providing the services hereunder, you are acting as an independent contractor and it is expressly understood and agreed that this Agreement is not intended to create, and does not create, any partnership, agency, joint venture or similar relationship and that no party has the right or ability to contract for or on behalf of any other party or to effect any transaction for the account of any other party. Nothing herein shall be construed to an employee/employer relationship. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be deemed or construed to enlarge your fiduciary duties and responsibilities, if any, including without limitation in your capacity as a member of the Board.
9. Entire Agreement; Amendment and Modification; Waiver . This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
10. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. However, neither this Agreement nor any of the rights of the parties hereunder may otherwise be transferred or assigned by any party hereto, except that if the Company shall merge or consolidate with or into, or sell or otherwise transfer substantially all its assets to, another company which assumes the Companys obligations under this Agreement, the Company may assign its rights hereunder to that company. Any attempted transfer or assignment in violation of this Section 10 shall be void.
11. Legal Matters .
(a) Governing Law . This Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule.
(b) Jurisdiction . Any legal suit, action or proceeding arising out of or based upon or relating to this Agreement or the transactions contemplated hereby shall be instituted in the federal courts of the United States of America or the courts of the State of Utah in each case located in the City of Salt Lake and County of Salt Lake, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified mail in accordance with Section 7 shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
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(c) Waiver of Trial by Jury . Each party acknowledges and agrees that any controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each party to this Agreement certifies and acknowledges that (i) no representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (ii) such party has considered the implications of this waiver, (iii) such party makes this waiver voluntarily, and (iv) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 11(c).
(d) Equitable Remedies . The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to equitable relief, including injunctive relief or specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity.
(e) Fees and Costs . In the event that any party institutes any legal suit, action or proceeding against the other party to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach of this Agreement) or otherwise arising out of or relating to this Agreement, the prevailing party in the suit, action or proceeding shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit, action or proceeding, including reasonable attorneys fees and expenses and court costs.
12. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
13. No Strict Construction . The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
[ Signature Page Follows ]
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Please confirm that the foregoing correctly sets forth our agreement with respect to the subject matter hereof by signing and returning to the undersigned a copy of this Letter.
Pluralsight Holdings, LLC |
||
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard Its: President/Chief Executive Officer |
The foregoing Letter is accepted and agreed to as of the date first set forth above.
/s/ Karenann Terrell |
Karenann Terrell, an individual |
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Exhibit 10.23
2018 Executive Bonus Plan
In December 2017, our board of directors adopted an Executive Bonus Plan for 2018, which we refer to as the 2018 Bonus Plan. Our named executive officers are participants in the 2018 Bonus Plan. The 2018 Bonus Plan provides for non-equity incentive compensation based upon the combined achievement of billings and free cash flow targets in 2018, which we refer to as the financial goal.
The threshold level of achievement of the financial goal is at least 84.44%. If we achieve less than 84.44% of the financial goal, no participant in the 2018 Bonus Plan will receive any portion of the target incentive. If we achieve 84.44% of the financial goal, participants will receive 50% of the target incentive. For achievement of the financial goal between the threshold and target, the overall incentive payment scales linearly between 50% and 100%. For achievement of the financial goal between the target and 115.56% of the financial goal, the overall incentive payment scales linearly between 100% and 200%. The maximum level of achievement of the financial goal is 115.56%. If we fail to achieve a minimum target for billings or free cash flow, the maximum target incentive will be 50%, even if the overall level of achievement of the financial goal is greater than the threshold.
All bonuses under the 2018 Bonus Plan are subject to the participant maintaining minimum performance standards, as determined by us, and remaining employed through the date a bonus is paid out.
Exhibit 10.25
Execution Version
FIRST AMENDMENT TO
CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT , dated as of February 5, 2018 (this First Amendment ), by and among PLURALSIGHT, LLC, a Nevada limited liability company (the Borrower ), PLURALSIGHT HOLDINGS, LLC, the direct parent of the Borrower and a Delaware limited liability company ( Holdings ), the Subsidiary Guarantors party hereto, the Lenders party hereto and GUGGENHEIM CORPORATE FUNDING, LLC, as Administrative Agent (the Administrative Agent ) and Collateral Agent (the Collateral Agent ) under the Credit Agreement (as defined below) amends that certain Credit Agreement dated as of June 12, 2017 (the Credit Agreement ), among the Borrower, Holdings, the Lenders from time to time party thereto and the Administrative Agent. Capitalized terms used herein that are not herein defined shall have the meaning given such terms in the Credit Agreement.
