As filed with the U.S. Securities and Exchange Commission on May 7, 2018
Registration No. 333-224301
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
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 601 Marshall Street Redwood City, California 94063 (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.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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(Do not check if a smaller reporting company) |
Smaller reporting company |
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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 |
Shares to be
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Proposed Maximum
Aggregate Offering Price Per Share (2) |
Proposed
Offering Price (1)(2) |
Amount of Registration Fee (3) |
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Class A Common Stock, $0.001 par value per share |
23,805,000 | $12.00 | $285,660,000 | $35,565 | ||||
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(1) |
Includes 3,105,000 shares that the underwriters have the option to purchase to cover over-allotments, if any. |
(2) |
Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(a) under the Securities Act. |
(3) |
The registrant previously paid $12,450 of this amount in connection with the initial filing of the registration statement. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the 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 May 7, 2018
20,700,000 Shares
CLASS A COMMON STOCK
Pluralsight, Inc. is offering 20,700,000 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 $10.00 and $12.00 per share.
We have applied 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 associated entities, will hold all of our issued and outstanding Class C common stock and will hold approximately 54.1% of the combined voting power of our outstanding capital stock, and the members of Pluralsight Holdings, LLC, other than Mr. Skonnard and his associated entities and Pluralsight, Inc., will hold approximately 23.8% 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 or significantly influence 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 57,019,194 LLC Units, representing a 43.7% 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 28.
PRICE $ A SHARE
Price to Public |
Underwriting Discounts and Commissions (1) |
Proceeds to Pluralsight |
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Per Share |
$ | $ | $ | |||||||||
Total |
$ | $ | $ |
(1) |
See the section titled Underwriters for a description of the compensation payable to the underwriters. |
At our request, the underwriters have reserved up to 5% 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 3,105,000 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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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Letter from Aaron Skonnard, Co-Founder, Chief Executive Officer, and Chairman |
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Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of our Class A Common Stock |
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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 6,700 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 three months ended March 31, 2018, 82% of our billings came from business customers and 18% 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 1,400 authors. Today, we have over 6,700 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 three months ended March 31, 2017 and 2018, our billings were $38.9 million and $55.4 million, respectively, representing period-over-period growth of 43%, and our billings from business customers were $29.3 million and $45.3 million, respectively, representing period-over-period growth of 54%. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, our revenue was $131.8 million, $166.8 million, $37.2 million, and $49.6 million, respectively. Our net loss was $20.6 million, $96.5 million, $9.8 million, and $23.2 million, respectively, which reflects our substantial investments in the future growth of our business.
We are building our business to generate strong free cash flow over the long term. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, cash provided by (used in) operations was $4.5 million, ($12.1 million), $5.0 million, and ($10.4 million), respectively. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, our free cash flow was ($7.9 million), ($20.5 million), $2.8 million, and ($13.1 million), respectively, and our free cash flow included cash payments for interest on our long-term debt of $5.5 million, $6.9 million, $1.2 million, and $2.5 million, respectively. We expect our free cash flow to improve as we experience greater scale in our business and improve operational efficiency, as well as eliminate cash paid for interest on our long-term debt following the repayment in full of the outstanding indebtedness under our credit facility in connection with this offering. 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.
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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.
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 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.
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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. 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.
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 6,700 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
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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.
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 1,400 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.
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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, 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.
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 6,700 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 31% 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
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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 1,400 as of March 31, 2018.
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 three months ended March 31, 2018, we generated 64% 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
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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 approximately 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.
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 |
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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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As part of the Reorganization Transactions, the incentive units and Class B incentive units will be converted as follows: |
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15,783,689 incentive units that were outstanding as of March 31, 2018, of which (i) 5,591,778 will be exchanged for 4,552,646 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and (ii) 10,191,911 will convert into 6,982,567 LLC Units (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit of Pluralsight Holdings will also receive a distribution of one share of Class B common stock of Pluralsight, Inc.; and |
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3,000,000 Class B incentive units that were outstanding as of March 31, 2018, of which (i) 320,168 will be exchanged for 137,627 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and (ii) 2,679,832 will convert into 1,151,950 LLC Units (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit of Pluralsight Holdings will also receive a distribution of one share of Class C common stock of Pluralsight, Inc. |
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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 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 associated entities, will continue to hold LLC Units with economic, non-voting |
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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 associated entities 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 in excess of par value 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 such 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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Upon completion of the Reorganization Transactions and this offering (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and assuming no exercise by the underwriters of their over-allotment option to purchase additional shares of Class A common stock: |
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Pluralsight, Inc.s Class A common stock will be held as follows: |
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20,700,000 shares (or 23,805,000 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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35,119,194 shares by the Former Members; |
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600,000 shares by Continuing Members, other than Mr. Skonnard and his associated entities; and |
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600,000 shares by Mr. Skonnard and his associated entities. |
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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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59,710,473 shares and LLC Units by the Continuing Members, other than Mr. Skonnard and his associated entities. |
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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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13,650,648 shares and LLC Units by Mr. Skonnard and his associated entities. |
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The combined voting power in Pluralsight, Inc. will be as follows: |
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8.2% for investors in this offering (or 9.3% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); |
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13.9% for the Former Members (or 13.7% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); |
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23.8% for the Continuing Members, other than Mr. Skonnard and his associated entities (or 23.5% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); and |
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54.1% for Mr. Skonnard and his associated entities (or 53.5% 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 15% 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 85% 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, based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and 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. and (ii) Former Members who exchanged their LLC Units for Class A common stock in Pluralsight, Inc. |
(2) |
Includes all Continuing Members, except Aaron Skonnard and his associated entities. |
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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 sheets, dated as of December 31, 2017 and March 31, 2018, 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 and (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 in order to issue shares of Class B common stock to the Continuing Members (other than Aaron Skonnard and his associated entities) and issue shares of Class C common stock to Aaron Skonnard and his associated entities, with the issuance of such shares equal in each case to the number of LLC Units the Continuing Members own.
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 20,700,000 shares of our Class A common stock by us in this offering, at the assumed initial public offering price of $11.00 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 paid or payable by us, and (iii) the use of proceeds from this offering to (a) fully repay the term loan under our credit facility, which, as of March 31, 2018, had an outstanding principal balance of $137.4 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 $0.2 million based on the number of EARs outstanding as of March 31, 2018 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 $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.
The pro forma adjustments related to the Reorganization Transactions and this offering that are described in the notes to the unaudited pro forma consolidated financial information included elsewhere in this prospectus reflect the 55.5% non-controlling interest in Pluralsight Holdings represented by the LLC Units not held by Pluralsight, Inc. after the completion of the Reorganization Transactions and this offering (excluding LLC Units that are subject to time-based vesting requirements).
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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Channels for Disclosure of Information
Following the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission, or the SEC, the investor relations page on our website (pluralsight.com), press releases, public conference calls, and public webcasts.
Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website. Information contained on or accessible through our website is not incorporated by reference into this prospectus, and inclusion of our website address in this prospectus is an inactive textual reference only. 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.
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 pluralsight.com. Information contained on or accessible through our website is not incorporated by reference into this prospectus, and inclusion of our website address in this prospectus is an inactive textual reference only. 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.
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,
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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 requirements. We have taken advantage of certain reduced reporting requirements 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 |
20,700,000 shares |
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Class A common stock outstanding after this offering |
57,019,194 shares, or 60,124,194 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 3,105,000 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 |
59,710,473 shares |
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Class C common stock to be outstanding after this offering |
13,650,648 shares |
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Total common stock to be outstanding after this offering |
130,380,315 shares, or 133,485,315 shares if the underwriters exercise in full their over-allotment option to purchase additional shares from us. |
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Voting power held by holders of Class A common stock after giving effect to this offering |
22.5% |
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Voting power held by holders of Class B common stock after giving effect to this offering |
23.6% |
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Voting power held by holders of Class C common stock after giving effect to this offering |
53.9% |
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Use of proceeds |
We estimate that the net proceeds from this offering will be approximately $205.7 million, or $237.4 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 paid or payable by us, assuming an initial public offering price of $11.00 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 the proceeds from this offering, net of underwriting discounts and commissions, 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 in full its outstanding indebtedness under its credit facility, |
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which, as of March 31, 2018, had an outstanding principal balance of $137.4 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 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 in November 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 associated entities) 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 associated entities 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 his associated entities, will hold all of our issued and outstanding Class C common stock and will hold approximately 54.1% of the combined voting power of our outstanding capital stock following this offering. As a result, he will be able to control or significantly influence 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 owners of |
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more than 5% of each class of our outstanding capital stock, and their affiliates, will hold approximately 83.7% 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.
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 cash or 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 would likely 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 may be restricted by the terms of any future debt or preferred securities incurred or issued by us or |
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our subsidiaries. See the section titled Dividend Policy 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 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. |
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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 15% 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 85% 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 |
22
realize, under the TRA, we will calculate the income tax savings using the actual 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 for additional information. |
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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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2,702,360 restricted share units, or RSUs, of Pluralsight Holdings that were outstanding as of March 31, 2018, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
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1,856,125 RSUs of Pluralsight Holdings that were granted after March 31, 2018, 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 March 31, 2018 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 outstanding as of March 31, 2018, with an exercise price of $8.25 per share; and |
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25,119,995 shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of: |
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22,149,995 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), plus up to 4,600,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan upon vesting and settlement of RSUs that, on or after the date of this offering, expire, forfeit, or otherwise terminate or are withheld by us to cover tax withholding obligations, 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 prior to the completion of this offering; and |
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The shares reserved for future issuance under the 2018 Plan include 7,149,357 shares of Class A common stock (based on an assumed initial public offering price of $11.00 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, provided that any increase in the actual initial public offering price from such assumed initial public offering price will decrease the number of shares subject to options that we intend to grant, and any decrease in the actual initial public offering price from such assumed initial public offering price will increase the number of shares subject to options that we intend to grant; and |
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The shares reserved for future issuance under the 2018 Plan include approximately 636,875 shares of Class A common stock subject to RSUs which we intend to grant in connection with this offering. |
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2,970,000 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 prior to 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 the 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 March 31, 2018; and |
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no exercise by the underwriters of their over-allotment option to purchase up to an additional 3,105,000 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 associated entities) received Class A common units in exchange for the common units they held, and Aaron Skonnard and his associated entities received Class B common units in exchange for the common units they held.
Based on an assumed initial public offering price of $11.00 per share, we will have an aggregate of 130,380,315 shares of total common stock outstanding following this offering. Any increase or decrease in the initial public offering price from the assumed initial public offering price of $11.00 per share (which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) would result in an increase or decrease, as applicable, of the total number of shares of common stock outstanding following this offering. For example, (i) an initial public offering price of $10.00 per share would result in an aggregate of 129,780,926 shares of total common stock outstanding following this offering and (ii) an initial public offering price of $12.00 per share would result in an aggregate of 130,879,322 shares of total common stock outstanding following this offering.
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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 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. The summarized consolidated statements of operations data for the three months ended March 31, 2017 and 2018, and the summarized consolidated balance sheet data as of March 31, 2018, are derived from the unaudited consolidated financial statements and related notes of Pluralsight Holdings included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements of Pluralsight Holdings and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of our future results, and the results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year or any other period.
Consolidated Statements of Operations Data
Year Ended
December 31, |
Three Months Ended
March 31, |
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2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(in thousands, except per unit amounts) | ||||||||||||||||||||
Revenue |
$ | 108,422 | $ | 131,841 | $ | 166,824 | $ | 37,239 | $ | 49,644 | ||||||||||
Cost of revenue (1)(2) |
33,245 | 40,161 | 49,828 | 11,209 | 14,886 | |||||||||||||||
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Gross profit |
75,177 | 91,680 | 116,996 | 26,030 | 34,758 | |||||||||||||||
Operating expenses: (1)(2) |
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Sales and marketing |
44,872 | 51,234 | 103,478 | 17,826 |
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29,467
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Technology and content |
33,146 | 36,159 | 49,293 | 10,205 | 13,325 | |||||||||||||||
General and administrative |
15,916 | 18,130 | 46,971 | 6,267 | 11,292 | |||||||||||||||
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Total operating expenses |
93,934 | 105,523 | 199,742 | 34,298 | 54,084 | |||||||||||||||
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Loss from operations |
(18,757 | ) | (13,843 | ) | (82,746 | ) | (8,268 | ) | (19,326 | ) | ||||||||||
Other (expense) income: |
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Interest expense |
(7,399 | ) | (6,320 | ) | (11,665 | ) | (1,527 | ) | (3,710 | ) | ||||||||||
Loss on debt extinguishment |
| | (1,882 | ) | | | ||||||||||||||
Other (expense) income, net |
(18 | ) | 45 | 81 | 48 | (13 | ) | |||||||||||||
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Loss before income taxes |
(26,174 | ) | (20,118 | ) | (96,212 | ) | (9,747 | ) | (23,049 | ) | ||||||||||
Provision for income taxes |
(186 | ) | (494 | ) | (324 | ) | (58 | ) | (109 | ) | ||||||||||
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Net loss |
$ | (26,360 | ) | $ | (20,612 | ) | $ | (96,536 | ) | $ | (9,805 | ) | $ | (23,158 | ) | |||||
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Less: accretion of Series A redeemable convertible preferred units |
(55,300 | ) | (6,325 | ) | (63,800 | ) | (1,650 | ) | (19,525 | ) | ||||||||||
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Net loss attributable to common units |
$ | (81,660 | ) | $ | (26,937 | ) | $ | (160,336 | ) | $ | (11,455 | ) | $ | (42,683 | ) | |||||
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Net loss per unit, basic and diluted (3) |
$ | (1.72 | ) | $ | (0.57 | ) | $ | (3.34 | ) | $ | (0.24 | ) | $ | (0.88 | ) | |||||
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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 | 47,783 | 48,408 | |||||||||||||||
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Pro forma net loss per unit, basic and diluted (unaudited) (3) |
$ | (1.00 | ) | $ | (0.24 | ) | ||||||||||||||
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Pro forma weighted average common units used in computing basic and diluted net loss per unit (unaudited) (3) |
96,405 | 96,856 | ||||||||||||||||||
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(1) |
Includes equity-based compensation expense as follows: |
Year Ended
December 31, |
Three Months Ended
March 31, |
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2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cost of revenue |
$ | 39 | $ | 20 | $ | 20 | $ | 5 | $ | | ||||||||||
Sales and marketing |
1,896 | 1,462 | 2,624 | 664 | 539 | |||||||||||||||
Technology and content |
2,203 | 2,050 | 1,966 | 464 | 381 | |||||||||||||||
General and administrative |
865 | 2,206 | 17,171 | 579 | 2,453 | |||||||||||||||
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Total equity-based compensation |
$ | 5,003 | $ | 5,738 | $ | 21,781 | $ | 1,712 | $ | 3,373 | ||||||||||
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(2) |
Includes amortization of acquired intangible assets as follows: |
Year Ended
December 31, |
Three Months Ended
March 31, |
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2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cost of revenue |
$ | 6,555 | $ | 6,565 | $ | 7,008 | $ | 1,642 | $ | 2,962 | ||||||||||
Sales and marketing |
1,077 | 643 | 721 | 161 | 195 | |||||||||||||||
Technology and content |
611 | 706 | 706 | 176 | 176 | |||||||||||||||
General and administrative |
130 | 120 | 91 | 27 | | |||||||||||||||
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Total amortization of acquired intangible assets |
$ | 8,373 | $ | 8,034 | $ | 8,526 | $ | 2,006 | $ | 3,333 | ||||||||||
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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. |
Consolidated Balance Sheet Data
As of March 31, 2018 | ||||||||||||
Actual |
Pro
Forma (1) |
Pro Forma
As Adjusted (2)(3)(4) |
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(in thousands) | ||||||||||||
Cash and cash equivalents |
$ | 32,359 | $ | 32,359 | $ | 100,555 | ||||||
Working capital (5) |
38,828 | 38,828 | 108,530 | |||||||||
Total assets |
234,002 | 234,002 | 298,365 | |||||||||
Deferred revenue, current and non-current |
116,868 | 116,868 | 116,868 | |||||||||
Long-term debt, net |
135,477 | 135,477 | | |||||||||
Redeemable convertible preferred units |
425,291 | | | |||||||||
Non-controlling interest |
| (32,228 | ) | 79,429 | ||||||||
Total members/stockholders (deficit) equity |
(483,398 | ) | (58,107 | ) | 143,239 |
(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 20,700,000 shares of our Class A common stock by us in this offering, at the assumed initial public offering price of $11.00 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 paid or payable by us, and (iii) the use of proceeds from this offering to (a) repay in full the term loan under our credit facility, which, as of March 31, 2018, had an outstanding principal balance of $137.4 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 $0.2 million based on the number of EARs outstanding as of March 31, 2018 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 $11.00 per share, 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 $11.00 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 $19.3 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 paid or 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 $10.2 million, assuming the assumed initial public offering price remains the same, after deducting estimated underwriting discounts and commissions. |
(4) |
The pro forma as adjusted column reflects $6.1 million of total estimated offering expenses, of which $2.3 million was paid by us as of March 31, 2018. |
(5) |
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, |
Three Months Ended
March 31, |
Year Ended
December 31, |
Three Months
Ended March 31, 2018 |
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2015 | 2016 | 2017 | 2017 | 2018 | 2016 | 2017 | ||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Business customers (end of period) |
10,517 | 12,043 | 14,463 | 12,580 | 14,830 | 15 | % | 20 | % | 18 | % | |||||||||||||||||||||
Billings |
$ | 130,043 | $ | 149,231 | $ | 205,807 | $ | 38,883 | $ | 55,419 | 15 | % | 38 | % | 43 | % | ||||||||||||||||
Billings from business customers |
$ | 83,663 | $ | 104,861 | $ | 162,965 | $ | 29,327 | $ | 45,252 | 25 | % | 55 | % | 54 | % | ||||||||||||||||
% of billings from business customers |
64 | % | 70 | % | 79 | % | 75 | % | 82 | % |
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, |
Three Months Ended
March 31, |
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2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Non-GAAP gross profit |
$ | 81,771 | $ | 98,265 | $ | 124,024 | $ | 27,677 | $ | 37,720 | ||||||||||
Non-GAAP gross margin |
75 | % | 75 | % | 74 | % | 74 | % | 76 | % | ||||||||||
Non-GAAP operating loss |
$ | (5,381 | ) | $ | (71 | ) | $ | (52,439 | ) | $ | (4,550 | ) | $ | (12,620 | ) | |||||
Free cash flow |
$ | 1,699 | $ | (7,927 | ) | $ | (20,472 | ) | $ | 2,763 | $ | (13,061 | ) |
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.
27
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
28
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 890 employees as of March 31, 2018. In addition, we operate globally, sell subscriptions 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 37% and 36% of our revenue during the three months ended March 31, 2017 and 2018, respectively. 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.
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
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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 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.
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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.
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.
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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%, 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.
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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 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
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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 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.
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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 requirements. If we take advantage of any of these reduced reporting requirements 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.
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.
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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 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 do not make payments under the TRA when due, as a result of having insufficient funds or otherwise, interest will generally accrue at a rate equal to LIBOR plus 100 basis points or in some cases LIBOR plus 600 basis points until paid. Nonpayment of our obligations 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.
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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 15% 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 85% 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, generally at a rate equal to LIBOR plus 100 basis points, 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. 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
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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 85% 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 15% 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 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
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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 over 900 million shares of Class A common stock authorized but unissued, including 73,361,121 shares of Class A common stock that will be 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.
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, Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through his associated entities, will hold all of our issued and outstanding Class C common stock and will hold approximately 54.1% of the combined voting power of our outstanding capital stock (or 53.5% if the underwriters exercise in full their over-allotment option to purchase additional shares). As RSUs of Pluralsight Holdings held by Mr. Skonnard vest over time, he will receive additional LLC Units and Class C common stock with 10 votes per share. As a result, Mr. Skonnard and his associated entities will have the ability to control or significantly influence 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
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restated bylaws, the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction. Many of 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 other stockholders. This concentration of voting power with Mr. Skonnard and his associated entities may have a negative impact on the price of our Class A 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 his associated 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 or significantly influence 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. 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.
Aaron Skonnard and his associated entities 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 other 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 have applied 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 57,019,194 outstanding shares of Class A common stock (excluding 73,361,121 shares of our Class A common stock that will be issuable upon exchange of LLC Units). 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 25,119,995 shares of Class A common stock subject to RSUs, 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.
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
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immediate dilution of $10.91 per share, based on the assumed initial public offering price of $11.00 per share (which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), 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 March 31, 2018, 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 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 proceeds of this offering, net of underwriting discounts and commissions, 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 these proceeds to (i) repay in full our outstanding indebtedness under our credit facility; (ii) pay the unpaid expenses of this offering; 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. 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 in November 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.
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 may be 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.
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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 his associated entities, the ability to control or 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 two-thirds in voting power of all outstanding shares of our stock entitled to vote thereon, voting together as a single class. |
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 of ours or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of
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the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, 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 substantially all cases. 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.
(1) |
Includes (i) the shareholders of Former Members that were corporations and that merged into Pluralsight, Inc. and (ii) Former Members who exchanged their LLC Units for stock in Pluralsight, Inc. |
(2) |
Includes all Continuing Members, except Aaron Skonnard and his associated entities. |
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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. 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 manager, effectuate the conversion of all outstanding redeemable convertible preferred limited liability company units, incentive units, and Class B incentive units and the reclassification of all outstanding limited liability company common units into LLC 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.
As part of the Reorganization Transactions, the incentive units and Class B incentive units will be converted as follows:
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15,783,689 incentive units that were outstanding as of March 31, 2018, of which (i) 5,591,778 will be exchanged for 4,552,646 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price |
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range set forth on the cover page of this prospectus), and (ii) 10,191,911 will convert into 6,982,567 LLC Units (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit will also receive a distribution of one share of Class B common stock of Pluralsight, Inc.; and |
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3,000,000 Class B incentive units that were outstanding as of March 31, 2018, of which (i) 320,168 will be exchanged for 137,627 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and (ii) 2,679,832 will convert into 1,151,950 LLC Units (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit will also receive a distribution of one share of Class C common stock of Pluralsight, Inc. |
As the sole manager of Pluralsight Holdings, Pluralsight, Inc. will have the right to determine if and when distributions will be made to the unitholders 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.
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.
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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. will correspondingly be 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 have no economic rights, they will allow such Continuing Members to directly exercise voting power at Pluralsight, Inc., the sole manager 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 the proceeds it receives from this offering, net of underwriting discounts and commissions, 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 $11.00 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 20,700,000 LLC Units for an aggregate of $211.8 million (or 23,805,000 LLC Units for an aggregate of $243.5 million 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 85% 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
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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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20,700,000 shares (or 23,805,000 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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35,119,194 shares by the Former Members; |
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600,000 shares by Continuing Members, other than Mr. Skonnard and his associated entities; and |
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600,000 shares by Mr. Skonnard and his associated entities. |
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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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59,710,473 shares and LLC Units by the Continuing Members, other than Aaron Skonnard and his associated entities. |
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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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13,650,648 shares and LLC Units by Aaron Skonnard and his associated entities. |
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The combined voting power in Pluralsight, Inc. will be as follows: |
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8.2% for investors in this offering (or 9.3% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); |
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13.9% for the Former Members (or 13.7% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); |
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23.8% for the Continuing Members, other than Aaron Skonnard and his associated entities (or 23.5% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); and |
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54.1% for Aaron Skonnard and his associated entities (or 53.5% 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 20,700,000 shares of our Class A common stock in this offering will be approximately $205.7 million, based on an assumed initial offering price of $11.00 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 paid or 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 $237.4 million after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or 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 $19.3 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 $10.2 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 proceeds from this offering, net of underwriting discounts and commissions, 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 in full 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 March 31, 2018, had an outstanding balance of $137.4 million, and the related prepayment premium of up to 1.5%, which was $2.1 million as of March 31, 2018, plus any accrued interest, (ii) pay the unpaid expenses of this offering, which we estimate will be $3.8 million in the aggregate (which is in addition to the $2.3 million of offering expenses that were paid by us as of March 31, 2018), 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 $0.2 million based on the number of EARs outstanding as of March 31, 2018 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 $11.00 per share, 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 in November 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 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 for additional information.
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The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2018:
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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 20,700,000 shares of Class A common stock pursuant to this offering, based on an assumed initial public offering price of $11.00 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 paid or payable by us, (iii) the use of the net proceeds from this offering to (a) repay in full the outstanding indebtedness under our credit facility, which, as of March 31, 2018, had a principal outstanding balance of $137.4 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 $0.2 million based on the number of EARs outstanding as of March 31, 2018 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 $11.00 per share, 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 March 31, 2018 | ||||||||||||
Actual |
Pro
Forma |
Pro Forma
As Adjusted (1)(2) |
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(unaudited) | ||||||||||||
(in thousands, except share and per share
data) |
||||||||||||
Cash and cash equivalents |
$ | 32,359 | $ | 32,359 | $ | 100,555 | ||||||
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|
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Long-term debt, net |
$ | 135,477 | $ | 135,477 | $ | | ||||||
Redeemable convertible preferred units |
425,291 | | | |||||||||
Members/stockholders (deficit) equity: |
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Preferred stock, $0.0001 par value per share, no shares authorized, issued, and outstanding, actual; 100,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted |
| | | |||||||||
Class A common stock, $0.0001 par value per share, 1,000 shares authorized, issued, and outstanding, actual; 1,000,000,000 shares authorized, 36,319,194 shares issued and outstanding, pro forma; and 1,000,000,000 shares authorized, 57,019,194 shares issued and outstanding, pro forma as adjusted |
| 4 | 6 | |||||||||
Class B common stock, $0.0001 par value per share, no shares authorized, issued and outstanding, actual; 200,000,000 shares authorized, 59,710,473 shares issued and outstanding, pro forma and pro forma as adjusted |
| 6 | 6 | |||||||||
Class C common stock, $0.0001 par value per share, no shares authorized, issued and outstanding, actual; 50,000,000 shares authorized, 13,650,648 shares issued and outstanding, pro forma and pro forma as adjusted |
| 1 | 1 | |||||||||
Additional paid-in capital |
| 210,263 | 308,164 | |||||||||
Members capital |
| | | |||||||||
Accumulated other comprehensive income |
30 | 13 | 13 | |||||||||
Accumulated deficit |
(483,428 | ) | (236,166 | ) | (244,380 | ) | ||||||
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|
|
|
|
|
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Total members/stockholders (deficit) equity attributable to Pluralsight |
(483,398 | ) | (25,879 | ) | 63,810 | |||||||
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|
|
|
|
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Non-controlling interest |
| (32,228 | ) | 79,429 | ||||||||
|
|
|
|
|
|
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Total capitalization |
$ | 77,370 | $ | 77,370 | $ | 143,239 | ||||||
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(1) |
Each $1.00 increase (decrease) in the assumed initial public offering price of $11.00 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 and total |
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capitalization by $19.3 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. 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 and total capitalization by $10.2 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. |
(2) |
The pro forma as adjusted column reflects $6.1 million of total estimated offering expenses, of which $2.3 million was paid by us as of March 31, 2018. |
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 attributable to Pluralsight, non-controlling interest, and total capitalization would be $132.3 million, $328.3 million, $80.3 million, $94.7 million, and $175.0 million, respectively.
The number of shares of our common stock that will be outstanding after this offering excludes the following:
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2,702,360 RSUs of Pluralsight Holdings that were outstanding as of March 31, 2018 that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
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1,856,125 RSUs of Pluralsight Holdings that were granted after March 31, 2018 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 March 31, 2018 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 outstanding as of March 31, 2018, with an exercise price of $8.25 per share; and |
|
25,119,995 shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of: |
|
22,149,995 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), plus up to 4,600,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan upon vesting and settlement of RSUs that, on or after the date of this offering, expire, forfeit, or otherwise terminate or are withheld by us to cover tax withholding obligations 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 7,149,357 shares of Class A common stock (based on an assumed initial public offering price of $11.00 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, provided that any increase in the actual initial public offering price from such assumed initial public offering price will decrease the number of shares subject to options that we intend to grant, and any decrease in the actual initial public offering price from such assumed initial public offering price will increase the number of shares subject to options that we intend to grant; and |
|
The shares reserved for future issuance under the 2018 Plan include approximately 636,875 shares of Class A common stock subject to RSUs which we intend to grant in connection with this offering. |
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2,970,000 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 deficit per share of Pluralsight, Inc. is determined by dividing our total tangible assets less our total liabilities by the total number of shares of common stock outstanding prior to the completion of this offering. After giving effect to the Reorganization Transactions and the Assumed Exchange, our pro forma net tangible book deficit as of March 31, 2018 was approximately $194.5 million, or $1.77 per share, based on the total number of shares of our Class A common stock deemed to be outstanding as of March 31, 2018.
After giving further effect to receipt of the net proceeds of our sale of 20,700,000 shares of Class A common stock at an assumed initial offering price of $11.00 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 paid or payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been approximately $11.2 million, or $0.09 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $1.86 per share to our existing stockholders and an immediate dilution of $10.91 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 |
$ | 11.00 | ||||||
Pro forma net tangible book deficit per share as of March 31, 2018 |
$ | (1.77 | ) | |||||
Increase in pro forma net tangible book value per share attributable to investors purchasing shares of our Class A common stock in this offering |
1.86 | |||||||
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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 |
0.09 | |||||||
|
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Dilution in pro forma net tangible book value per share to investors purchasing shares in this offering |
$ | 10.91 | ||||||
|
|
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 $0.32 per share, the increase in the pro forma net tangible book value per share for existing stockholders would be $2.09 per share and the dilution to new investors participating in this offering would be $10.68 per share.
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Each $1.00 increase or decrease in the assumed initial public offering price of $11.00 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 $0.15 per share and the dilution per share to new investors by $0.85 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 $10.2 million, or $0.08 per share, and the pro forma dilution per share to investors in this offering by $0.08 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 March 31, 2018, 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 $11.00 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 paid or payable by us.
Shares Purchased | Total Consideration |
Average
Price Per Share |
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Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders |
109,680,315 | 84.1 | % | $ | 203,524,129 | 47.2 | % | $ | 1.86 | |||||||||||
Investors purchasing shares of our Class A common stock in this offering |
20,700,000 | 15.9 | % | 227,700,000 | 52.8 | % | 11.00 | |||||||||||||
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Total |
130,380,315 | 100 | % | $ | 431,224,129 | 100 | % | |||||||||||||
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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 82.2% 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 17.8% 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 $11.00 per share would increase or decrease, as applicable, the total consideration paid by new investors by $20.7 million and increase or decrease, as applicable, the percent of total consideration paid by new investors by 8.3%, 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 $11.0 million, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions.
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The number of shares of our common stock that will be outstanding after this offering excludes the following:
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2,702,360 RSUs of Pluralsight Holdings that were outstanding as of March 31, 2018 that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering; |
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1,856,125 RSUs of Pluralsight Holdings that were granted after March 31, 2018 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 March 31, 2018 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 outstanding as of March 31, 2018, with an exercise price of $8.25 per share; and |
|
25,119,995 shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of: |
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22,149,995 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), plus up to 4,600,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan upon vesting and settlement of RSUs that, on or after the date of this offering, expire, forfeit, or otherwise terminate or are withheld by us to cover tax withholding obligations 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 7,149,357 shares of Class A common stock (based on an assumed initial public offering price of $11.00 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, provided that any increase in the actual initial public offering price from such assumed initial public offering price will decrease the number of shares subject to options that we intend to grant, and any decrease in the actual initial public offering price from such assumed initial public offering price will increase the number of shares subject to options that we intend to grant; and |
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The shares reserved for future issuance under the 2018 Plan include approximately 636,875 shares of Class A common stock subject to RSUs which we intend to grant in connection with this offering. |
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2,970,000 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. The selected consolidated statements of operations data for the year ended December 31, 2015, and the selected consolidated balance sheet data as of December 31, 2015, have been derived from the consolidated financial statements that are not included in this prospectus. The selected consolidated statements of operations data for the three months ended March 31, 2017 and 2018, and the selected consolidated balance sheet data as of March 31, 2018, are derived from the unaudited consolidated financial statements and related notes of Pluralsight Holdings included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements of Pluralsight Holdings and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of our future results, and the results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year or any other period.
Consolidated Statements of Operations Data
Year Ended
December 31, |
Three Months Ended
March 31, |
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2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(in thousands, except per unit amounts) | ||||||||||||||||||||
Revenue |
$ | 108,422 | $ | 131,841 | $ | 166,824 | $ | 37,239 | $ | 49,644 | ||||||||||
Cost of revenue (1)(2) |
33,245 | 40,161 | 49,828 | 11,209 | 14,886 | |||||||||||||||
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Gross profit |
75,177 | 91,680 | 116,996 | 26,030 | 34,758 | |||||||||||||||
Operating expenses: (1)(2) |
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Sales and marketing |
44,872 | 51,234 | 103,478 | 17,826 | 29,467 | |||||||||||||||
Technology and content |
33,146 | 36,159 | 49,293 | 10,205 | 13,325 | |||||||||||||||
General and administrative |
15,916 | 18,130 | 46,971 | 6,267 | 11,292 | |||||||||||||||
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Total operating expenses |
93,934 | 105,523 | 199,742 | 34,298 | 54,084 | |||||||||||||||
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Loss from operations |
(18,757 | ) | (13,843 | ) | (82,746 | ) | (8,268 | ) | (19,326 | ) | ||||||||||
Other (expense) income: |
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Interest expense |
(7,399 | ) | (6,320 | ) | (11,665 | ) | (1,527 | ) | (3,710 | ) | ||||||||||
Loss on debt extinguishment |
| | (1,882 | ) | | | ||||||||||||||
Other (expense) income, net |
(18 | ) | 45 | 81 | 48 | (13 | ) | |||||||||||||
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Loss before income taxes |
(26,174 | ) | (20,118 | ) | (96,212 | ) | (9,747 | ) | (23,049 | ) | ||||||||||
Provision for income taxes |
(186 | ) | (494 | ) | (324 | ) | (58 | ) | (109 | ) | ||||||||||
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Net loss |
$ | (26,360 | ) | $ | (20,612 | ) | $ | (96,536 | ) | $ | (9,805 | ) | $ | (23,158 | ) | |||||
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Less: accretion of Series A redeemable convertible preferred units |
(55,300 | ) | (6,325 | ) | (63,800 | ) | (1,650 | ) | (19,525 | ) | ||||||||||
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Net loss attributable to common units |
$ | (81,660 | ) | $ | (26,937 | ) | $ | (160,336 | ) | $ | (11,455 | ) | $ | (42,683 | ) | |||||
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Net loss per unit, basic and diluted (3) |
$ | (1.72 | ) | $ | (0.57 | ) | $ | (3.34 | ) | $ | (0.24 | ) | $ | (0.88 | ) | |||||
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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 | 47,783 | 48,408 | |||||||||||||||
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Pro forma net loss per unit, basic and diluted (unaudited) (3) |
$ | (1.00 | ) | $ | (0.24 | ) | ||||||||||||||
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Pro forma weighted average common units used in computing basic and diluted net loss per unit (unaudited) (3) |
96,405 | 96,856 | ||||||||||||||||||
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(1) |
Includes equity-based compensation expense as follows: |
Year Ended
December 31, |
Three Months Ended
March 31, |
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2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cost of revenue |
$ | 39 | $ | 20 | $ | 20 | $ | 5 | $ | | ||||||||||
Sales and marketing |
1,896 | 1,462 | 2,624 | 664 | 539 | |||||||||||||||
Technology and content |
2,203 | 2,050 | 1,966 | 464 | 381 | |||||||||||||||
General and administrative |
865 | 2,206 | 17,171 | 579 | 2,453 | |||||||||||||||
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Total equity-based compensation |
$ | 5,003 | $ | 5,738 | $ | 21,781 | $ | 1,712 | $ | 3,373 | ||||||||||
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(2) |
Includes amortization of acquired intangible assets as follows: |
Year Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||||||
2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cost of revenue |
$ | 6,555 | $ | 6,565 | $ | 7,008 | $ | 1,642 | $ | 2,962 | ||||||||||
Sales and marketing |
1,077 | 643 | 721 | 161 | 195 | |||||||||||||||
Technology and content |
611 | 706 | 706 | 176 | 176 | |||||||||||||||
General and administrative |
130 | 120 | 91 | 27 | | |||||||||||||||
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Total amortization of acquired intangible assets |
$ | 8,373 | $ | 8,034 | $ | 8,526 | $ | 2,006 | $ | 3,333 | ||||||||||
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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. |
Consolidated Balance Sheet Data
As of December 31, |
As of
March 31, 2018 |
|||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents |
$ | 8,389 | $ | 19,397 | $ | 28,267 | $ | 32,359 | ||||||||
Working (deficit) capital (1) |
(7,664 | ) | 19,212 | 31,199 | 38,828 | |||||||||||
Total assets |
192,984 | 214,972 | 236,420 | 234,002 | ||||||||||||
Deferred revenue, current and non-current |
55,795 | 72,683 | 111,301 | 116,868 | ||||||||||||
Redeemable convertible preferred units |
305,294 | 341,966 | 405,766 | 425,291 | ||||||||||||
Total members/stockholders deficit |
(286,134 | ) | (307,230 | ) | (445,077 | ) | (483,398 | ) |
(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, |
Three Months Ended
March 31, |
Year Ended
December 31, |
Three Months Ended
March 31, 2018 |
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2015 | 2016 | 2017 | 2017 | 2018 | 2016 | 2017 | ||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Business customers (end of period) |
10,517 | 12,043 | 14,463 | 12,580 | 14,830 | 15 | % | 20 | % | 18 | % | |||||||||||||||||||||
Billings |
$ | 130,043 | $ | 149,231 | $ | 205,807 | $ | 38,883 | $ | 55,419 | 15 | % | 38 | % | 43 | % | ||||||||||||||||
Billings from business customers |
$ | 83,663 | $ | 104,861 | $ | 162,965 | $ | 29,327 | $ | 45,252 | 25 | % | 55 | % | 54 | % | ||||||||||||||||
% of billings from business customers |
64 | % | 70 | % | 79 | % | 75 | % | 82 | % |
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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 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, |
Three Months Ended
March 31, |
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2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Non-GAAP gross profit |
$ | 81,771 | $ | 98,265 | $ | 124,024 | $ | 27,677 | $ | 37,720 | ||||||||||
Non-GAAP gross margin |
75 | % | 75 | % | 74 | % | 74 | % | 76 | % | ||||||||||
Non-GAAP operating loss |
$ | (5,381 | ) | $ | (71 | ) | $ | (52,439 | ) | $ | (4,550 | ) | $ | (12,620 | ) | |||||
Free cash flow |
$ | 1,699 | $ | (7,927 | ) | $ | (20,472 | ) | $ | 2,763 | $ | (13,061 | ) |
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
76
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 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 the years ended December 31, 2015, 2016, and 2017, and for the three months ended March 31, 2017 and 2018, our free cash flow included cash paid for interest on our long-term debt of $6.5 million, $5.5 million, $6.9 million, $1.2 million, and $2.5 million, respectively. For the years ended December 31, 2016 and 2017, and for the three months ended March 31, 2018, 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 eliminate cash paid for interest on our long-term debt following the repayment in full 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.