RECITALS:
WHEREAS , as contemplated by Section 9.02 of the Credit Agreement, the Borrower has requested that the Lenders amend, subject to the satisfaction of the conditions precedent to effectiveness set forth in Section 2 below, and the Lenders party hereto (consisting of at least the Required Lenders immediately prior to the First Amendment Effective Date (as defined below)) have agreed to amend the Credit Agreement so as to permit the Borrower to increase the aggregate principal amount of Term Loans outstanding by $20,000,000 (such increased amount, the 2018 Incremental Term Loans ) (each Person committing to provide and providing any such 2018 Incremental Term Loans on the First Amendment Effective Date (as defined below) pursuant to the terms of the Amended Credit Agreement and this First Amendment being referred to herein as a 2018 Incremental Term Lender );
WHEREAS , Administrative Agent and the Lenders party hereto are willing, on the terms and subject to the conditions set forth below, to enter into the amendments, modifications and agreements set forth in this First Amendment, and each 2018 Incremental Term Lender party hereto is willing, on the terms and subject to the conditions set forth below, to fund the 2018 Incremental Term Loans; and
WHEREAS , pursuant to those certain Warrants to Purchase Class A Common Units of Pluralsight Holdings, LLC, dated as of February 5, 2018 (the Warrants ), by and between Holdings and, individually in each case, the 2018 Incremental Term Lenders, and to induce the 2018 Incremental Term Lenders to enter into this First Amendment, Holdings shall grant to the 2018 Incremental Term Lenders warrants to purchase approximately 424,242 shares of common stock at an exercise price of $8.25 per share, subject to the terms and conditions set forth in the Warrant.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
Section 1. Amendments to Credit Agreement . Subject to the satisfaction of the conditions set forth in Section 2 hereof the Loan Parties and the Lenders party hereto agree that effective as of the First Amendment Effective Date (as defined in Section 2 hereof), the Credit Agreement shall be amended as follows (the Credit Agreement as so amended, the Amended Credit Agreement ):
(a) Section 1.01 of the Credit Agreement is hereby amended by adding the following new defined terms in proper alphabetical order:
2018 Incremental Term Lender shall mean any Lender with a 2018 Incremental Term Commitment and/or a 2018 Incremental Term Loan outstanding hereunder.
2018 Incremental Term Commitment shall mean, with respect to each 2018 Incremental Term Lender, the commitment, if any, of such 2018 Incremental Term Lender to make a 2018 Incremental Term Loan as set forth on Annex I to the First Amendment. The aggregate principal amount of the 2018 Incremental Term Lenders 2018 Incremental Term Commitments on the First Amendment Effective Date (and prior to the funding and/or termination thereof) is $20,000,000.
2018 Incremental Term Loan shall mean the Loans made by the 2018 Incremental Term Lenders on the First Amendment Effective Date to the Borrower. Each 2018 Incremental Term Loan shall be either an ABR Term Loan or a Eurodollar Term Loan.
First Amendment shall mean that certain First Amendment to Credit Agreement, dated as of February 5, 2018, by and among the Borrower, Holdings, the Subsidiary Guarantors party thereto, the Lenders party thereto, the 2018 Incremental Term Lenders party thereto and the Administrative Agent.
First Amendment Effective Date shall mean the date on which the conditions precedent set forth in Section 2 of the First Amendment are satisfied.
(b) Section 1.01 of the Credit Agreement is hereby amended by adding the following sentence to the definition of Class:
Notwithstanding any provision herein to the contrary, the Term Loans existing on the Effective Date and the 2018 Incremental Term Loans shall be deemed to be, and treated as, part of a single Class of Term Loans for all purposes hereof, including for any purposes of any determination of Required Lenders and the application of repayments or prepayments of the Term Loans.