77
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.
The following table provides a reconciliation of gross profit to non-GAAP gross profit:
Year Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||||||
2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Gross profit |
$ | 75,177 | $ | 91,680 | $ | 116,996 | $ | 26,030 | $ | 34,758 | ||||||||||
Equity-based compensation |
39 | 20 | 20 | 5 | | |||||||||||||||
Amortization of acquired intangible assets |
6,555 | 6,565 | 7,008 | 1,642 | 2,962 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-GAAP gross profit |
$ | 81,771 | $ | 98,265 | $ | 124,024 | $ | 27,677 | $ | 37,720 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross margin |
69 | % | 70 | % | 70 | % | 70 | % | 70 | % | ||||||||||
Non-GAAP gross margin |
75 | % | 75 | % | 74 | % | 74 | % | 76 | % |
The following table provides a reconciliation of loss from operations to non-GAAP operating loss:
Year Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||||||
2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Loss from operations |
$ | (18,757 | ) | $ | (13,843 | ) | $ | (82,746 | ) | $ | (8,268 | ) | $ | (19,326 | ) | |||||
Equity-based compensation |
5,003 | 5,738 | 21,781 | 1,712 | 3,373 | |||||||||||||||
Amortization of acquired intangible assets |
8,373 | 8,034 | 8,526 | 2,006 | 3,333 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-GAAP operating loss |
$ | (5,381 | ) | $ | (71 | ) | $ | (52,439 | ) | $ | (4,550 | ) | $ | (12,620 | ) | |||||
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of net cash provided by (used in) operating activities to free cash flow:
Year Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||||||
2015 | 2016 | 2017 | 2017 | 2018 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 11,942 | $ | 4,468 | $ | (12,139 | ) | $ | 4,954 | $ | (10,424 | ) | ||||||||
Less: purchases of property and equipment |
(7,954 | ) | (10,142 | ) | (5,951 | ) | (1,568 | ) | (1,868 | ) | ||||||||||
Less: purchases of content library |
(2,289 | ) | (2,253 | ) | (2,382 | ) | (623 | ) | (769 | ) | ||||||||||
|
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|
|
|
|
|
|
|
|
|||||||||||
Free cash flow |
$ | 1,699 | $ | (7,927 | ) | $ | (20,472 | ) | $ | 2,763 | $ | (13,061 | ) | |||||||
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|
78
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet as of March 31, 2018 and unaudited pro forma consolidated statements of operations for the year ended December 31, 2017, and the three months ended March 31, 2018, 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 in full 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 statements of operations for the year ended December 31, 2017, and the three months ended March 31, 2018, assume the Reorganization Transactions and this offering were completed on January 1, 2017. The unaudited pro forma consolidated balance sheet as of March 31, 2018 assumes the Reorganization Transactions and this offering were completed on March 31, 2018.
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 85% 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 $228.0 million and a liability of approximately $193.8 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 $11.00 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 23.0%, 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 $20.1
79
million and the related liability would increase (decrease) by approximately $17.1 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.
80
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 2018
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 |
$ | 32,359 | $ | | $ | 32,359 | $ | 68,196 | (2),(7),(8) | $ | 100,555 | |||||||||||||||
Accounts receivable, net |
30,998 | | 30,998 | | 30,998 | |||||||||||||||||||||
Prepaid expenses and other current assets |
7,071 | | 7,071 | | 7,071 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total current assets |
70,428 | | 70,428 | 68,196 | 138,624 | |||||||||||||||||||||
Property and equipment, net |
22,014 | | 22,014 | | 22,014 | |||||||||||||||||||||
Content library, net |
10,801 | | 10,801 | | 10,801 | |||||||||||||||||||||
Intangible assets, net |
2,483 | | 2,483 | | 2,483 | |||||||||||||||||||||
Goodwill |
123,119 | | 123,119 | | 123,119 | |||||||||||||||||||||
Deferred tax asset (6) |
| | | | | |||||||||||||||||||||
Other assets |
5,157 | | 5,157 | (3,833 | ) | (3) | 1,324 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total assets |
$ | 234,002 | $ | | $ | 234,002 | $ | 64,363 | $ | 298,365 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Liabilities, redeemable convertible preferred units, and members/stockholders (deficit) equity |
||||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||||
Accounts payable |
$ | 8,065 | $ | | $ | 8,065 | $ | (115 | ) | (3) | $ | 7,950 | ||||||||||||||
Accrued expenses |
15,835 | | 15,835 | (1,391 | ) | (3) | 14,444 | |||||||||||||||||||
Accrued author fees |
7,700 | | 7,700 | | 7,700 | |||||||||||||||||||||
Deferred revenue |
109,919 | | 109,919 | | 109,919 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total current liabilities |
141,519 | | 141,519 | (1,506 | ) | 140,013 | ||||||||||||||||||||
Deferred revenue, net of current portion |
6,949 | | 6,949 | | 6,949 | |||||||||||||||||||||
Long-term debt, net |
135,477 | | 135,477 | (135,477 | ) | (7) | | |||||||||||||||||||
Facility financing obligation |
7,509 | | 7,509 | | 7,509 | |||||||||||||||||||||
Payable to related parties pursuant to tax receivable agreement (6) |
| | | | | |||||||||||||||||||||
Other liabilities |
655 | | 655 | | 655 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total liabilities |
292,109 | | 292,109 | (136,983 | ) | 155,126 | ||||||||||||||||||||
Redeemable convertible preferred units |
425,291 | (425,291 | ) | (1) | | | | |||||||||||||||||||
Members/stockholders (deficit) equity: |
||||||||||||||||||||||||||
Preferred stock, $0.0001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding, pro forma |
| | | | | |||||||||||||||||||||
Class A common stock, $0.0001 par value per share, 1,000,000,000 shares authorized, 57,019,194 shares issued and outstanding, pro forma |
| 4 | (1) | 4 | 2 | (2) | 6 | |||||||||||||||||||
Class B common stock, $0.0001 par value per share, 200,000,000 shares authorized, 59,710,473 shares issued and outstanding, pro forma |
| 6 | (1) | 6 | | 6 | ||||||||||||||||||||
Class C common stock, $0.0001 par value per share, 50,000,000 shares authorized, 13,650,648 shares issued and outstanding, pro forma |
| 1 | (1),(4) | 1 | | 1 | ||||||||||||||||||||
Additional paid-in capital |
| 210,263 | (4),(5) | 210,263 | 97,901 | (2),(3),(8),(9) | 308,164 | |||||||||||||||||||
Members capital |
| | (1),(4),(5) | | | | ||||||||||||||||||||
Accumulated other comprehensive income |
30 | (17 | ) | (5) | 13 | | 13 | |||||||||||||||||||
Accumulated deficit |
(483,428 | ) | 247,262 | (1),(4),(5) | (236,166 | ) | (8,214 | ) | (7),(8),(9) | (244,380 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total members/stockholders (deficit) equity attributable to Pluralsight |
(483,398 | ) | 457,519 | (25,879 | ) | 89,689 | 63,810 | |||||||||||||||||||
Non-controlling interest |
| (32,228 | ) | (5) | (32,228 | ) | 111,657 | (5) | 79,429 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total members/stockholders (deficit) equity |
(483,398 | ) | 425,291 | (58,107 | ) | 201,346 | 143,239 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total liabilities, redeemable convertible preferred units, and members/stockholders (deficit) equity |
$ | 234,002 | $ | | $ | 234,002 | $ | 64,363 | $ | 298,365 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated balance sheet
81
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 $11.00 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 $205.7 million from this offering, based on the assumed sale of 20,700,000 shares of Class A common stock at an assumed initial public offering of $11.00 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 paid or payable by us. A $1.00 increase or decrease in the assumed initial public offering price of $11.00 per share would increase or decrease the net proceeds we receive from this offering by approximately $19.3 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 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 $10.2 million, assuming an initial public offering price of $11.00 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 commissions. |
(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. As of March 31, 2018, $2.3 million of the offering costs had been paid. |
(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 44.5% of the LLC Units (excluding 505,097 LLC Units that are subject to time-based vesting requirements) 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 55.5% of the outstanding LLC Units (excluding 3,004,335 LLC Units that are subject to time-based vesting requirements) calculated as follows (in thousands): |
Number | Percent | |||||||
Interest in Pluralsight Holdings held by Pluralsight, Inc. |
56,514,097 | 44.5 | % | |||||
Non-controlling interest in Pluralsight Holdings held by the Continuing Members |
70,356,786 | 55.5 | % | |||||
|
|
|
|
|||||
126,870,883 | 100.0 | % | ||||||
|
|
|
|
If the underwriters were to exercise their option to purchase additional shares of our Class A common stock in full, Pluralsight, Inc. would own 45.9% economic interest of Pluralsight Holdings and the Continuing Members would own the remaining 54.1% of the economic interest of Pluralsight Holdings.
82
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) |
$ | 472,041 | ||
Less: Pro forma equity attributable to par value of common stock of Pluralsight, Inc. |
11 | |||
Less: Pro forma equity attributable to 55.5% non-controlling interest of Pluralsight Holdings |
(261,789 | ) | ||
|
|
|||
$ | 210,263 | |||
|
|
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) |
$ | (46,750 | ) | |
Less: Pro forma deficit attributable to 55.5% non-controlling interest of Pluralsight Holdings |
294,012 | |||
|
|
|||
$ | 247,262 | |||
|
|
(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 in full of our term loan under our credit facility, which had an outstanding principal balance of $137.4 million, and the related prepayment premium of 1.5%. The term loan is stated net of debt issuance costs of $1.9 million, a portion 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 in full the outstanding indebtedness under the term loan with the proceeds of the offering, we will have the discretion to determine the timing of repayment. |
(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 $0.2 million based on the number of EARs outstanding as of March 31, 2018 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 $11.00, 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. |
(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 and Class B RSUs outstanding as of March 31, 2018 was 2,702,360 and 3,000,000, respectively. This adjustment reflects the estimated compensation charge of $6.3 million 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 | $ | | $ | 166,824 | $ | | $ | 166,824 | ||||||||||||||||
Cost of revenue |
49,828 | | 49,828 | 30 | (6),(7) | 49,858 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Gross profit |
116,996 | | 116,996 | (30 | ) | 116,966 | ||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||
Sales and marketing |
103,478 | | 103,478 | 5,279 | (6),(7) | 108,757 | ||||||||||||||||||||
Technology and content |
49,293 | | 49,293 | 3,422 | (6),(7) | 52,715 | ||||||||||||||||||||
General and administrative |
46,971 | | 46,971 | 14,610 | (6),(7) | 61,581 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total operating expenses |
199,742 | | 199,742 | 23,311 | 223,053 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Loss from operations |
(82,746 | ) | | (82,746 | ) | (23,341 | ) | (106,087 | ) | |||||||||||||||||
Other (expense) income: |
||||||||||||||||||||||||||
Interest expense |
(11,665 | ) | | (11,665 | ) | 10,350 | (3) | (1,315 | ) | |||||||||||||||||
Loss on debt extinguishment |
(1,882 | ) | | (1,882 | ) | 920 | (3) | (962 | ) | |||||||||||||||||
Other income, net |
81 | | 81 | | 81 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Loss before income taxes |
(96,212 | ) | | (96,212 | ) | (12,071 | ) | (108,283 | ) | |||||||||||||||||
Provision for income taxes |
(324 | ) | | (1) | (324 | ) | | (324 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net loss |
$ | (96,536 | ) | $ | | $ | (96,536 | ) | $ | (12,071 | ) | $ | (108,607 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Less: net loss attributable to non-controlling interest |
| (53,534 | ) | (2) | (53,534 | ) | (6,694 | ) | (60,228 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net loss attributable to Pluralsight, Inc. |
$ | (96,536 | ) | $ | 53,534 | $ | (43,002 | ) | $ | (5,377 | ) | $ | (48,379 | ) | ||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||||||||
Less: accretion of Series A redeemable convertible preferred units |
(63,800 | ) | 63,800 | (5) | | | | |||||||||||||||||||
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|
|
|
|
|
|
|
|
|
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Net loss attributable to common units/shares |
$ | (160,336 | ) | $ | 117,334 | $ | (43,002 | ) | $ | (5,377 | ) | $ | (48,379 | ) | ||||||||||||
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|
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Net loss per unit/share, basic and diluted |
$ | (3.34 | ) | (4) | $ | (0.86 | ) | |||||||||||||||||||
|
|
|
|
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Weighted average common units/shares used in computing basic and diluted net loss per unit/share |
47,957 | 56,514 | ||||||||||||||||||||||||
|
|
|
|
See accompanying notes to unaudited pro forma consolidated statements of operations
84
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2018
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 |
$ | 49,644 | $ | | $ | 49,644 | $ | | $ | 49,644 | ||||||||||||||||
Cost of revenue |
14,886 | | 14,886 | 10 | (6),(7) | 14,896 | ||||||||||||||||||||
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|
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|
|
|
|
|
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Gross profit |
34,758 | | 34,758 | (10 | ) | 34,748 | ||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||
Sales and marketing |
29,467 | | 29,467 | 1,562 | (6),(7) | 31,029 | ||||||||||||||||||||
Technology and content |
13,325 | | 13,325 | 942 | (6),(7) | 14,267 | ||||||||||||||||||||
General and administrative |
11,292 | | 11,292 | 5,127 | (6),(7) | 16,419 | ||||||||||||||||||||
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|
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Total operating expenses |
54,084 | | 54,084 | 7,631 | 61,715 | |||||||||||||||||||||
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|
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|
|
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Loss from operations |
(19,326 | ) | | (19,326 | ) | (7,641 | ) | (26,967 | ) | |||||||||||||||||
Other (expense) income: |
||||||||||||||||||||||||||
Interest expenses |
(3,710 | ) | | (3,710 | ) | 3,366 | (3) | (344 | ) | |||||||||||||||||
Other expense, net |
(13 | ) | | (13 | ) | | (13 | ) | ||||||||||||||||||
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|
|
|
|
|
|
|
|
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Loss before income taxes |
(23,049 | ) | | (23,049 | ) | (4,275 | ) | (27,324 | ) | |||||||||||||||||
Provision for income taxes |
(109 | ) | | (1) | (109 | ) | | (109 | ) | |||||||||||||||||
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|
|
|
|
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Net loss |
$ | (23,158 | ) | $ | | $ | (23,158 | ) | $ | (4,275 | ) | $ | (27,433 | ) | ||||||||||||
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|
|
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|
|
|
|
|
|
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Less: net loss attributable to non-controlling interest |
| (12,842 | ) | (2) | (12,842 | ) | (2,371 | ) | (15,213 | ) | ||||||||||||||||
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|
|
|
|
|
|
|
|
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Net loss attributable to Pluralsight, Inc. |
$ | (23,158 | ) | $ | 12,842 | $ | (10,316 | ) | $ | (1,904 | ) | $ | (12,220 | ) | ||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||||||||
Less: accretion of Series A redeemable convertible preferred units |
(19,525 | ) | 19,525 | (5) | | | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net loss attributable to common units/shares |
$ | (42,683 | ) | $ | 32,367 | $ | (10,316 | ) | $ | (1,904 | ) | $ | (12,220 | ) | ||||||||||||
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|
|
|
|
|
|
|
|
|
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Net loss per unit/share, basic and diluted |
$ | (0.88 | ) | (4) | $ | (0.22 | ) | |||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
Weighted average common units/shares used in computing basic and diluted net loss per unit/share |
48,408 | 56,514 | ||||||||||||||||||||||||
|
|
|
|
See accompanying notes to unaudited pro forma consolidated statements of operations
85
Notes to Unaudited Pro Forma Consolidated Statements 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 Pluralsight Holdings has historically generated losses, and on a pro forma basis, will continue to have losses following this offering and the Reorganization Transactions, the unaudited pro forma consolidated statements of operations do not reflect adjustments to our provision for income taxes as it has been determined that it is more-likely-than-not that our NOLs will not be realized. |
(2) |
After the offering and the Reorganization Transactions, Pluralsight, Inc. will become the sole 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 55.5% (excluding 3,004,335 LLC Units that are subject to time-based vesting requirements). |
(3) |
Reflects a decrease in interest expense of $10.4 million and a decrease of interest included in loss on debt extinguishment of $0.9 million for the year ended December 31, 2017, and a decrease in interest expense of $3.4 million for the three months ended March 31, 2018, assuming the repayment in full 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 7,149,357 shares of Class A common stock, based on an assumed initial public offering price of $11.00 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 $11.00 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. 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 |
55 | % | ||
Expected dividend yield |
None | |||
Expected term (in years) |
4.4 | |||
Risk-free interest rate |
2.50 | % |
In addition, we intend to grant 636,875 RSUs in connection with this offering from our 2018 Plan, based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, 120,000 of which will vest within one year of the completion of this offering, and are not reflected in the unaudited pro forma statements of operations as they are not expected to have a continuing impact on the financial statements of Pluralsight, Inc. The remaining RSUs are expected to vest over four 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. |
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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:
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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 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 three months ended March 31, 2018, 82% of our billings came from business customers, compared to 75% for the three months ended March 31, 2017. We expect business customers to represent an increasing percentage of our billings and revenue in the future.
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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 41% of our billings from individual customers in the three months ended March 31, 2018 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
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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 three months ended March 31, 2017 and 2018, our billings were $38.9 million and $55.4 million, respectively, representing period-over-period growth of 43%, and our billings from business customers were $29.3 million and $45.3 million, respectively, representing period-over-period growth of 54%. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, our revenue was $131.8 million, $166.8 million, $37.2 million, and $49.6 million, respectively. Our net loss was $20.6 million, $96.5 million, $9.8 million, and $23.2 million, respectively, which reflects our substantial investments in the future growth of our business.
We are building our business to generate strong free cash flow over the long term. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, cash provided by (used in) operations was $4.5 million, ($12.1 million), $5.0 million, and ($10.4 million), respectively. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, our free cash flow was ($7.9 million), ($20.5 million), $2.8 million, and ($13.1 million), respectively, and our free cash flow included cash payments for interest on our long-term debt of $5.5 million, $6.9 million, $1.2 million, and $2.5 million, respectively. We expect our free cash flow to improve as we experience greater scale in our business and improve operational efficiency, as well as eliminate cash paid for interest on our long-term debt following the repayment in full of the outstanding indebtedness under our credit facility in connection with this offering. 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
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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 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.
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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 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 was 117% and 120% at December 31, 2017 and March 31, 2018, respectively.
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% and 36% of our revenue outside the United States during the year ended December 31, 2017, and the three months ended March 31, 2018, respectively. 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, |
Three Months Ended
March 31, |
Growth Rate | ||||||||||||||||||||||
2016 | 2017 | 2017 | 2018 |
Year Ended
December 31, 2017 |
Three Months Ended
March 31, 2018 |
|||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Business customers (end of period) |
12,043 | 14,463 | 12,580 | 14,830 | 20 | % | 18 | % | ||||||||||||||||
Billings |
$ | 149,231 | $ | 205,807 | $ | 38,883 | $ | 55,419 | 38 | % | 43 | % | ||||||||||||
Billings from business customers |
$ | 104,861 | $ | 162,965 | $ | 29,327 | $ | 45,252 | 55 | % | 54 | % | ||||||||||||
% of billings from business customers |
70 | % | 79 | % | 75 | % | 82 | % |
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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 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.
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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.
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 increase 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
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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.
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 in full 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, |
Three Months Ended
March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Revenue |
$ | 131,841 | $ | 166,824 | $ | 37,239 | $ | 49,644 | ||||||||
Cost of revenue (1)(2) |
40,161 | 49,828 | 11,209 | 14,886 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
91,680 | 116,996 | 26,030 | 34,758 | ||||||||||||
Operating expenses (1)(2) : |
||||||||||||||||
Sales and marketing |
51,234 | 103,478 | 17,826 | 29,467 | ||||||||||||
Technology and content |
36,159 | 49,293 | 10,205 | 13,325 | ||||||||||||
General and administrative |
18,130 | 46,971 | 6,267 | 11,292 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
105,523 | 199,742 | 34,298 | 54,084 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(13,843 | ) | (82,746 | ) | (8,268 | ) | (19,326 | ) | ||||||||
Other (expense) income: |
||||||||||||||||
Interest expense |
(6,320 | ) | (11,665 | ) | (1,527 | ) | (3,710 | ) | ||||||||
Loss on debt extinguishment |
| (1,882 | ) | | | |||||||||||
Other income (expense), net |
45 | 81 | 48 | (13 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(20,118 | ) | (96,212 | ) | (9,747 | ) | (23,049 | ) | ||||||||
Provision for income taxes |
(494 | ) | (324 | ) | (58 | ) | (109 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (20,612 | ) | $ | (96,536 | ) | $ | (9,805 | ) | $ | (23,158 | ) | ||||
|
|
|
|
|
|
|
|
95
(1) |
Includes equity-based compensation expense as follows: |
Year Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Cost of revenue |
$ | 20 | $ | 20 | $ | 5 | $ | | ||||||||
Sales and marketing |
1,462 | 2,624 | 664 | 539 | ||||||||||||
Technology and content |
2,050 | 1,966 | 464 | 381 | ||||||||||||
General and administrative |
2,206 | 17,171 | 579 | 2,453 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity-based compensation |
$ | 5,738 | $ | 21,781 | $ | 1,712 | $ | 3,373 | ||||||||
|
|
|
|
|
|
|
|
(2) |
Includes amortization of acquired intangible assets as follows: |
Year Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Cost of revenue |
$ | 6,565 | $ | 7,008 | $ | 1,642 | $ | 2,962 | ||||||||
Sales and marketing |
643 | 721 | 161 | 195 | ||||||||||||
Technology and content |
706 | 706 | 176 | 176 | ||||||||||||
General and administrative |
120 | 91 | 27 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total amortization of acquired intangible assets |
$ | 8,034 | $ | 8,526 | $ | 2,006 | $ | 3,333 | ||||||||
|
|
|
|
|
|
|
|
Year Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
Revenue |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of revenue |
30 | 30 | 30 | 30 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
70 | 70 | 70 | 70 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
39 | 62 | 48 | 59 | ||||||||||||
Technology and content |
27 | 30 | 27 | 27 | ||||||||||||
General and administrative |
14 | 28 | 17 | 23 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
80 | 120 | 92 | 109 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(10 | ) | (50 | ) | (22 | ) | (39 | ) | ||||||||
Other (expense) income: |
||||||||||||||||
Interest expense |
(5 | ) | (7 | ) | (4 | ) | (7 | ) | ||||||||
Loss on debt extinguishment |
| (1 | ) | | | |||||||||||
Other income (expense), net |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(15 | ) | (58 | ) | (26 | ) | (46 | ) | ||||||||
Provision for income taxes |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
(15 | )% | (58 | )% | (26 | )% | (46 | )% | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017 and March 31, 2018
Revenue
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Revenue |
$ | 37,239 | $ | 49,644 | $ | 12,405 | 33 | % |
96
Revenue was $49.6 million for the three months ended March 31, 2018, compared to $37.2 million for the three months ended March 31, 2017, an increase of $12.4 million, or 33%. The increase in revenue was primarily due to a $11.9 million, or 44%, increase in revenue from business customers, driven by an increase of 2,250 business customers from 12,580 business customers as of March 31, 2017 to 14,830 business customers as of March 31, 2018, as well as increased sales to our existing business customers as evidenced by our 120% dollar-based net retention rate at March 31, 2018. In addition, there was an increase of $0.5 million in revenue from individual customers.
Cost of Revenue and Gross Profit
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Cost of revenue |
$ | 11,209 | $ | 14,886 | $ | 3,677 | 33 | % | ||||||||
Gross profit |
26,030 | 34,758 | 8,728 | 34 |
Cost of revenue was $14.9 million for the three months ended March 31, 2018, compared to $11.2 million for the three months ended March 31, 2017, an increase of $3.7 million, or 33%. The increase in cost of revenue was primarily due to an increase of $1.4 million in author fees, an increase of $1.4 million in amortization of acquired intangible assets and course creation costs, an increase of $0.2 million in hosting and delivery fees to accommodate our growing customer base, an increase of $0.2 million in depreciation of capitalized software development costs, and an increase of $0.1 million in employee-related costs related to increased customer support headcount.
Gross profit was $34.8 million for the three months ended March 31, 2018, compared to $26.0 million for the three months ended March 31, 2017, an increase of $8.7 million, or 34%. The increase in gross profit was the result of the increase in our revenue during the three months ended March 31, 2018. Gross margin remained consistent at 70% for each of the three months ended March 31, 2017 and 2018.
Operating Expenses
Three Months Ended
March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Sales and marketing |
$ | 17,826 | $ | 29,467 | $ | 11,641 | 65 | % | ||||||||
Technology and content |
10,205 | 13,325 | 3,120 | 31 | ||||||||||||
General and administrative |
6,267 | 11,292 | 5,025 | 80 | ||||||||||||
|
|
|
|
|||||||||||||
Total operating expenses |
$ | 34,298 | $ | 54,084 | ||||||||||||
|
|
|
|
Sales and Marketing
Sales and marketing expenses were $29.5 million for the three months ended March 31, 2018, compared to $17.8 million for the three months ended March 31, 2017, an increase of $11.6 million, or 65%. The increase was primarily due to an increase of $9.0 million in employee compensation costs, as we added headcount to support our growth. In addition, there was an increase of $1.2 million related to allocated overhead costs driven by our headcount growth, an increase of $0.6 million in marketing and event costs, and an increase of $0.5 million due to additional travel expenses related to additional headcount.
Technology and Content
Technology and content expenses were $13.3 million for the three months ended March 31, 2018, compared to $10.2 million for the three months ended March 31, 2017, an increase of $3.1 million, or 31%. The increase
97
was primarily due to an increase of $2.5 million in employee compensation costs, as we added headcount to support our growth, and an increase of $0.5 million related to allocated overhead costs primarily driven by our headcount growth.
General and Administrative
General and administrative expenses were $11.3 million for the three months ended March 31, 2018, compared to $6.3 million for the three months ended March 31, 2017, an increase of $5.0 million, or 80%. The increase was primarily due to an increase of $3.5 million in employee compensation costs, including an additional $1.9 million in equity-based compensation expense. In addition, there was an increase of $0.8 million related to allocated overhead costs primarily driven by our headcount growth and an increase of $0.7 million for professional services.
Other (Expense) Income
Three Months
Ended March 31, |
Change | |||||||||||||||
2017 | 2018 | Amount | % | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Interest expense |
$ | (1,527 | ) | $ | (3,710 | ) | $ | (2,183 | ) | 143 | % | |||||
Other income (expense), net |
48 | (13 | ) | (61 | ) | (127 | ) |
Interest expense increased primarily as a result of increased borrowings of long-term debt and higher interest rates. As of March 31, 2018, we had a principal balance of $137.4 million in long-term debt outstanding compared to $82.5 million as of March 31, 2017. The interest rate on the long-term debt outstanding as of March 31, 2017 and 2018 was 5.50% and 10.38%, respectively.
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.
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 | % |
98
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 headcount 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 headcount growth, partially offset by an increase of $0.3 million in capitalized software development costs.
99
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 headcount 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, compared to $85.0 million as of December 31, 2016. The interest rate on the long-term debt outstanding as of December 31, 2016 and 2017 was 5.50% and 10.20%, respectively. 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.
100
Quarterly Results of Operations
The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the nine quarters in the period ended March 31, 2018, 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 |
March 31,
2018 |
||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
Revenue |
$ | 31,325 | $ | 32,994 | $ | 33,242 | $ | 34,280 | $ | 37,239 | $38,891 | $43,286 | $47,408 | $49,644 | ||||||||||||||||||||||
Cost of revenue (1)(2) |
9,489 | 9,862 | 10,167 | 10,643 | 11,209 | 11,887 | 12,582 | 14,150 | 14,886 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Gross profit |
21,836 | 23,132 | 23,075 | 23,637 | 26,030 | 27,004 | 30,704 | 33,258 | 34,758 | |||||||||||||||||||||||||||
Operating expenses (1)(2) : |
||||||||||||||||||||||||||||||||||||
Sales and marketing |
11,581 | 12,878 | 11,576 | 15,199 | 17,826 | 23,018 | 29,410 | 33,224 | 29,467 | |||||||||||||||||||||||||||
Technology and content |
9,962 | 8,898 | 8,011 | 9,288 | 10,205 | 11,326 | 12,448 | 15,314 | 13,325 | |||||||||||||||||||||||||||
General and administrative |
4,216 | 4,203 | 4,316 | 5,395 | 6,267 | 9,412 | 19,094 | 12,198 | 11,292 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total operating expenses |
25,759 | 25,979 | 23,903 | 29,882 | 34,298 | 43,756 | 60,952 | 60,736 | 54,084 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Loss from operations |
(3,923 | ) | (2,847 | ) | (828 | ) | (6,245 | ) | (8,268 | ) | (16,752 | ) | (30,248 | ) | (27,478 | ) | (19,326 | ) | ||||||||||||||||||
Other (expense) income: |
||||||||||||||||||||||||||||||||||||
Interest expense |
(1,600 | ) | (1,587 | ) | (1,564 | ) | (1,569 | ) | (1,527 | ) | (3,597 | ) | (3,252 | ) | (3,289 | ) | (3,710 | ) | ||||||||||||||||||
Loss on debt extinguishment |
| | | | | (1,882 | ) | | | | ||||||||||||||||||||||||||
Other income (expense), net |
7 | 10 | 32 | (4 | ) | 48 | 21 | 55 | (43 | ) | (13 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Loss before income taxes |
(5,516 | ) | (4,424 | ) | (2,360 | ) | (7,818 | ) | (9,747 | ) | (22,210 | ) | (33,445 | ) | (30,810 | ) | (23,049 | ) | ||||||||||||||||||
Provision for income taxes |
(36 | ) | (196 | ) | (90 | ) | (172 | ) | (58 | ) | (68 | ) | (90 | ) | (108 | ) | (109 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net loss |
$(5,552 | ) | $(4,620 | ) | $(2,450 | ) | $(7,990 | ) | $(9,805) | $ | (22,278 | ) | $ | (33,535 | ) | $ | (30,918 | ) | $ | (23,158 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
March 31,
2018 |
||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
Cost of revenue |
$ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | | ||||||||||||||||||
Sales and marketing |
246 | 261 | 317 | 638 | 664 | 715 | 631 | 614 | 539 | |||||||||||||||||||||||||||
Technology and content |
379 | 479 | 487 | 705 | 464 | 526 | 499 | 477 | 381 | |||||||||||||||||||||||||||
General and administrative |
178 | 628 | 441 | 959 | 579 | 3,133 | 11,762 | 1,697 | 2,453 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total equity-based compensation |
$ | 808 | $ | 1,373 | $ | 1,250 | $ | 2,307 | $ | 1,712 | $ | 4,379 | $ | 12,897 | $ | 2,793 | $ | 3,373 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
(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 |
March 31,
2018 |
||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
Cost of revenue |
$ | 1,643 | $ | 1,640 | $ | 1,640 | $ | 1,642 | $ | 1,642 | $ | 1,642 | $ | 1,642 | $ | 2,082 | $ | 2,962 | ||||||||||||||||||
Sales and marketing |
160 | 161 | 161 | 161 | 161 | 161 | 161 | 238 | 195 | |||||||||||||||||||||||||||
Technology and content |
177 | 176 | 176 | 177 | 176 | 176 | 176 | 178 | 176 | |||||||||||||||||||||||||||
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 | $ | 3,333 | ||||||||||||||||||
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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 |
March 31,
2018 |
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Revenue |
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
Cost of revenue |
30 | 30 | 31 | 31 | 30 | 31 | 29 | 30 | 30 | |||||||||||||||||||||||||||
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Gross profit |
70 | 70 | 69 | 69 | 70 | 69 | 71 | 70 | 70 | |||||||||||||||||||||||||||
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Operating expenses: |
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Sales and marketing |
37 | 39 | 35 | 44 | 48 | 59 | 68 | 70 | 59 | |||||||||||||||||||||||||||
Technology and content |
32 | 27 | 24 | 27 | 27 | 29 | 29 | 32 | 27 | |||||||||||||||||||||||||||
General and administrative |
13 | 13 | 13 | 16 | 17 | 24 | 44 | 26 | 23 | |||||||||||||||||||||||||||
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Total operating expenses |
82 | 79 | 72 | 87 | 92 | 112 | 141 | 128 | 109 | |||||||||||||||||||||||||||
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Loss from operations |
(12 | ) | (9 | ) | (3 | ) | (18 | ) | (22 | ) | (43 | ) | (70 | ) | (58 | ) | (39 | ) | ||||||||||||||||||
Other (expense) income: |
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Interest expense |
(5 | ) | (5 | ) | (5 | ) | (5 | ) | (4 | ) | (9 | ) | (8 | ) | (7 | ) | (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 | ) | (46 | ) | ||||||||||||||||||
Provision for income taxes |
| (1 | ) | | (1 | ) | | | | | | |||||||||||||||||||||||||
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Net loss |
(17 | ) | (15 | ) | (8 | ) | (24 | ) | (26 | ) | (57 | ) | (78 | ) | (65 | ) | (46 | ) | ||||||||||||||||||
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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.
Our operating expenses for the three months ended March 31, 2018 decreased compared to the three months ended December 31, 2017, in part because of a decrease in bonus expense due to us exceeding our internal billings targets during the three months ended December 31, 2017 and accruing additional bonus amounts payable to employees for that period.
102
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 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 |
March 31,
2018 |
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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 | 14,830 | |||||||||||||||||||||||||||
Billings (2) |
$ | 35,401 | $ | 33,650 | $ | 34,469 | $ | 45,711 | $ | 38,883 | $ | 46,029 | $ | 50,005 | $ | 70,890 | $ | 55,419 | ||||||||||||||||||
Billings from business customers |
$ | 24,417 | $ | 22,062 | $ | 24,266 | $ | 34,116 | $ | 29,327 | $ | 35,845 | $ | 39,920 | $ | 57,873 | $ | 45,252 | ||||||||||||||||||
% of billings from business customers |
69 | % | 66 | % | 70 | % | 75 | % | 75 | % | 78 | % | 80 | % | 82 | % | 82 | % |
(1) |
See the section titled Key Business MetricsBusiness customers for additional information. |
(2) |
See the section titled Key Business MetricsBillings for additional information. |
103
Liquidity and Capital Resources
As of March 31, 2018, our principal sources of liquidity were cash, cash equivalents, and restricted cash totaling $33.1 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 March 31, 2018, 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 eliminate cash paid for interest on our long-term debt following the repayment in full 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, and the three months ended March 31, 2017 and 2018:
Year Ended
December 31, |
Three Months Ended
March 31, |
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2016 | 2017 | 2017 | 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 4,468 | $ | (12,139 | ) | $ | 4,954 | $ | (10,424 | ) | ||||||
Net cash used in investing activities |
(13,044 | ) | (8,333 | ) | (2,191 | ) | (2,637 | ) | ||||||||
Net cash provided by (used in) financing activities |
19,621 | 29,498 | (2,533 | ) | 17,647 | |||||||||||
Effect of exchange rate change on cash, cash equivalents, and restricted cash |
(37 | ) | 54 | 2 | 9 | |||||||||||
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Net increase in cash, cash equivalents, and restricted cash |
$ | 11,008 | $ | 9,080 | $ | 232 | $ | 4,595 | ||||||||
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104
Operating Activities
Cash used in operating activities for the three months ended March 31, 2018 of $10.4 million was primarily due to a net loss of $23.2 million, partially offset by a favorable change in operating assets and liabilities of $2.3 million, equity-based compensation of $3.4 million, amortization of acquired intangible assets of $3.3 million, depreciation of property and equipment of $2.2 million, and amortization of course creation costs of $0.4 million. The net change in operating assets and liabilities was primarily due to a decrease in accounts receivable of $6.8 million and a favorable change in the deferred revenue balance of $5.8 million, partially offset by a decrease in accrued expenses of $10.2 million.