(c) Section 1.01 of the Credit Agreement is hereby amended by amending and restating the following definitions as follows:
Commitment means with respect to any Lender, its Revolving Commitment, Other Revolving Commitment of any Class, Term Commitment, Other Term Commitment of any Class or any combination thereof (as the context requires).
Lenders means the Persons listed on Schedule 2.01, any 2018 Incremental Term Loan Lender and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption or a Loan Modification Agreement, in each case, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.
Register has the meaning assigned to such term in Section 9.04(b)(iv).
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Term Commitment means with respect to any Lender, its Initial Term Commitment, 2018 Incremental Term Commitment, Other Term Commitment of any Class or any combination thereof (as the context may require).
Term Loans means, individually or collectively as the context requires, Initial Term Loans, 2018 Incremental Term Loans and Other Term Loans.
(d) Section 2.01 of the Credit Agreement is amended by amending and restating such clause in its entirety as follows:
Subject to the terms and conditions, (a) set forth herein, each Initial Term Lender made Initial Term Loans to the Borrower on the Effective Date denominated in dollars in an aggregate principal amount not exceeding such Term Lenders Initial Term Commitment, (b) set forth herein, each Revolving Lender agrees to make Revolving Loans to the Borrower denominated in dollars from time to time during the Revolving Availability Period in an aggregate principal amount which will not result in such Revolving Lenders Revolving Exposure exceeding such Revolving Lenders Revolving Commitment and (c) set forth in the First Amendment, each 2018 Incremental Term Lender agrees to make 2018 Incremental Term Loans to the Borrower on the First Amendment Effective Date denominated in dollars in an aggregate principal amount not exceeding such 2018 Incremental Term Lenders 2018 Incremental Term Commitment. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts repaid or prepaid in respect of Term Loans may not be reborrowed.
(e) Section 2.08(a) of the Credit Agreement is amended by amending and restating such clause in its entirety as follows:
(a) Unless previously terminated, (i) the Initial Term Commitments shall terminate at 5:00 p.m., New York City time, on the Effective Date, (ii) the Revolving Commitments shall terminate on the Revolving Maturity Date and (iii) the 2018 Incremental Term Commitments shall terminate at 5:00 p.m., New York City time, on the First Amendment Effective Date.
(f) Section 6.03(b)(vi) of the Credit Agreement is hereby amended by amending and restating such clause in its entirety as follows:
(vi) making (x) any dividend or distribution or other transaction (i) similar to a Restricted Payment and not otherwise prohibited by Section 6.08 or (ii) made concurrently with cash amounts contributed to Holdings by any direct or indirect parent thereof or (y) any Investment in the Borrower;
(g) Section 6.07(a)(vi)(A) of the Credit Agreement is hereby amended by amending and restating such clause in its entirety as follows:
(A) cash dividends or other distributions on the stock of the Borrower to Holdings paid and declared solely for the purpose of funding, without duplication, (i) payments by Holdings in respect of taxes directly payable by Holdings attributable to its ownership of the Borrower, including any franchise or
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similar taxes directly payable by Holdings, and (ii) so long as Holdings and the Borrower are treated as flow-through entities for U.S. federal income Tax purposes, any federal, state and local income Taxes required to be paid by any direct or indirect owner of Holdings on its taxable income attributable to the Borrower and its Subsidiaries for any taxable year, (1) calculated by multiplying such income by the maximum combined tax rate applicable to a corporation or individual, whichever is higher, whose sole asset is its indirect interest in Borrower, (2) taking into account the character of income or gain and any allowable federal income tax deduction for state and local taxes, and (3) taking into account any carryovers of losses previously allocated by Holdings to such owner, to the extent such losses would be deductible in determining such owners tax liability for such year if such owners only items of income, gain and loss were those allocated to it by Holdings; provided that payments hereunder attributable to the taxable income of Borrowers Unrestricted Subsidiaries shall be permitted only to the extent such Unrestricted Subsidiaries have made a corresponding payment to the Borrower and/or its Restricted Subsidiaries
(h) Section 6.07(a)(x) of the Credit Agreement is hereby amended by amending and restating such clause in its entirety as follows:
(x) the Borrower may make Restricted Payments to allow Holdings to (a) pay cash in lieu of the issuance of fractional Equity Interests in connection with any dividend, split or combination thereof, any conversion of Equity Interests or any Permitted Acquisition (or other similar Investment) and (b) honor any conversion request by a holder of convertible Indebtedness and make cash payments in lieu of fractional shares in connection with any such conversion and may make payments on convertible Indebtedness in accordance with its terms;
(i) Section 5.10 of the Credit Agreement is hereby amended by adding the following sentence at the end thereof:
The Borrower shall use the proceeds of the 2018 Incremental Term Loans for working capital and general corporate purposes.