Cash provided by operating activities for the three months ended March 31, 2017 of $5.0 million was primarily due to a favorable change in operating assets and liabilities of $9.2 million, amortization of acquired intangible assets of $2.0 million, equity-based compensation of $1.7 million, depreciation of property and equipment of $1.3 million, and amortization of course creation costs of $0.3 million, partially offset by a net loss of $9.8 million. The net change in operating assets and liabilities was primarily due to a favorable change in accounts receivable of $7.2 million and a favorable change in the deferred revenue balance of $1.6 million.
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 three months ended March 31, 2018 of $2.6 million was primarily related to purchases of property and equipment of $1.9 million and purchases of content library and intangible assets of $0.8 million.
Cash used in investing activities for the three months ended March 31, 2017 of $2.2 million was primarily related to purchases of property and equipment of $1.6 million and purchases of content library and intangible assets of $0.6 million.
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.
105
Financing Activities
Cash provided by financing activities for the three months ended March 31, 2018 of $17.6 million was due to $20.0 million in borrowings of long-term debt, partially offset by payments of deferred offering costs of $1.9 million and payments of debt issuance costs of $0.5 million.
Cash used in financing activities for the three months ended March 31, 2017 of $2.5 million was due to principal payments of long-term debt of $2.5 million.
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.
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 |
||||||||||||||||
(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 March 31, 2018 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 March 31, 2018, the interest rate on the long-term debt was 10.38%.
106
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. The borrowings are due in full on June 12, 2023. 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.
The Guggenheim Credit Agreement contains certain negative and affirmative covenants. As of March 31, 2018, 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 in full 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.
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 not reflected in 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.
As of March 31, 2018, we had $0.7 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.
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.
107
Off-Balance Sheet Arrangements
Through March 31, 2018, 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.
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.
108
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 when it is probable the expenditures will result in additional functionality. We capitalized costs of $3.2 million, $3.4 million, $1.0 million, and $1.1 million for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, 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
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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 March 31, 2018, 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 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:
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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 $11.00 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 March 31, 2018 was $149.1 million, with $31.3 million related to vested incentive units. As of March 31, 2018, we had $31.7 million of unrecognized compensation cost related to incentive units, which
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will be recognized over a weighted-average period of 2.8 years. As of March 31, 2018, we had $44.6 million of unrecognized compensation cost related to RSUs, and if our initial public offering had occurred on March 31, 2018, we would have recorded an estimated $6.3 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 vest in November 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 40%. 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 $11.00, 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 $7.0 million in the aggregate. Such a sale to cover would result in an additional 632,214 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 $11.00 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 $0.6 million.
Alternatively, we may 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
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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.
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 March 31, 2018, we had cash, cash equivalents, and restricted cash of $33.1 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. 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. 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 amended credit agreement had been fully borrowed as of January 1, 2018 and remained outstanding for all of 2018, the effect of a hypothetical 100 basis point increase or decrease in interest rates in our
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floating interest rate on these borrowings would increase or decrease interest expense by approximately $1.4 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.
Fourteen 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.
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 6,700 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 three months ended March 31, 2018, 82% of our billings came from business customers and 18% 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 1,400 authors. Today, we have over 6,700 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 three months ended March 31, 2017 and 2018, our billings were $38.9 million and $55.4 million, respectively, representing period-over-period growth of 43%, and our billings from business customers were $29.3 million and $45.3 million, respectively, representing period-over-period growth of 54%. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, our revenue was $131.8 million, $166.8 million, $37.2 million, and $49.6 million, respectively. Our net loss was $20.6 million, $96.5 million, $9.8 million, and $23.2 million, respectively, which reflects our substantial investments in the future growth of our business.
We are building our business to generate strong free cash flow over the long term. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, cash provided by (used in) operations was $4.5 million, ($12.1 million), $5.0 million, and ($10.4 million), respectively. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, our free cash flow was ($7.9 million), ($20.5 million), $2.8 million, and ($13.1 million), respectively, and our free cash flow included cash payments for interest on our long-term debt of $5.5 million, $6.9 million, $1.2 million, and $2.5 million, respectively. We expect our free cash flow to improve as we experience greater scale in our business and improve operational efficiency, as well as eliminate our cash paid for interest on our long-term debt following the repayment in full of the outstanding indebtedness under our credit facility in connection with this offering. 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.
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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.
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.
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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. 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.
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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. 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.
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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 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 6,700 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.
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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.
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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 1,400 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
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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.
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 platform 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-
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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 6,700 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 CAGR of 31% 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 6,700 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
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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 1,400 as of March 31, 2018. Of the over 1,400 authors, over 800 have produced more than one course, and over 600 authors have produced a course since January 1, 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 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.
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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 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 three months ended March 31, 2018, we generated 64% 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 approximately 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.
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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.
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
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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 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.
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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.
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 March 31, 2018, we had 279 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 March 31, 2018, we had 14,830 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.
Customer Case Studies
As a result of implementing our platform across their technology teams, our customers have seen faster product development, increased revenue, and significant cost savings. The case studies below illustrate the results that our customers have achieved by using our platform.
Cerner
Situation : Cerner is the worlds largest publicly traded health information technology company with operations in more than 35 countries, and has more than 24,000 employees, including approximately 8,000
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technologists. Like many other fast-growing companies, Cerner hires hundreds of new employees each year and needed a technology skill development solution that could not only provide its workforce with high-quality, curated content but would also help Cerner evaluate the skills of its incoming employees and understand skills gaps across its organization. Disparate teams within Cerner were using Pluralsight to meet specific team requirements, but Cerner was looking for an enterprise-wide solution which it could deploy as an alternative to ILT to address its learning needs and reduce the associated cost. Additionally, given the unique privacy and security requirements in the healthcare field, Cerner needed a solution which it could tailor to provide its technologists with the skills needed to address these unique concerns.
Solution and Benefits : In 2015, following strong recommendations from internal teams which had previously utilized our solution, Cerner piloted our solution and two competitive offerings. Cerner pilot participants overwhelmingly preferred Pluralsight, with over 90% of participants selecting our platform over the other piloted offerings. Following the successful pilot, Cerner deployed approximately 110 licenses to our learning platform in 2015 and now has more than 5,000. Cerner has used our platform to develop and retain talent, increase the adaptability and breadth of knowledge of its technologists, improve operational efficiency, and ensure they are building secure healthcare solutions, while reducing its learning costs in time and dollars as compared to its previous ILT approaches. For example, through their adoption and use of our platform, Cerner has been able to shorten their onboarding program from approximately eight weeks to approximately six weeks allowing them to increase their productivity and began addressing the needs of the business more quickly. Cerner has also utilized our learning paths and channels to address their skill development needs in an efficient and targeted manner.
Barclays
Situation : Barclays is a transatlantic consumer and wholesale bank with global reach, offering products and services across personal, corporate and investment banking, credit cards, and wealth management. Over time, as part of an overall industry trend, Barclays customers have migrated from using physical branches for their banking needs to utilizing online banking services and mobile applications in increasingly higher percentages, making Barclays ability to adapt and thrive in the midst of unprecedented technological change and digital transformation critical to its success. Barclays has a large, dispersed international technology team, and needed a technology learning platform that could provide in-depth and varied skill development courses to support its wide-ranging technology team needs as well as help Barclays to identify and efficiently address skills gaps within its organization.
Solution and Benefits : In November 2013, Barclays launched an initial pilot of Pluralsight with 102 licenses. Following that pilot, Pluralsight was selected as Barclays preferred technology learning platform due to the depth and quality of our content for seasoned technologists, the ease of deployment of our solution across international teams, and the ability our platform provides to Barclays to track and quantify the ongoing skill development of its employees across a range of mission-critical skills. After the initial implementation, Barclays expanded its deployment to over 1,500 licenses within two years, 7,800 licenses within four years and now has 15,000 licenses to our platform. Barclays is leveraging our platform to identify and address technology skills gaps, powered by Pluralsight Iris, to assign targeted skill development to address those gaps and eventually, to reduce costs, while providing its management with the ability to drive business outcomes informed by in-depth analytics.
Telefonica
Situation : Telefonica UK Limited (operating as O2) is a telecommunications provider in the United Kingdom owned by Spanish multinational broadband and telecommunications provider Telefonica. One of O2s biggest challenges is addressing the needs of its more than 25 million customers through continuous innovation to deliver cutting-edge products and services in an ever-changing technology landscape. O2s ability to build and support mobile and digital applications is critical to meeting these evolving customer requirements, and O2 is
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committed to continued investment in employee skill development to create and support these new products, services, and underlying technologies. Traditional learning approaches used by O2 have failed to meet its new and evolving needs. As such, O2 needed a modern solution which could address these needs and support the scale of its organization and distributed workforce.
Solution and Benefits : Our cloud-based platform offered the flexibility, personalization, and scale that O2s previously utilized traditional ILT approaches could not support. Rather than sending employees off-site for days at a time, O2 has deployed our learning platform across its organization to allow its technologists to access the learning solutions they needed anytime and from anywhere, thereby reducing direct learning costs and providing personalized skill development to suit individual employee and business unit needs across its geographically dispersed workforce. O2 started with a pilot of 20 users in October 2015 and expanded to 350 users in November 2015 and 1,600 users in July 2016. O2 reports that its employees consume more than 300 hours of Pluralsight every month.
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 three months ended March 31, 2018, 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 March 31, 2018, we had 890 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 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. |
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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 March 31, 2018, 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.
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.
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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) |
||||
Executive Officers |
||||||
Aaron Skonnard |
45 |
Co-Founder, Chief Executive Officer, and Chairman |
||||
James Budge |
51 |
Chief Financial Officer |
||||
Nate Walkingshaw |
40 |
Chief Experience Officer |
||||
Joe DiBartolomeo |
56 |
Chief Revenue Officer |
||||
Non-Employee Directors |
||||||
Gary Crittenden (1)(2) |
64 |
Director |
||||
Arne Duncan (2) |
53 |
Director |
||||
Ryan Hinkle (3)(4) |
37 |
Director |
||||
Tim Maudlin (3) |
67 |
Director |
||||
Frederick Onion |
49 |
Co-Founder and Director |
||||
Brad Rencher (4) |
44 |
Director |
||||
Karenann Terrell (3) |
57 |
Director |
||||
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.
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
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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.
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.
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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 our largest stockholder.
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.
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,
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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:
|
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; |
|
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 |
|
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
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Nasdaq and SEC rules and regulations. Each member of our Audit Committee also meets the financial literacy 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:
|
selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; |
|
helping to ensure the independence and performance of the independent registered public accounting firm; |
|
discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing with management and the independent registered public accounting firm, our interim and year-end results of operations; |
|
reviewing our financial statements and our critical accounting policies and estimates; |
|
reviewing the adequacy and effectiveness of our internal controls; |
|
developing procedures for employees to submit concerns anonymously about questionable accounting, internal accounting controls, or audit matters; |
|
reviewing our policies on risk assessment and risk management; |
|
reviewing and approving related party transactions; and |
|
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:
|
reviewing, approving, and determining, or making recommendations to our board of directors regarding, the compensation of our executive officers; |
|
administering our equity compensation plans; |
|
reviewing, approving, and making recommendations to our board of directors regarding incentive compensation and equity compensation plans; |
|
establishing and reviewing general policies relating to compensation and benefits of our employees; and |
|
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:
|
identifying, evaluating, and selecting, or making recommendations to our board of directors regarding nominees for election to our board of directors and its committees; |
|
evaluating the performance of our board of directors and of individual directors; |
|
considering and making recommendations to our board of directors regarding the composition of our board of directors and its committees; |
|
reviewing developments in corporate governance practices; |
|
evaluating the adequacy of our corporate governance practices and reporting; |
|
approving our committee charters; |
|
overseeing compliance with our Code of Business Conduct and Ethics; |
|
contributing to succession planning; |
|
reviewing actual and potential conflicts of interest of our directors and officers other than related party transactions reviewed by our Audit Committee; and |
|
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
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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.
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.
Outside Director Compensation Policy
In May 2018, our board of directors adopted a new compensation policy for certain of our non-employee directors that will be effective as of the date of the effectiveness of the registration statement of which this prospectus forms a part. This policy was developed, with input from our independent compensation consultant firm, Compensia, Inc., regarding practices and compensation level at comparable companies. Messrs. Hinkle, Onion, and Skonnard will not participate in this policy.
Under this director compensation policy, each eligible non-employee director will receive cash and equity compensation for board services described below. We also will continue to reimburse our eligible non-employee directors for reasonable, customary, and documented travel expenses to board and committee meetings.
The director compensation policy includes a maximum annual limit of $600,000 of cash compensation and equity awards that may be paid, issued, or granted to a non-employee director in any fiscal year. For purposes of this limitation, the value of equity awards is based on the grant date fair value (determined in accordance with GAAP). Any cash compensation paid or equity awards granted to a person for his or her services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to our non-employee directors.
Cash Compensation. Starting with our 2019 annual meeting of stockholders, eligible non-employee directors will be entitled to receive the following cash compensation for their services:
|
$30,000 per year for service as a board member; |
|
$17,000 per year for service as lead independent director; |
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$20,000 per year for service as chair of the audit committee; |
|
$9,500 per year for service as a member of the audit committee; |
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$14,000 per year for service as chair of the compensation committee; |
|
$5,000 per year for service as a member of the compensation committee; |
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|
$7,500 per year for service as chair of the nominating and governance committee; and |
|
$3,500 per year for service as a member of the nominating and governance committee. |
Each eligible non-employee director who serves as the chair of a committee will receive both the additional annual fee as the chair of the committee and the additional annual fee as a member of the committee. All cash payments to non-employee directors are paid quarterly in arrears on a prorated basis.
Equity Compensation
Initial Award . Each person who first becomes an eligible non-employee director will receive an initial award of RSUs, or the Initial Award, covering a number of shares of our Class A common stock having a grant date fair value (determined in accordance with GAAP) equal to $186,000 multiplied by the fraction obtained by dividing (1) the number of full months during the period beginning on the date the person first becomes an eligible non-employee director and ending on the one-year anniversary of the date of the then-most recent annual meeting of the companys stockholders, or the Initial Award Vesting Period, by (2) 12, rounded to the nearest whole share. The Initial Award will vest on the last day of the Initial Award Vesting Period or, if earlier, on the day before our annual meeting of stockholders that follows the grant date of the Initial Award, subject to the eligible non-employee director continuing to provide services to us through the applicable vesting date. If the person was a member of the board of directors and also an employee, becoming an eligible non-employee director due to termination of employment will not entitle the eligible non-employee director to an Initial Award.
Annual Award . Each eligible non-employee director automatically will receive, on the date of each annual meeting of stockholders starting in 2019, an annual award of RSUs, or an Annual Award, covering a number of shares of our Class A common stock having a grant date fair value (determined in accordance with GAAP) of $186,000, rounded to the nearest whole share. The Annual Award will vest on the one-year anniversary of the grant date of the Annual Award or, if earlier, the day before our annual meeting of stockholders that follows the grant date of the Annual Award, subject to the eligible non-employee director continuing to provide services to us through the applicable vesting date.
In the event of a change in control (as defined in our 2018 Plan), each non-employee director will fully vest in his or her outstanding equity awards under the 2018 Plan, including any Initial Award or Annual Award, provided that the eligible non-employee director continues to be a non-employee director through such date.
The following table provides information regarding the total compensation that was awarded to each of our directors who was not serving as an executive officer during 2017. Mr. Skonnard has been excluded from this table because he was an employee of the Company in 2017 and his compensation as an employee is reflected in the section titled Executive Compensation2017 Summary Compensation Table. Mr. Skonnard did not receive any compensation for his services as a director in 2017.
Fees Earned or Paid in Cash |
Unit Awards (1) |
Total | ||||||||||
Name |
($) | ($) | ($) | |||||||||
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 |
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(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. |
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. |
In May 2018 and in connection with this offering, our board of directors approved a new award of 20,000 RSUs to each of our directors other than Messrs. Hinkle, Onion, and Skonnard on the terms set forth in the paragraph below. In determining the size and terms of this award, our board of directors considered such factors as it determined appropriate, including, the compensation level of directors at comparable companies, the expected timing of the issuance of future equity awards to them under the director compensation policy described above, and the past and expected future contributions of these directors to the Company.
This award vests on the earlier of the next annual meeting of stockholders or the one year anniversary of the grant date, subject to the directors continued service with us. The award will be subject to vesting acceleration on a change in control (as defined in the 2018 Plan). The award will be effective as of immediately prior to the effectiveness of our registration statement related to this offering and will be subject to the terms of the 2018 Plan.
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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:
|
Aaron Skonnard, our co-Founder, Chief Executive Officer, and Chairman; |
|
James Budge, our Chief Financial Officer; and |
|
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, 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, 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. |
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(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 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
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before such termination, the severance payments described in this paragraph will cease and/or become repayable to us by Mr. Skonnard, as applicable.
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 March 31, 2018, under the 2013 Plan, we had 15,783,689 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 March 31, 2018, under the 2017 Plan, we had outstanding RSU awards covering an aggregate of 2,702,360 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
In May 2018, our board of directors adopted, and our stockholder is expected to approve, our 2018 Plan, which will become effective on the business day immediately prior to the effective date of the registration statement of which this prospectus forms a part. Our 2018 Plan provides for the grant of nonstatutory stock options, restricted stock, RSUs, stock appreciation rights, performance units, and performance shares to our employees, directors, and consultants, and our parent, subsidiary, and affiliate corporations employees and consultants.
Authorized Shares . A total of 22,149,995 shares of our Class A common stock will be reserved for issuance pursuant to the 2018 Plan, plus up to 4,600,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan upon vesting and settlement of RSUs that, on or after the date of this offering, expire, forfeit, or otherwise terminate or are withheld by us to cover tax withholding obligations. 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:
|
14,900,000 shares; |
|
5% of the outstanding shares of our capital stock as of the last day of our immediately preceding fiscal 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 all powers and discretion necessary or appropriate to administer the 2018 Plan and to control its operation. The administrators powers include the power to determine the fair market value of our Class A common stock; to select the employees, directors, or consultants to whom awards may be granted; to approve any form of award agreement for use under the Plan; and to modify or amend any award, subject to the restrictions of the 2018 Plan. The administrator may construe, interpret, and determine the terms and conditions, not inconsistent with the terms of the 2018 Plan, of any award, including the number of shares to be covered, the exercise price, the time or times for exercising, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any award. The administrator may adopt, amend, or rescind any procedures relating to the 2018 Plan and establish sub-plans for the purpose of satisfying applicable non-U.S. laws (including qualifying for favorable tax treatment). The administrator may allow a participant to satisfy tax withholding obligations in any manner the 2018 Plan permits. The administrator may allow a participant to defer receipt of payment of cash or delivery of shares that otherwise would be due to such participant under an award. The administrator may also institute an exchange program under which outstanding awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash; participants have the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator; and/or the exercise price of an outstanding award is increased or reduced. The administrator may make all determinations necessary for administering the 2018 Plan and construe and interpret the terms of the 2018 Plan and awards granted under it. The administrators decisions are final and binding on all participants and any other persons holding awards.
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
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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 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 and cash compensation 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 (determined in accordance with GAAP), together with all cash compensation, greater than $600,000. The maximum limit does 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.
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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 (unless such resignation is at the request of the acquirer), 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.
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 . Our 2018 Plan will automatically terminate in 2028, unless we terminate it sooner. Our administrator 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. The Class B RSUs are subject to the terms and conditions of the Skonnard RSU Agreement and 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.
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2018 Employee Stock Purchase Plan
In May 2018, our board of directors adopted, and our stockholder is expected to approve, our ESPP, which will become effective prior to the completion of this offering. 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 2,970,000 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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2,970,000 shares; |
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1.5% of the outstanding shares of our capital stock on the last day of our immediately preceding fiscal 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. However, employees classified as interns or temporary employees will not be permitted to participate in offerings under the ESPP.
Offering Periods . Our ESPP allows us to make offerings that are and are not intended to qualify under Section 423 of the Code, as described in our ESPP. Due to our ownership structure, we do not expect offerings under the ESPP to qualify under Section 423 of the Code for the foreseeable future. Our ESPP provides for consecutive, overlapping 24-month offering periods. The offering periods are scheduled to start on the first trading day on or after May 31st and November 30th 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 May 31, 2020, and the second offering period, which will commence on the first trading day on or after November 30, 2018. Each offering period will include four six-month purchase periods, which will commence on or after May 31st and November 30th and end on the first trading date on or after May 31st and November 30th, respectively; provided, however, that the first exercise date under the ESPP will be the first trading day on or after November 30, 2018.
Our ESPP permits participants to elect to purchase shares of Class A common stock through fixed contributions from eligible compensation paid during each purchase period during an offering period, provided that this fixed contribution amount will not exceed 75% of the eligible compensation a participant receives during a purchase period or $12,500 (increased to $25,000 for purposes of the first purchase period under the ESPP). A participant may purchase a maximum of 5,000 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 85% 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.
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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. The automatic increase in shares under the ESPP will expire in 2028. 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.
ESPP Equivalent Program
In May 2018, our board of directors approved a program for each of Messrs. Skonnard and Budge to receive Class A common stock under the 2018 Plan on each ESPP exercise date in lieu of his participation in the ESPP. Messrs. Skonnard and Budge do not currently receive a base salary sufficient to participate in the ESPP in full and therefore are limited in their ability to participate in the ESPP. Our board of directors determined that this program was important to allow Messrs. Skonnard and Budge the same opportunities for stock ownership as other employees who receive a higher base salary and are able to participate in the ESPP.
The number of shares of Class A common stock awarded on each ESPP exercise date will equal the net number of shares of Class A common stock that each of Messrs. Skonnard and Budge would have been able to purchase had he contributed the maximum amount for the ESPP purchase period corresponding to that ESPP exercise date, determined by taking the difference (rounded down to the nearest whole share) between:
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the quotient of: (i) $12,500 (or $25,000 for the ESPP exercise date on November 30, 2018), or the Assumed Contribution Amount, divided by (ii) the ESPP purchase price on such ESPP exercise date, with such ESPP purchase price determined by applying the following assumptions: (x) Messrs. Skonnard and Budge would have enrolled in the first ESPP offering period, (y) Messrs. Skonnard and Budge would not have withdrawn from the ESPP and, if applicable, would have automatically re-enrolled in the next ESPP offering period after his existing ESPP offering period expires, and (z) rules around automatic transfer to a low price offering period would otherwise apply; minus |
(2) |
the quotient of: (i) the Assumed Contribution Amount divided by (ii) the fair market value (as defined in the ESPP) on the ESPP exercise date. |
This program for Mr. Skonnard or Mr. Budge will terminate at the beginning of the first ESPP offering period in which he starts receiving a base salary sufficient to participate in full or is no longer serving in his current position, whichever is earlier.
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, $2.3 million, $0.4 million, and $0.8 million for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, 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 owners 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. Each of our directors, executive officers, and beneficial owners of more than 5% of any class of our capital stock will be a Continuing Member and thus a party to the Fourth LLC Agreement.
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 manager 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 manager 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. 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, or 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.
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 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 Class A common stock or 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, 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 or redeem LLC Units if we determine that such exchange or redemption 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, other than in 2018 if there have been no more than an aggregate of three quarterly exchanges and secondary offerings in 2018. 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.
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 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
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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 85% 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 85% 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 $11.00 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 23.0%, 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 $228.0 million in the aggregate over the term of the TRA, and over such period we would be required to pay the TRA Members 85% of such amount, or approximately $193.8 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 escrow account until there is a final determination and such tax benefit payment obligations will continue to accrue interest, generally at LIBOR plus 100 basis points, until such contest is resolved and tax benefit payment is made to the TRA Members. 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 a representative of 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 90 calendar days 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 five business days 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 LIBOR plus 100 basis points from the due date (without extensions) of such tax return. Any payments due that are made to TRA Members later than five business days after the applicable schedule becomes final will generally accrue interest at a rate of LIBOR plus 600 basis points from the sixth business day after the schedule becomes final until payment is made, unless our inability to make such payments is a result of certain restrictions imposed under the debt agreements of Pluralsight Holdings or under applicable law, in each case, despite our using commercially reasonable efforts to obtain such funds, in which case interest will continue to accrue until such payments are made at a rate equal to LIBOR plus 100 basis points.
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 |
|||
Affiliates of Insight Venture Partners (1) |
March 14,
|
2,653,927 Series C Redeemable Convertible Preferred Units |
$24,999,992 |
|||
Affiliates of ICONIQ Strategic Partners, LP (2) |
March 14,
|
530,784 Series C Redeemable Convertible Preferred Units |
$5,000,000 |
|||
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 |
|||
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. |
(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. |
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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.
Registration Rights Agreement
We are a party to an amended and restated registration rights agreement, or the Registration Rights Agreement, with certain holders of our Class A common stock (and other securities convertible into or exchangeable or exercisable for shares of our Class A common stock). See the section titled Description of Capital StockRegistration Rights. Following this offering, certain holders have the right to demand that we register Class A common stock to be sold by them on Form S-1. In certain circumstances, we may postpone the filing of a registration statement for up to 60 days once in any consecutive 12-month period.
In addition, certain holders of our Class A common stock (and other securities convertible into or exchangeable or exercisable for shares of our Class A common stock) have the right to request that we register the sale of shares of Class A common stock to be sold by them on Form S-3 no more than once per calendar year (which may, at such holders request, be pursuant to shelf registration statements permitting sales of shares of Class A common stock into the market from time to time over an extended period).
In addition, certain holders have the ability to exercise certain piggyback registration rights in respect of shares of Class A common stock (and other securities convertible into or exercisable for shares of our Class A common stock) to be sold by them in connection with registered offerings requested by certain other holders (if any) or initiated by us.
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.
165
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:
|
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 request as a director, officer, employee, or agent 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. 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.
166
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.
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.
167
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:
|
each of our named executive officers; |
|
each of our directors; |
|
all of our current directors and executive officers as a group; and |
|
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 $11.00 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 that will be 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.
Shares Beneficially Owned Prior to this Offering |
% of
Total Outstanding |
% of
Total Voting Power |
Shares Beneficially Owned After this Offering
(assuming option to purchase additional shares is not exercised) |
% of
Total Outstanding (assuming option to purchase additional shares is not exercised) |
% of
Total Voting Power (assuming option to purchase additional shares is not exercised) |
Shares Beneficially Owned After this Offering
(assuming option to purchase additional shares is exercised in full) |
% of
Total Outstanding (assuming option to purchase additional shares is exercised in full) |
% of
Total Voting Power (assuming option to purchase additional shares is exercised in full) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name of Beneficial
|
Class A
Shares |
% |
Class B
Shares |
% |
Class C
Shares |
% |
Class A
Shares |
% |
Class B
Shares |
% |
Class C
Shares |
% |
Class A
Shares |
% |
Class B
Shares |
% |
Class C
Shares |
% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Named Executive Officers and Directors: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aaron Skonnard (2) |
600,000 | 1.7 | | | 13,650,648 | 100.0 | 13.0 | 59.0 | 600,000 | 1.1 | | | 13,650,648 | 100.0 | 10.9 | 54.1 | 600,000 | 1.0 | | | 13,650,648 | 100.0 | 10.7 | 53.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
James Budge (3) |
| | 930,277 | 1.6 | | | * | * | | | 930,277 | 1.6 | | | * | * | | | 930,277 | 1.6 | | | * | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nate Walkingshaw (4) |
| | 378,083 | * | | | * | * | | | 378,083 | * | | | * | * | | | 378,083 | * | | | * | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gary Crittenden (5) |
| | 156,145 | * | | | * | * | | | 156,145 | * | | | * | * | | | 156,145 | * | | | * | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Scott Dorsey (6) |
| | 237,332 | * | | | * | * | | | 237,332 | * | | | * | * | | | 237,332 | * | | | * | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Arne Duncan (7) |
| | 318,211 | * | | | * | * | | | 318,211 | * | | | * | * | | | 318,211 | * | | | * | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ryan Hinkle (8) |
| | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Timothy Maudlin (9) |
| | 279,975 | * | | | * | * | | | 279,975 | * | | | * | * | | | 279,975 | * | | | * | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Frederick Onion (10) |
600,000 | 1.7 | 12,361,071 | 20.7 | | | 11.8 | 5.6 | 600,000 | 1.1 | 12,361,071 | 20.7 | | | 9.9 | 5.1 | 600,000 | 1.0 | 12,361,071 | 20.7 | | | 9.7 | 5.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bradley Rencher (11) |
| | 277,057 | * | | | * | * | | | 277,057 | * | | | * | * | | | 277,057 | * | | | * | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Karenann Terrell (12) |
| | 188,559 | * | | | * | * | | | 188,559 | * | | | * | * | | | 188,559 | * | | | * | * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
All executive officers and directors as a group (12 persons) (13) |
1,200,000 | 3.3 | 15,555,988 | 26.1 | 13,650,648 | 100.0 | 27.7 | 65.9 | 1,200,000 | 2.1 | 15,555,988 | 26.1 | 13,650,648 | 100.0 | 23.3 | 60.5 | 1,200,000 | 2.0 | 15,555,988 | 26.1 | 13,650,648 | 100.0 | 22.8 | 59.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Greater than 5% Stockholders: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entities affiliated with Insight Venture Partners (14) |
12,718,559 | 35.0 | 31,927,903 | 53.5 | | | 40.7 | 19.2 | 12,718,559 | 22.3 | 31,927,903 | 53.5 | | | 34.2 | 17.6 | 12,718,559 | 21.2 | 31,927,903 | 53.5 | | | 33.4 | 17.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entities affiliated with ICONIQ Strategic Partners (15) |
942,397 | 2.6 | 6,935,535 | 11.6 | | | 7.2 | 3.4 | 942,397 | 1.7 | 6,935,535 | 11.6 | | | 6.0 | 3.1 | 942,397 | 1.6 | 6,935,535 | 11.6 | | | 5.9 | 3.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entities affiliated with Keith Sparkjoy (16) |
6,229,280 | 17.2 | | | | | 5.7 | 2.7 | 6,229,280 | 10.9 | | | | | 4.8 | 2.5 | 6,229,280 | 10.4 | | | | | 4.7 | 2.4 |
|
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. |
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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. |
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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) 600,000 shares of Class A common stock, of which 137,627 shares are unvested and subject to a right of repurchase in favor of the Company, and 10,519,496 shares of Class C common stock held by Skonnard Consulting, Inc., of which Mr. Skonnard is an owner; (ii) 410,121 shares of Class C common stock held by Skonnard Family GRAT 2018, of which Mr. Skonnard is a trustee; (iii) 963,771 shares of Class C common stock held by Skonnard Family GRAT 2021, of which Mr. Skonnard is a co-trustee; (iv) 605,310 shares of Class C |
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common stock held by True Nord Trust, of which Mr. Skonnard may be deemed to have voting and dispositive power; and (v) 1,151,950 shares of Class C common stock held by Mr. Skonnard that are unvested and subject to a right of repurchase in favor of the Company. |
(3) |
Consists of (i) 83,091 shares of Class B common stock held by Budge Family Trust, of which Mr. Budge is a trustee; and (ii) 847,186 shares of Class B common stock held by Mr. Budge, of which 635,390 shares are unvested and subject to a right of repurchase in favor of the Company. |
(4) |
Consists of 378,083 shares of Class B common stock held by Mr. Walkingshaw, of which 104,651 shares are unvested and subject to a right of repurchase in favor of the Company. |
(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) 120,810 shares of Class B common stock held by Mr. Crittenden, of which 40,270 shares are unvested and subject to a right of repurchase in favor of the Company. |
(6) |
Consists of (i) 147,492 shares of Class B common stock held by AREO Ventures, LLC, of which Mr. Dorsey is a manager; and (ii) 89,840 shares of Class B common stock held by Mr. Dorsey, of which 67,380 shares are unvested and subject to a right of repurchase in favor of the Company. |
(7) |
Consists of (i) 107,544 shares of Class B common stock held by Mr. Duncan; and (ii) 210,667 shares of Class B common stock held by Mr. Duncan, of which 102,047 shares are unvested and subject to a right of repurchase in favor of the Company. |
(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 of Class B common stock held by Janice K. Maudlin Revocable Trust, of which Mr. Maudlins wife is a trustee; (ii) 79,582 shares of Class B common stock held by Timothy I. Maudlin Revocable Trust, of which Mr. Maudlin is a trustee; and (iii) 120,810 shares of Class B common stock held by Mr. Maudlin, of which 30,202 shares are unvested and subject to a right of repurchase in favor of the Company. |
(10) |
Consists of (i) 600,000 shares of Class A common stock and 12,319,847 shares of Class B common stock held by Onion Consulting, Inc., of which Mr. Onion is an owner; and (ii) 41,224 shares of Class B common stock held by Frederick A. Onion Revocable Trust, of which Mr. Onion is a co-trustee. |
(11) |
Consists of (i) 156,247 shares of Class B common stock held by Centerpine LLC, of which Mr. Rencher is a manager; and (ii) 120,810 shares of Class B common stock held by Mr. Rencher, of which 40,270 shares are unvested and subject to a right of repurchase in favor of the Company. |
(12) |
Consists of (i) 123,609 shares of Class B common stock held by Karen A. Terrell Living Trust, of which Ms. Terrell is a trustee; and (ii) 64,950 shares of Class B common stock held by Ms. Terrell, of which 54,125 shares are unvested and subject to a right of repurchase in favor of the Company. |
(13) |
Consists of (i) 1,200,000 shares of Class A common stock, of which 137,627 shares are unvested and subject to a right of repurchase in favor of the Company; (ii) 15,555,988 shares of Class B common stock; (iii) 13,650,648 shares of Class C common stock, of which 1,151,950 shares are unvested and subject to a right of repurchase in favor of the Company; and (iv) 2,382,434 shares of Class B common stock held by all our executive officers and directors, as a group, of which 1,315,804 shares are unvested and subject to a right of repurchase in favor of the Company. |
(14) |
Consists of (i) 8,778,306 shares of Class A common stock held by Insight Venture Partners (Cayman) VII, L.P.; (ii) 1,261,465 shares of Class A common stock held by Insight Venture Partners (Delaware) VII, L.P.; and (iii) 2,678,788 shares of Class A common stock held by Insight Venture Partners CIF II (AIP B), L.P.; and (iv) 31,927,903 shares of Class B common stock held by IVP CIF II (PS Splitter), L.P. (collectively, the Insight Shareholders). The general partner of Insight Venture Partners VII, L.P., Insight Venture Partners (Cayman) VII, L.P., and Insight Venture Partners (Delaware) VII, 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 II (AIP A), L.P., Insight Venture Partners CIF II (AIP B), 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 of Class B common stock held by Iconiq Strategic Partners, L.P.; (ii) 3,180,662 shares of Class B common stock held by Iconiq Strategic Partners Co-Invest, L.P.; and (iii) 942,397 shares of Class A common stock held by Iconiq Strategic Partners-B, L.P. The beneficial owner of Iconiq Strategic Partners Co-Invest, L.P., Iconiq Strategic Partners-B, L.P., Series PS, Iconiq Strategic Partners Co-Invest, L.P., Series PS, Iconiq Strategic Partners, L.P., 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 of Class A common stock held by Wyecliff Associates, Inc., of which Mr. Sparkjoy is an owner; and (ii) 41,224 shares of Class A common stock 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 1,350,000,000 shares of capital stock, $0.0001 par value per share, of which:
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1,000,000,000 shares are designated as Class A common stock; |
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200,000,000 share are designated as Class B common stock; |
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50,000,000 shares are designated as Class C common stock; and |
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100,000,000 shares are designated as preferred stock. |
As of March 31, 2018 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. Pursuant to the terms of our amended and restated certificate of incorporation, no shares of our Class B common stock or Class C common stock may be issued except to a holder of LLC Units (other than to us or any subsidiary of ours that is a holder of LLC Units), such that after such issuance of Class B common stock or Class C common stock such holder of LLC Units holds an identical number of LLC Units and shares of Class B common stock or Class C common stock, as applicable.
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.
Common Stock 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, Class B common stock, Class C 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 and the limits on the amounts received by the holders of our Class B common stock and Class C common stock. Specifically, the holders of our Class B common stock and Class C common stock shall be entitled to receive up to $0.0001 per share of Class B common stock or Class C common stock, respectively, and upon receiving such amount, such holders of our shares of Class B common stock and Class C common stock shall not be entitled to receive any other assets or funds of ours.