Section 2. Conditions to Effectiveness and Funding . The effectiveness of the amendments to the Credit Agreement set forth in Section 1 of this First Amendment (including the commitment of the 2018 Incremental Term Lenders) are subject to the satisfaction of the following conditions precedent (the date of such satisfaction, the First Amendment Effective Date ):
(a) the Borrower, Holdings, the Subsidiary Guarantors party hereto, the Required Lenders and the Administrative Agent shall have executed and delivered counterparts of this First Amendment;
(b) Holdings and the 2018 Incremental Term Lenders shall have executed and delivered counterparts of each of the Warrants;
(c) each of the representations and warranties contained in Section 4 of this First Amendment shall be true and correct in all material respects ( provided that, any representation and warranty that is qualified by materiality, material adverse effect or similar language shall be true and correct in all respects (after giving effect to any such qualification therein)) on and as of the First Amendment Effective Date, except to the extent such representations and warranties expressly relate to an
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earlier date (in which case such representations and warranties shall be true and correct in all material respects (or if any such representation and warranty is qualified by materiality, material adverse effect or similar language, shall be true and correct in all respects (after giving effect to any such qualification therein)) on and as of such earlier date); and
(d) at the time of and immediately after giving effect to this First Amendment and the making of the 2018 Incremental Term Loans on the First Amendment Effective Date and the use of proceeds thereof on the First Amendment Effective Date, no Default or Event of Default shall have occurred and be continuing under the Amended Credit Agreement;
(e) the Borrower shall have paid to the Administrative Agent all other costs, fees and expenses (including all upfront fees due and payable to the Administrative Agent on behalf of the 2018 Incremental Term Lenders (or original issue discount in lieu thereof)) that are due and payable on or before the First Amendment Effective Date in accordance with the terms of the Amended Credit Agreement and the Fee Letter, dated as of February 5, 2018, by and between the Borrower and the Administrative Agent, in each case to the extent invoices therefor are provided to the Borrower at least one Business Day prior to the First Amendment Effective Date;
(f) [reserved];
(g) the Administrative Agent shall have received a Borrowing Request from the Borrower meeting the requirements of Section 2.03 of the Amended Credit Agreement;
(h) the Administrative Agent shall have received a solvency certificate in the form of Exhibit G to the Credit Agreement dated as of the First Amendment Effective Date and signed by a Financial Officer of Holdings;
(i) the Administrative Agent shall have received a certificate dated the First Amendment Effective Date and signed by a Responsible Officer of the Borrower, confirming compliance with the conditions set forth in clauses (c) and (d) above;
(j) the Administrative Agent shall have received each of the following, each (where applicable) dated the First Amendment Effective Date (and each in a form and substance reasonably satisfactory to the Administrative Agent):
i. | a customary legal opinion of (a) Wilson Sonsini Goodrich & Rosati P.C. and (b) Parr Brown Gee & Loveless, P.C., in each case (x) dated the First Amendment Effective Date, (y) addressed to the Administrative Agent, the Collateral Agent and each Lender under the Credit Agreement (including the 2018 Incremental Term Lenders) and (z) covering such matters relating to this First Amendment, the 2018 Incremental Term Loans and the transactions contemplated hereby as the Administrative Agent may reasonably require; |
ii. |
the Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, certificate of incorporation or certificate of formation, as applicable, including all amendments thereto, of each Loan Party, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of each Loan Party as of a recent date, from such Secretary of State; (ii) a certificate of an officer, member or manager of each Loan Party dated the First Amendment |
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Effective Date and certifying (A) that attached thereto is a true and complete copy of the by-laws or operating agreement, as applicable, of such Loan Party as in effect on the First Amendment Effective Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors, board of manager, manager or member(s) of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which such Person is a party and, in the case of the Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation or certificate of formation, as applicable, of such Loan Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; and (iii) a certification of another officer as to the incumbency and specimen signature of the officer executing the certificate pursuant to clause (ii) above; |