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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.
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.
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Transferability
Shares of Class B common stock are only transferable to the extent permitted by the Fourth LLC Agreement and must be transferred 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 associated entities 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 associated entities contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions. Accordingly, Aaron Skonnard and his associated entities, 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. Under our amended and restated certificate of incorporation, approval of the holders of a majority of our Class C common stock is required to increase the number of authorized shares of our Class C common stock. Until the final conversion of all outstanding shares of Class C common stock pursuant to the terms of our amended and restated certificate of incorporation, our Class C common stock will have the right to vote as a separate class to amend or modify any provision of our amended and restated certificate of incorporation inconsistent with, or that otherwise alters, any provision of our amended and restated certificate of incorporation to modify the voting or conversion rights of our Class C common stock.
No Preemptive or Similar Rights
Our Class C common stock is not entitled to preemptive rights, and is not subject to redemption or sinking fund provisions.
Transferability
Shares of Class C common stock are only transferable to the extent permitted by the Fourth LLC Agreement and must be transferred together with an equal number of LLC Units.
Conversion
Each share of Class C common stock is convertible at any time at the option of the holder into one share of Class B common stock. Following the completion of this offering, shares of Class C common stock will automatically convert into shares of Class B common stock upon sale or transfer (other than with respect to certain transfers described in our amended and restated certificate of incorporation, including transfers for estate planning or tax planning purposes to an affiliate where sole voting control with respect to the shares of Class C common stock is retained by the transferring holder, other than with respect to certain trusts associated with Mr. Skonnard). In the event of Aaron Skonnards death or disability, the shares of Class C common stock held by Mr. Skonnard shall immediately convert into shares of Class B common stock, unless at such time there is a designated proxy holder, as described in our amended and restated certificate of incorporation, that holds exclusive voting control over such shares of Class C common stock, in which case such shares of Class C common stock will convert into shares of Class B common stock upon the earlier of (i) nine months after the death or disability of Mr. Skonnard and (ii) the date upon which the designated proxy holder ceases to hold exclusive voting control of such shares of Class C common stock.
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Each share of Class C common stock will also convert automatically into one share of Class B common stock upon (i) Mr. Skonnards termination for cause, as described in our amended and restated certificate of incorporation, from employment with us, Holdings, or any subsidiary thereof, (ii) the date that is seven years following the completion of this offering, (iii) the date that is one year after Mr. Skonnard resigns from his position as our Chief Executive Officer and is no longer serving as Chairman of our board of directors, and (iv) the date when Mr. Skonnard, his family group, and their respective associated entities, hold shares of Class C common stock equal to less than 25% of the shares of Class C common stock held by Mr. Skonnard, his family group, and their respective associated entities as of the date of the filing of our amended and restated certificate of incorporation.
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 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 March 31, 2018, we had (i) 15,783,689 incentive units outstanding, of which (A) 5,591,778 will be exchanged for 4,552,646 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) in connection with the Reorganization Transactions, and (B) 10,191,911 will convert into LLC Units (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit will also receive a distribution of one share of Class B common stock of Pluralsight, Inc. in connection with the Reorganization Transactions, (ii) 3,000,000 Class B incentive units outstanding, of which (i) 320,168 will be exchanged for 137,627 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) in connection with the Reorganization Transactions, and (ii) 2,679,832 will convert into 1,151,950 LLC Units (based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit will also receive a distribution of one share of Class C common stock of Pluralsight, Inc., in connection with the Reorganization Transactions, (iii) 2,702,360 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 (iv) 3,000,000 Class B RSUs of Pluralsight Holdings outstanding, that will remain as RSUs of Pluralsight Holdings following this offering.
Registration Rights Agreement
We are a party to the Registration Rights Agreement.
Under this agreement, holders of 44,646,462 shares our Class A common stock (and other securities convertible into or exercisable for shares of our Class A common stock) have the right to demand that we register Class A common stock to be sold by them.
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Demand Registration Rights
Under the Registration Rights Agreement, holders of 44,646,462 shares our Class A common stock (and other securities convertible into or exercisable for shares of our Class A common stock) are entitled to certain demand registration rights. Such holders can request that we register the offer and sale of their shares. If we determine that it would be detrimental to us or our stockholders to effect such a demand registration, we have the right to defer such registration or suspend an effective shelf registration, not more than once in any 12-month period, for a period of up to 60 days.
Piggyback Registration Rights
After the completion of this offering, if we propose to register, or receive a demand to register, the offer and sale of any of our securities under the Securities Act, in connection with the public offering of such securities, then holders of 44,646,462 shares our Class A common stock (and other securities convertible into or exercisable for shares of our Class A common stock) are entitled to certain piggyback registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, these holders are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include shares in the registration, other than with respect to (i) a registration relating to the sale of securities to our employees or those of a subsidiary pursuant to a stock option, stock purchase or similar plan; (ii) a registration relating to a transaction under Rule 145 of the Exchange Act; or (iii) a registration in which the only securities being registered are securities issuable upon conversion of debt securities that are also being registered.
S-3 Registration Rights
After the completion of this offering, holders of 44,646,462 shares of Class A common stock may make a written request that we register the offer and sale of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 so long as the request covers at least that number of shares with an anticipated aggregate offering price of at least $1 million. Each holder of demand registration rights is entitled to make one demand for shelf registration per calendar year. However, we will not be required to effect a registration on Form S-3 if we determine that it would be detrimental to our stockholders to effect such a registration and we have the right to defer such registration, not more than once in any 12-month period, for a period of up to 60 days.
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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 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 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.
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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 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 certificate of incorporation 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 two-thirds 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 100,000,000 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 Cardtronicsplc means of a merger, tender offer, proxy contest, or other means.
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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 of ours or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws 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 substantially all cases. 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.
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 have applied 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 57,019,194 shares of our Class A common stock outstanding, 59,710,473 shares of our Class B common stock outstanding, and 13,650,648 shares of our Class C common stock outstanding. Of these outstanding shares, all 20,700,000 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 20,700,000 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 181 days after the date of this prospectus 36,319,194 additional shares of our Class A common stock (excluding 73,361,121 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 all shares held by affiliates will be 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 or redeem 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 or redeeming 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 associated entities, will hold 59,710,473 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 associated entities will hold 13,650,648 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 that will be issuable upon
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exchange of 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 570,192 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 |
20,700,000 | |||
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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 3,105,000 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.
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 3,105,000 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 paid or payable by Pluralsight Holdings, exclusive of underwriting discounts and commissions, are approximately $6.1 million. We have agreed to reimburse the underwriters for up to $75,000 of expenses relating to clearance of this offering with the Financial Industry Regulatory Authority and legal 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 have applied 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 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 |
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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 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.
188
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 1,014,000 shares of Class A common stock, or 5% 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.
Selling Restrictions
Canada
The Class A common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations . Any resale of the Class A common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
189
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State) 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. |
190
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 |
(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; |
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where no consideration is or will be given for the transfer; or |
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where the transfer is by operation of law. |
191
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, Redwood City, 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.
192
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.
(in thousands, except share and per share amounts)
December 31,
2017 |
March 31,
2018 |
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(unaudited) | ||||||||
Assets |
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Cash and cash equivalents |
$ | | $ | | ||||
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Total assets |
$ | | $ | | ||||
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Stockholders equity |
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Common stock, $0.001 par value per share, 1,000 shares authorized, issued, and outstanding |
$ | | $ | | ||||
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|
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Total stockholders equity |
$ | | $ | | ||||
|
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|
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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 sheets are 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 and March 31, 2018 (unaudited), 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 as of December 31, 2017 was available for issuance.
4. Subsequent Events (unaudited)
The Company has evaluated subsequent events through May 7, 2018, the date on which the balance sheet as of March 31, 2018 (unaudited) 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 |
March 31,
2018 |
Pro forma
Members Deficit March 31, 2018 |
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(unaudited) | ||||||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 19,397 | $ | 28,267 | $ | 32,359 | ||||||||||
Accounts receivablenet of allowances of $708, $1,552, and $1,982 at December 31, 2016 and 2017, and March 31, 2018 (unaudited), respectively |
22,950 | 38,229 | 30,998 | |||||||||||||
Prepaid expenses and other current assets |
2,558 | 5,125 | 7,071 | |||||||||||||
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|
|
|
|
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Total current assets |
44,905 | 71,621 | 70,428 | |||||||||||||
Property and equipment, net |
22,645 | 22,457 | 22,014 | |||||||||||||
Content library, net |
19,593 | 13,441 | 10,801 | |||||||||||||
Intangible assets, net |
4,372 | 2,854 | 2,483 | |||||||||||||
Goodwill |
123,119 | 123,119 | 123,119 | |||||||||||||
Other assets |
338 | 2,928 | 5,157 | |||||||||||||
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|
|
|
|
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Total assets |
$ | 214,972 | $ | 236,420 | $ | 234,002 | ||||||||||
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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 | $ | 8,065 | ||||||||||
Accrued expenses |
7,009 | 26,514 | 15,835 | |||||||||||||
Accrued author fees |
5,748 | 7,879 | 7,700 | |||||||||||||
Deferred revenue |
71,966 | 103,107 | 109,919 | |||||||||||||
Current portion of long-term debt |
10,000 | | | |||||||||||||
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|
|
|
|
|||||||||||
Total current liabilities |
97,659 | 143,529 | 141,519 | |||||||||||||
Deferred revenue, net of current portion |
717 | 8,194 | 6,949 | |||||||||||||
Long-term debt, less current portion, net |
74,069 | 116,037 | 135,477 | |||||||||||||
Facility financing obligation |
7,529 | 7,513 | 7,509 | |||||||||||||
Other liabilities |
262 | 458 | 655 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total liabilities |
180,236 | 275,731 | 292,109 | |||||||||||||
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, 48,447,880, and 48,447,880 units authorized as of December 31, 2016 and 2017, and March 31, 2018 (unaudited), respectively; 48,447,880 units issued and outstanding as of December 31, 2016 and 2017, and March 31, 2018 (unaudited); aggregate liquidation preference of $197,192 as of December 31, 2016 and 2017, and March 31, 2018 (unaudited); no units issued and outstanding pro forma as of March 31, 2018 (unaudited) |
341,966 | 405,766 | 425,291 | $ | | |||||||||||
Members deficit: |
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Members capital: Class A and Class B common units, no par value; 100,606,988, 112,556,982, and 112,556,982 Class A common units authorized and 47,782,272, 35,446,574, and 35,446,574 Class A common units issued and outstanding as of December 31, 2016 and 2017, and March 31, 2018 (unaudited), respectively; 83,894,454 Class A common units issued and outstanding, pro forma as of March 31, 2018 (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 and March 31, 2018 (unaudited); 12,961,071 Class B common units issued and outstanding, pro forma as of March 31, 2018 (unaudited) |
| | | 425,291 | ||||||||||||
Accumulated other comprehensive (loss) income |
(8 | ) | 25 | 30 | 30 | |||||||||||
Accumulated deficit |
(307,222 | ) | (445,102 | ) | (483,428 | ) | (483,428 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total members deficit |
(307,230 | ) | (445,077 | ) | (483,398 | ) | $ | (58,107 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities, redeemable convertible preferred units, and members deficit |
$ | 214,972 | $ | 236,420 | $ | 234,002 | ||||||||||
|
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|
|
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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, |
Three Months Ended
March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(unaudited) |
||||||||||||||||
Revenue |
$ | 131,841 | 166,824 | $ | 37,239 | 49,644 | ||||||||||
Cost of revenue |
40,161 | 49,828 | 11,209 | 14,886 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
91,680 | 116,996 | 26,030 | 34,758 | ||||||||||||
Operating expenses: |
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Sales and marketing |
51,234 | 103,478 | 17,826 | 29,467 | ||||||||||||
Technology and content |
36,159 | 49,293 | 10,205 | 13,325 | ||||||||||||
General and administrative |
18,130 | 46,971 | 6,267 | 11,292 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
105,523 | 199,742 | 34,298 | 54,084 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(13,843 | ) | (82,746 | ) | (8,268 | ) | (19,326 | ) | ||||||||
Other (expense) income: |
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Interest expense |
(6,320 | ) | (11,665 | ) | (1,527 | ) | (3,710 | ) | ||||||||
Loss on debt extinguishment |
| (1,882 | ) | | | |||||||||||
Other income (expense), net |
45 | 81 | 48 | (13 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(20,118 | ) | (96,212 | ) | (9,747 | ) | (23,049 | ) | ||||||||
Provision for income taxes |
(494 | ) | (324 | ) | (58 | ) | (109 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (20,612 | ) | $ | (96,536 | ) | $ | (9,805 | ) | $ | (23,158 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Less: accretion of Series A redeemable convertible preferred units |
(6,325 | ) | (63,800 | ) | (1,650 | ) | (19,525 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss attributable to common units |
$ | (26,937 | ) | $ | (160,336 | ) | $ | (11,455 | ) | $ | (42,683 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per unit, basic and diluted |
$ | (0.57 | ) | $ | (3.34 | ) | $ | (0.24 | ) | $ | (0.88 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common units used in computing basic and diluted net loss per unit |
47,480 | 47,957 | 47,783 | 48,408 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pro forma net loss per unit, basic and diluted (unaudited) |
$ | (1.00 | ) | $ | (0.24 | ) | ||||||||||
|
|
|
|
|||||||||||||
Pro forma weighted average common units used in computing basic and diluted net loss per unit (unaudited) |
96,405 | 96,856 | ||||||||||||||
|
|
|
|
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, |
Three Months Ended
March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(unaudited) |
||||||||||||||||
Net loss |
$ | (20,612 | ) | $ | (96,536 | ) | $ | (9,805 | ) | $ | (23,158 | ) | ||||
Other comprehensive (loss) income: |
||||||||||||||||
Foreign currency translation (losses) gains, net of tax |
(7 | ) | 33 | 9 | 5 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive loss |
$ | (20,619 | ) | $ | (96,503 | ) | $ | (9,796 | ) | $ | (23,153 | ) | ||||
|
|
|
|
|
|
|
|
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 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2017 |
48,447,880 | 405,766 | 48,407,645 | | 25 | (445,102 | ) | (445,077 | ) | |||||||||||||||||||||||
Issuance of warrants to purchase Class A common units (unaudited) |
| | | 984 | | | 984 | |||||||||||||||||||||||||
Equity-based compensation (unaudited) |
| | | 3,373 | | | 3,373 | |||||||||||||||||||||||||
Accretion of Series A redeemable convertible preferred units (unaudited) |
| 19,525 | | (4,357 | ) | | (15,168 | ) | (19,525 | ) | ||||||||||||||||||||||
Foreign currency translation gains, net of tax (unaudited) |
| | | | 5 | | 5 | |||||||||||||||||||||||||
Net loss (unaudited) |
| | | | | (23,158 | ) | (23,158 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at March 31, 2018 (unaudited) |
48,447,880 | $ | 425,291 | 48,407,645 | $ | | $ | 30 | $ | (483,428 | ) | $ | (483,398 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
Three Months
Ended March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(unaudited) | ||||||||||||||||
Operating activities | ||||||||||||||||
Net loss |
$ | (20,612 | ) | $ | (96,536 | ) | $ | (9,805 | ) | $ | (23,158 | ) | ||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||||||||||
Depreciation of property and equipment |
4,274 | 6,675 | 1,281 | 2,191 | ||||||||||||
Amortization of acquired intangible assets |
8,034 | 8,526 | 2,006 | 3,333 | ||||||||||||
Amortization of course creation costs |
1,337 | 1,462 | 321 | 447 | ||||||||||||
Equity-based compensation |
5,738 | 21,781 | 1,712 | 3,373 | ||||||||||||
Provision for doubtful accounts |
89 | 479 | 109 | 222 | ||||||||||||
Amortization of debt discount and debt issuance costs |
469 | 1,847 | 89 | 876 | ||||||||||||
Write off of debt issuance costs |
6 | 931 | 18 | | ||||||||||||
Deferred tax benefit |
| (83 | ) | | | |||||||||||
Other |
| 63 | | | ||||||||||||
Changes in assets and liabilities, net of effects of acquisition: |
||||||||||||||||
Accounts receivable |
(12,862 | ) | (16,123 | ) | 7,225 | 6,802 | ||||||||||
Prepaid expenses and other assets |
(701 | ) | (2,796 | ) | (2,912 | ) | (1,966 | ) | ||||||||
Accounts payable |
677 | 2,561 | 1,792 | 2,063 | ||||||||||||
Accrued expenses and other liabilities |
1,290 | 17,960 | 967 | (10,203 | ) | |||||||||||
Accrued author fees |
894 | 2,131 | 507 | (179 | ) | |||||||||||
Deferred revenue |
17,390 | 38,983 | 1,644 | 5,775 | ||||||||||||
Related party note payable |
(1,555 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) operating activities |
4,468 | (12,139 | ) | 4,954 | (10,424 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Investing activities |
||||||||||||||||
Purchases of property and equipment |
(10,142 | ) | (5,951 | ) | (1,568 | ) | (1,868 | ) | ||||||||
Purchases of content library |
(2,253 | ) | (2,382 | ) | (623 | ) | (769 | ) | ||||||||
Purchases of business, net of cash acquired |
(649 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(13,044 | ) | (8,333 | ) | (2,191 | ) | (2,637 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Financing activities |
||||||||||||||||
Borrowings of long-term debt |
| 115,000 | | 20,000 | ||||||||||||
Repayments of long-term debt |
(8,125 | ) | (85,000 | ) | (2,500 | ) | | |||||||||
Repayments of related-party note payable |
(4,782 | ) | | | | |||||||||||
Payments of debt issuance costs |
(136 | ) | (854 | ) | (52 | ) | (450 | ) | ||||||||
Deemed landlord financing proceeds |
2,213 | | | | ||||||||||||
Payments of facility financing obligation |
(6 | ) | (16 | ) | (3 | ) | (4 | ) | ||||||||
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 | 22 | | ||||||||||||
Redemption of incentive units |
(1,876 | ) | (3,724 | ) | | | ||||||||||
Payments of deferred offering costs |
| (307 | ) | | (1,899 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
19,621 | 29,498 | (2,533 | ) | 17,647 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of exchange rate change on cash, cash equivalents, and restricted cash |
(37 | ) | 54 | 2 | 9 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase in cash, cash equivalents, and restricted cash |
11,008 | 9,080 | 232 | 4,595 | ||||||||||||
Cash, cash equivalents, and restricted cash, beginning of period |
8,389 | 19,397 | 19,397 | 28,477 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash, cash equivalents, and restricted cash, end of period |
$ | 19,397 | $ | 28,477 | $ | 19,629 | $ | 33,072 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Supplemental cash flow disclosure: |
||||||||||||||||
Cash paid for interest |
$ | 5,506 | $ | 6,858 | $ | 1,197 | $ | 2,472 | ||||||||
Cash paid for income taxes, net |
$ | 462 | $ | 425 | $ | 87 | $ | 84 | ||||||||
Supplemental disclosure of non-cash investing and financing activities: |
||||||||||||||||
Redeemable convertible preferred unit accretion |
$ | 6,325 | $ | 63,800 | $ | 1,650 | $ | 19,525 | ||||||||
Unpaid capital expenditures |
$ | 20 | $ | 555 | $ | 151 | $ | 433 | ||||||||
Deferred offering costs, accrued but not yet paid |
$ | | $ | 1,699 | $ | | $ | 1,506 | ||||||||
Issuance of warrants to purchase Class A common units |
$ | | $ | | $ | | $ | 984 | ||||||||
Reconciliation of cash, cash equivalents and restricted cash as shown in the statement of cash flows: |
||||||||||||||||
Cash and cash equivalents |
$ | 19,397 | $ | 28,267 | $ | 19,629 | $ | 32,359 | ||||||||
Restricted cash included in other assets |
| 210 | | 713 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cash, cash equivalents and restricted cash |
$ | 19,397 | $ | 28,477 | $ | 19,629 | $ | 33,072 | ||||||||
|
|
|
|
|
|
|
|
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 Holdings, LLC does not have any business operations. Pluralsight, LLC was organized on June 17, 2004 in the state of Nevada.