(k) all requisite Governmental Authorities and third parties shall have approved or consented to the First Amendment and the other transactions contemplated hereby to the extent required, all applicable appeal periods shall have expired and there shall not be any pending or threatened in writing litigation, governmental, administrative or judicial action that could reasonably be expected to restrain, prevent or impose burdensome conditions on the First Amendment or the other transactions contemplated hereby; and
(l) the Administrative Agent shall have received, at least three days prior to the First Amendment Effective Date, all documentation and other information about the Borrower and the other Loan Parties required under applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act, that has been reasonably requested in writing at least five days prior to the First Amendment Effective Date.
Section 3. Costs and Expenses . Without limiting the obligations of the Borrower under the Credit Agreement, the Borrower agrees to pay or reimburse all of the Administrative Agents reasonable and documented out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this First Amendment and the other instruments and documents to be delivered hereunder in accordance with the terms of Section 9.03 of the Credit Agreement, including all reasonable and documented fees, disbursements and other charges of Latham & Watkins LLP, counsel for the Administrative Agent.
Section 4. Representations and Warranties . Holdings and the Borrower hereby represent and warrant to the Lenders, on and as of the date hereof, that:
(a) Each of the representations and warranties of each Loan Party set forth in Article III of the Credit Agreement or in any other Loan Document shall be true and correct in all material respects on and as of the First Amendment Effective Date; provided that, to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date; provided, further that, any representation and warranty that is qualified as to materiality, Material Adverse Effect or similar language shall be true and correct in all respects on the date of such credit extension or on such earlier date, as the case may be.
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(b) The transactions contemplated by this First Amendment and the Amended Credit Agreement are within the powers of Holdings and the Borrower and have been duly authorized by all necessary corporate or other organizational action on the part of Holdings and the Borrower. This First Amendment has been duly executed and delivered by each of Holdings, the Borrower and each other Loan Party party hereto and constitutes a legal, valid and binding obligation of Holdings, the Borrower or such Loan Party, as the case may be, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
(c) The execution, delivery and performance by, or enforcement against, any Loan Party of this First Amendment or the Amended Credit Agreement (i) does not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Loan Documents, (ii) will not violate (A) the Organizational Documents of, or (B) any Requirements of Law applicable to, Holdings, the Borrower or any Restricted Subsidiary, (iii) will not violate or result in a default under any indenture or other agreement or instrument binding upon Holdings, the Borrower or any Restricted Subsidiary or their respective assets, or give rise to a right thereunder to require any payment, repurchase or redemption to be made by Holdings, the Borrower or any Restricted Subsidiary, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation thereunder and (iv) will not result in the creation or imposition of any Lien on any asset of Holdings, the Borrower or any Restricted Subsidiary, except Liens created under the Loan Documents, except (in the case of each of clauses (i), (ii)(B) and (iii)) to the extent that the failure to obtain or make such consent, approval, registration, filing or action, or such violation, default or right, or imposition of Lien, as the case may be, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
Section 5. Reference to and Effect on the Credit Agreement .
(a) On and after the effectiveness of this First Amendment, each reference in the Credit Agreement to this Agreement, hereunder, hereof or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Credit Agreement.
(b) The Credit Agreement as specifically amended by this First Amendment is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. This First Amendment shall be a Loan Document for purposes of the definition thereof in the Credit Agreement.
(c) On and after the effectiveness of this First Amendment, (i) the 2018 Incremental Term Loans shall be deemed to be Loans and Term Loans, (ii) each 2018 Incremental Term Lender shall be deemed to be a Lender and a Term Lender, (iii) the 2018 Incremental Term Commitments shall be deemed to be Commitments and Term Commitments, and (iv) this First Amendment shall be deemed to be a Loan Document, in each case for all purposes of the Amended Credit Agreement and the other Loan Documents.
(d) The execution, delivery and effectiveness of this First Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
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Section 6. Reaffirmation .
(a) Each Loan Party hereby confirms that each Loan Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guarantee or secure, as the case may be, to the fullest extent possible in accordance with the Loan Documents the payment and performance of all Loan Document Obligations and Secured Obligations of such Loan Party under each of the Loan Documents to which it is a party (in each case as such terms are defined in the applicable Loan Document).
(b) Each Loan Party acknowledges and agrees that any of the Loan Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this First Amendment.
(c) Each Loan Party hereby acknowledges that it has reviewed the terms and provisions of this First Amendment and consents to the amendment of the Credit Agreement effected pursuant to this First Amendment (including the 2018 Incremental Term Commitments and 2018 Incremental Term Loans made by the 2018 Incremental Term Lenders) and acknowledges and agrees that each 2018 Incremental Term Lender (and any assignee thereof) is a Lender and a Secured Party for all purposes under the Loan Documents to which the Borrower or such Guarantor is a party.
(d) Each Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this First Amendment, such Guarantor (as defined in the Guarantee Agreement) is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this First Amendment and (ii) nothing in the Credit Agreement, this First Amendment or any other Loan Document shall be deemed to require the consent of such Guarantor to any future amendments to the Credit Agreement.
(e) Each of the Borrower and each Guarantor hereby (i) acknowledges and agrees that all of its obligations under the Guarantees set out in the Amended Credit Agreement and any other guaranties in the Loan Documents to which it is a party are reaffirmed and remain in full force and effect on a continuous basis, (ii) reaffirms each Lien granted by each Loan Party to the Collateral Agent for the benefit of the Secured Parties and reaffirms the Guarantees made pursuant to the Amended Credit Agreement, (iii) acknowledges and agrees that the grants of security interests by and the Guarantees of the Loan Parties contained in the Amended Credit Agreement and the other Collateral Documents are, and shall remain, in full force and effect after giving effect to this First Amendment, and (iv) agrees that the Obligations include, among other things and without limitation, the prompt and complete payment and performance by the Borrower when due and payable (whether at the stated maturity, by acceleration or otherwise) of principal and interest on, and premium (if any) on, the 2018 Incremental Term Loans under the Amended Credit Agreement. Nothing contained in this First Amendment shall be construed as substitution or novation of the obligations outstanding under the Credit Agreement or the other Loan Documents, which shall remain in full force and effect, except to any extent modified hereby.
Section 7. Execution in Counterparts . This First Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this First Amendment by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart of this First Amendment
Section 8. Governing Law .
(a) THIS FIRST AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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(b) Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York sitting in New York County, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in any Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to any Loan Document against Holdings or the Borrower or their respective properties in the courts of any jurisdiction.
(c) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to any Loan Document in any court referred to in paragraph (b) of this Section 8 . Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this First Amendment irrevocably consents to service of process in the manner provided for notices in Section 9.01 of the Credit Agreement. Nothing in any Loan Document will affect the right of any party to this First Amendment to serve process in any other manner permitted by law.
Section 9. Waiver of Jury Trial . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT, BREACH OF DUTY, COMMON LAW STATUTE OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS FIRST AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9 . EACH PARTY HERETO FURTHER REPRESENTS AND WARRANTS THAT IS HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSOLATION WITH LEGAL COUNSEL.
Section 10. Headings . Section headings used herein are for convenience of reference only, are not part of this First Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this First Amendment.
Section 11. Severability . Any provision of this First Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
[ Signature Pages Follow ]
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IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.
PLURALSIGHT, LLC , as Borrower |
By: Pluralsight Holdings, LLC, its manager |
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: President and Chief Executive Officer |
PLURALSIGHT HOLDINGS, LLC , as Holdings |
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: President and Chief Executive Officer |
SMARTERER, INC. , as a Guarantor |
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: President Chief Executive Officer |
CODE SCHOOL ACQUISITION SUB, LLC , as a Guarantor |
||
By: Pluralsight, LLC, its manager | ||
By: Pluralsight Holdings, LLC, its manager |
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: Chief Executive Officer |
Signature Page to First Amendment
PLURALSIGHT CREATIVE, LLC , as a Guarantor |
||
By: Pluralsight, LLC, its manager | ||
By: Pluralsight Holdings, LLC, its manager |
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: Chief Executive Officer |
PLURALSIGHT MANAGEMENT, INC. , as a Guarantor |
By: |
/s/ Aaron Skonnard |
|
Name: Aaron Skonnard | ||
Title: President |
Signature Page to First Amendment
Acknowledged:
GUGGENHEIM CORPORATE FUNDING, LLC ,
as Administrative Agent and as Collateral Agent
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact |
Signature Page to First Amendment
GUGGENHEIM CREDIT INCOME FUND | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Sub-Advisor | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
MAVERICK ENTERPRISES, INC. | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Investment Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
MIDLAND NATIONAL LIFE INSURANCE COMPANY | ||
By: Guggenheim Partners Investment Management, | ||
LLC | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact | ||
NORTH AMERICAN COMPANY FOR LIFE | ||
AND HEALTH INSURANCE | ||
By: Guggenheim Partners Investment Management, | ||
LLC | ||
By: |
/s/ Kevin M. Robinson |
|
Name: Kevin M. Robinson | ||
Title: Attorney-in-Fact |
Signature Page to First Amendment
NZC GUGGENHEIM FUND LLC | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: | Kevin M. Robinson | |
Title: | Attorney-in-Fact | |
GUGGENHEIM PRIVATE DEBT FUND | ||
NOTE ISSUER 2.0, LLC | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: | Kevin M. Robinson | |
Title: | Attorney-in-Fact | |
GUGGENHEIM PRIVATE DEBT FUND 2.0, | ||
LLC | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: | Kevin M. Robinson | |
Title: | Attorney-in-Fact | |
GUGGENHEIM PRIVATE DEBT FUND 2.0-I, LLC | ||
By: Guggenheim Partners Investment Management, | ||
LLC as Manager | ||
By: |
/s/ Kevin M. Robinson |
|
Name: | Kevin M. Robinson | |
Title: | Attorney-in-Fact |
Signature Page to First Amendment
ANNEX I
2018 Incremental Term Commitment Schedule
Lender |
2018 Incremental Term Commitment | |||
Guggenheim Credit Income Fund |
$ | 1,095,238.10 | ||
Maverick Enterprises, Inc. |
$ | 273,809.52 | ||
Midland National Life Insurance Company |
$ | 547,619.05 | ||
North American Company for Life and Health Insurance |
$ | 365,079.37 | ||
NZC Guggenheim Fund LLC |
$ | 1,277,777.78 | ||
Guggenheim Private Debt Fund Note Issuer 2.0, LLC |
$ | 14,874,245.50 | ||
Guggenheim Private Debt Fund 2.0, LLC |
$ | 760,740.62 | ||
Guggenheim Private Debt Fund 2.0-I, LLC |
$ | 805,490.06 | ||
|
|
|||
TOTAL |
$ | 20,000,000.00 | ||
|
|
Annex I
Exhibit 21.1
SUBSIDIARIES OF PLURALSIGHT, INC.
Name of Subsidiary |
Jurisdiction of Organization |
|
Pluralsight Holdings, LLC | Delaware | |
Code School Acquisition Sub, LLC | Delaware | |
Pluralsight Creative, LLC | Oklahoma | |
Pluralsight, LLC | Nevada | |
Smarterer, Inc. | Delaware | |
Pluralsight Europe, Ltd. | England |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of Pluralsight, Inc. of our report dated March 9, 2018 relating to the financial statement, which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
April 16, 2018
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of Pluralsight, Inc. of our report dated March 9, 2018 relating to the financial statements of Pluralsight Holdings, LLC, which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
April 16, 2018