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 (the IPO), all outstanding redeemable convertible preferred units will automatically convert into common units, on a one-for-one basis. The unaudited pro forma members deficit information gives effect to the conversion of the redeemable convertible preferred units as of March 31, 2018. The effect of this conversion on the pro forma consolidated balance sheet will reduce members deficit by $425.3 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 fair value of warrants to purchase common units, 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, was as follows (in thousands):
Year Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(unaudited) | ||||||||||||||||
United States |
$ | 85,159 | $ | 108,257 | $ | 23,611 | $ | 31,578 | ||||||||
United Kingdom |
13,508 | 18,047 | 4,199 | 5,332 | ||||||||||||
Other foreign locations |
33,174 | 40,520 | 9,429 | 12,734 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | 131,841 | $ | 166,824 | $ | 37,239 | $ | 49,644 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Percentage of revenue generated outside of the United States |
35 | % | 35 | % | 37 | % | 36 | % | ||||||||
|
|
|
|
|
|
|
|
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, and the three months ended March 31, 2017 and 2018 (unaudited).
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 and March 31, 2018 (unaudited). For the years ended December 31, 2016, and 2017, and the three months ended March 31, 2017 and 2018 (unaudited) 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, $0.9 million, and $1.1 million as of December 31, 2016 and 2017, and March 31, 2018 (unaudited), 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
F-12
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.
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 | ) | ||||
|
|
|
|
|||||
Balance, end of period |
$ | 708 | 1,552 | |||||
|
|
|
|
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, and the three months ended March 31, 2018 (unaudited).
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, $3.4 million, $1.0 million, and $1.1 million for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018 (unaudited), respectively, which were included in property and equipment. Maintenance and training costs are expensed as incurred.
F-13
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.
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, and the three months ended March 31, 2018 (unaudited).
F-14
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 and March 31, 2018 (unaudited), the Companys capitalized deferred offering costs of $2.0 million and $3.7 million, respectively, were 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.
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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 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, $14.5 million, $3.1 million, and $2.7 million for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018 (unaudited), 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
F-16
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 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 March 31, 2018 (unaudited), 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. The remaining unrecognized equity-based compensation expense related to RSUs will be recognized over the remaining requisite service period using the straight-line attribution method.
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.
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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.
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 Accounting Standards Codification (ASC) 740, Income Taxes . 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 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 income tax provision for the year ended December 31, 2017, and the three months ended March 31, 2018 (unaudited), in accordance with its understanding of the Tax Act and guidance available on the date the financial statements were available to be issued.
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, warrants to purchase common units, 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
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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.
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.
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. During the first quarter of 2018, the Company adopted the ASU prospectively. The adoption of the ASU had no material effect on the consolidated financial statements.
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Accounting Pronouncements Not Yet Adopted
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, 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 August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . This update clarifies how certain cash flows should be classified with the objective of reducing the existing diversity in practice. This update is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. Among other provisions, the ASU requires that cash payments for certain debt prepayment or debt extinguishment costs be classified as cash outflows for financing activities. The Company is still evaluating the effect of adopting the ASU, however it expects that the adoption of the standard could result in the reclassification of certain cash outflows on the consolidated statement of cash flows in the period a debt prepayment or debt extinguishment occurs.
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
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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 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.
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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 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 |
December 31, 2017 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Money market funds |
$ | 25,146 | $ | | $ | | $ | 25,146 |
March 31, 2018 (unaudited) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Money market funds |
$ | 29,088 | $ | | $ | | $ | 29,088 |
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 |
March 31,
2018 |
||||||||||
(unaudited) | ||||||||||||
Prepaid expenses |
$ | 2,424 | $ | 4,586 | $ | 6,827 | ||||||
Other current assets |
134 | 539 | 244 | |||||||||
|
|
|
|
|
|
|||||||
Prepaid expenses and other current assets |
$ | 2,558 | $ | 5,125 | $ | 7,071 | ||||||
|
|
|
|
|
|
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Property and equipment
Property and equipment, net consisted of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
March 31,
2018 |
||||||||||
(unaudited) | ||||||||||||
Computer equipment |
$ | 5,075 | $ | 7,482 | $ | 7,905 | ||||||
Software |
1,788 | 1,982 | 1,991 | |||||||||
Capitalized internal-use software costs |
5,074 | 8,631 | 9,548 | |||||||||
Furniture and fixtures |
4,784 | 5,234 | 5,249 | |||||||||
Buildings |
11,251 | 11,251 | 11,251 | |||||||||
Leasehold improvements |
1,283 | 1,324 | 1,487 | |||||||||
Construction in progress |
749 | 587 | 805 | |||||||||
|
|
|
|
|
|
|||||||
Total cost |
30,004 | 36,491 | 38,236 | |||||||||
Less accumulated depreciation |
(7,359 | ) | (14,034 | ) | (16,222 | ) | ||||||
|
|
|
|
|
|
|||||||
Property and equipment, net |
$ | 22,645 | $ | 22,457 | $ | 22,014 | ||||||
|
|
|
|
|
|
Depreciation expense for property and equipment totaled $4.3 million, $6.7 million, $1.3 million, and $2.2 million for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018 (unaudited), 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.
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 and $0.4 million in depreciation expense during the year ended December 31, 2017 and the three months ended March 31, 2018 (unaudited), respectively. The change in useful lives is expected to increase depreciation by $0.4 million during the year ended December 31, 2018.
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Accrued expenses
Accrued expenses consisted of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
March 31,
2018 |
||||||||||
(unaudited) | ||||||||||||
Accrued compensation |
$ | 755 | $ | 18,568 | $ | 6,723 | ||||||
Accrued income and other taxes payable |
2,220 | 3,492 | 3,821 | |||||||||
Accrued other current liabilities |
4,034 | 4,454 | 5,291 | |||||||||
|
|
|
|
|
|
|||||||
Accrued expenses |
$ | 7,009 | $ | 26,514 | $ | 15,835 | ||||||
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|
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|
|
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 are summarized as follows (dollars in thousands):
December 31, 2016 | ||||||||||||||||
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 | ||||||||||
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|
|
|
|
|||||||||||
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 | ||||||||||
|
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|
|
|
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December 31, 2017 | ||||||||||||||||
Weighted Average
Remaining Useful Life (in years) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net Book
Value |
|||||||||||||
Content library: |
||||||||||||||||
Acquired 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 | ||||||||||
|
|
|
|
|
|
March 31, 2018 | ||||||||||||||||
Weighted Average
Remaining Useful Life (in years) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net Book
Value |
|||||||||||||
(unaudited) | ||||||||||||||||
Content library: |
||||||||||||||||
Acquired content library |
0.7 | $ | 32,835 | $ | 27,605 | $ | 5,230 | |||||||||
Course creation costs |
3.5 | 11,409 | 5,838 | 5,571 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 44,244 | $ | 33,443 | $ | 10,801 | ||||||||||
|
|
|
|
|
|
|||||||||||
Intangible assets: |
||||||||||||||||
Technology |
3.3 | $ | 4,500 | $ | 2,257 | $ | 2,243 | |||||||||
Trademarks |
0.2 | 1,162 | 967 | 195 | ||||||||||||
Noncompetition agreements |
| 390 | 390 | | ||||||||||||
Customer relationships |
| 2,750 | 2,750 | | ||||||||||||
Database |
| 40 | 40 | | ||||||||||||
Domain names |
Indefinite | 45 | | 45 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 8,887 | $ | 6,404 | $ | 2,483 | ||||||||||
|
|
|
|
|
|
Intangible assets are amortized using the straight-line method over the estimated useful lives. Amortization expense of acquired intangible assets was $8.0 million, $8.5 million, $2.0 million, and $3.3 million for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018 (unaudited), respectively. Amortization expense of course creation costs was $1.3 million, $1.5 million, $0.3 million, and $0.4 million for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018 (unaudited), 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 and $1.5 million in amortization expense during the year ended December 31, 2017 and the three months ended March 31, 2018 (unaudited), respectively. The change in useful lives is expected to increase amortization by $1.7 million during the year ended December 31, 2018.
F-25
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).
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.
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 the lenders to purchase 424,242 Class A common units at a per unit exercise price of $8.25 (see Note 7Membership Units). The warrants were measured at the estimated fair
F-26
value of $1.0 million on the date of issuance and were recorded as debt issuance costs, which will be amortized to interest expense over the remaining term of the debt facility.
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 has elected 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 and March 31, 2018 (unaudited) was 10.20% and 10.38%, respectively. The Company is required to pay an unused revolving loan fee of 0.50% per annum. As of December 31, 2017 and March 31, 2018 (unaudited), 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.
The Companys debt consisted of the following (in thousands):
December 31,
2016 |
December 31,
2017 |
Three Months
Ended March 31, 2018 |
||||||||||
(unaudited) | ||||||||||||
Principal borrowings outstanding |
$ | 85,000 | $ | 116,620 | $ | 137,424 | ||||||
Less: debt issuance costs, net of amortization |
(931 | ) | (583 | ) | (1,947 | ) | ||||||
|
|
|
|
|
|
|||||||
Net carrying amount |
$ | 84,069 | $ | 116,037 | $ | 135,477 | ||||||
|
|
|
|
|
|
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
F-27
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 |
March 31,
2018 |
||||||||||||||||||||||
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
|||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Series A |
27,500,000 | 27,500,000 | 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 | 17,716,286 | 17,716,286 | ||||||||||||||||||
Series C |
7,961,781 | 3,231,594 | 3,231,594 | 3,231,594 | 3,231,594 | 3,231,594 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
53,178,067 | 48,447,880 | 48,447,880 | 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 |
March 31,
2018 |
||||||||||
(unaudited) | ||||||||||||
Series A |
$ | 172,425 | $ | 236,225 | $ | 255,750 | ||||||
Series B |
139,194 | 139,194 | 139,194 | |||||||||
Series C |
30,347 | 30,347 | 30,347 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 341,966 | $ | 405,766 | $ | 425,291 | ||||||
|
|
|
|
|
|
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, and March 31, 2018 (unaudited), 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 | ||||||||||
|
|
F-28
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.
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, $236.2 million, and $255.8 million as of December 31, 2016 and 2017, and March 31, 2018 (unaudited), 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
F-29
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 was as follows:
December 31, 2016 | December 31, 2017 | March 31, 2018 | ||||||||||||||||||||||
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
|||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Class A common units |
100,606,988 | 47,782,272 | 112,556,982 | 35,446,574 | 112,556,982 | 35,446,574 | ||||||||||||||||||
Class B common units |
| | 15,961,071 | 12,961,071 | 15,961,071 | 12,961,071 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
100,606,988 | 47,782,272 | 128,518,053 | 48,407,645 | 128,518,053 | 48,407,645 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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.
F-30
Warrants to Purchase Class A Common Units
In connection with the first amendment of the Guggenheim Credit Agreement (see Note 6Credit Facilities), the Company issued warrants to the lenders 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 at the earlier of (i) February 5, 2023, (ii) the acquisition of the Company by another entity, or (iii) six months after the effectiveness of a registration statement relating to the Companys IPO. The warrants were measured at the fair value on the date of issuance, which was determined to be $1.0 million using a Black-Scholes option pricing model and a PWERM methodology, with probability-weighted outcomes for an IPO scenario and a liquidity event in the longer term with less visibility into the timing and type of exit event. As the warrants are indexed to the Companys Class A common units, the Company recorded the warrants within members capital on the consolidated balance sheet.
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 was as follows:
December 31, 2016 | December 31, 2017 | March 31, 2018 | ||||||||||||||||||||||
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
Authorized
Units |
Outstanding
Units |
|||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Incentive units |
16,688,640 | 13,999,684 | 16,229,445 | 15,791,871 | 16,229,445 | 15,783,689 | ||||||||||||||||||
Class A incentive units |
| | 3,000,000 | | 3,000,000 | | ||||||||||||||||||
Class B incentive units |
| | 3,000,000 | 3,000,000 | 3,000,000 | 3,000,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
16,688,640 | 13,999,684 | 22,229,445 | 18,791,871 | 22,229,445 | 18,783,689 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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-31
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, and the three months ended March 31, 2018 (unaudited):
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 forfeited or cancelled (unaudited) |
(8,182 | ) | 7.86 | 4.81 | ||||||||||||
|
|
|||||||||||||||
Incentive units outstanding at March 31, 2018 (unaudited) |
15,783,689 | $ | 6.50 | $ | 2.97 | $ | 88,832 | |||||||||
|
|
|||||||||||||||
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 | |||||||||
|
|
|||||||||||||||
Incentive units vestedMarch 31, 2018 (unaudited) |
10,681,970 | $ | 5.17 | $ | 2.71 | $ | 71,620 | |||||||||
|
|
|||||||||||||||
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 outstanding at March 31, 2018 (unaudited) |
3,000,000 | $ | 9.42 | $ | 2.64 | $ | 7,410 | |||||||||
|
|
|||||||||||||||
Class B incentive units vestedDecember 31, 2017 and March 31, 2018 (unaudited) |
| $ | | $ | | $ | | |||||||||
|
|
(1) |
Aggregate intrinsic value is calculated as the difference between the fair value of the common unit on December 31, 2016 and 2017, and March 31, 2018 (unaudited), respectively, and the threshold price less the catch-up price. |
F-32
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 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 was 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 | |||||||||||||
|
|
|
|
As of March 31, 2018 (unaudited) | ||||||||||||||||||
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 | 4,346,487 | 5.04 | 3,954,799 | 5.23 | ||||||||||||||
9.42 | 9,765,621 | 3.36 | 2,055,590 | 4.01 | ||||||||||||||
|
|
|
|
|||||||||||||||
18,783,689 | $ | 2.91 | 10,681,970 | $ | 2.71 | |||||||||||||
|
|
|
|
F-33
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 | ||||||
Vested (unaudited) |
(500,749 | ) | 3.66 | |||||
Forfeited or cancelled (unaudited) |
(8,182 | ) | 3.20 | |||||
|
|
|||||||
Unvested units outstanding at March 31, 2018 (unaudited) |
5,101,719 | $ | 3.77 | |||||
|
|
|||||||
Class B incentive units: |
||||||||
Unvested units outstanding at December 31, 2016 |
| $ | | |||||
Granted |
3,000,000 | 6.05 | ||||||
|
|
|||||||
Unvested units outstanding at December 31, 2017 and March 31, 2018 (unaudited) |
3,000,000 | $ | 6.05 | |||||
|
|
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, and the three months ended March 31, 2017 and 2018 (unaudited) was $13.1 million, $14.0 million, $3.2 million, and $4.0 million, respectively.
As of December 31, 2016 and 2017, and March 31, 2018 (unaudited), unrecognized compensation cost related to the unvested incentive units, including Class B incentive units, was $17.0 million, $35.1 million, and $31.7 million, respectively. The unrecognized compensation cost will be recognized over a weighted-average period of 2.9, 3.0, and 2.8 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.
F-34
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 March 31, 2018 (unaudited). 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. The remaining unrecognized equity-based compensation expense related to RSUs will be recognized over the remaining requisite service period, using the straight-line attribution method. 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.
The activity for RSUs for the year ended December 31, 2017 and the three months ended March 31, 2018 (unaudited) was 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 | ||||||
Granted (unaudited) |
602,060 | 8.40 | ||||||
Forfeited or cancelled (unaudited) |
(78,150 | ) | 6.95 | |||||
|
|
|||||||
Balance at March 31, 2018 (unaudited) |
2,702,360 | $ | 7.37 | |||||
|
|
|||||||
Class B restricted share units: |
||||||||
Balance at December 31, 2016 |
| $ | | |||||
Granted |
3,000,000 | 8.24 | ||||||
|
|
|||||||
Balance at December 31, 2017 and March 31, 2018 (unaudited) |
3,000,000 | $ | 8.24 | |||||
|
|
As of December 31, 2017 and March 31, 2018 (unaudited), unrecognized compensation cost related to the RSUs, including Class B RSUs, was $40.1 million and $44.6 million, respectively. 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
F-35
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 March 31, 2018 (unaudited), 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, |
Three Months
Ended March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
(unaudited) | ||||||||||||||||
Cost of revenue |
$ | 20 | $ | 20 | $ | 5 | $ | | ||||||||
Sales and marketing |
1,462 | 2,624 | 664 | 539 | ||||||||||||
Technology and content |
2,050 | 1,966 | 464 | 381 | ||||||||||||
General and administrative |
2,206 | 17,171 | 579 | 2,453 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity-based compensation |
$ | 5,738 | $ | 21,781 | $ | 1,712 | $ | 3,373 | ||||||||
|
|
|
|
|
|
|
|
9. Commitments and Contingencies
Letters of Credit
As of December 31, 2016 and 2017, and March 31, 2018 (unaudited), the Company had a total of $0.2 million, $0.2 million, and $0.7 million, respectively, 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 and $0.7 million of the Companys cash, which is reflected as restricted cash and classified within other assets on the consolidated balance sheets as of December 31, 2017, and March 31, 2018 (unaudited), respectively.
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.
F-36
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 | ||
|
|
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, which are omitted from the table of future minimum lease payments above. The minimum lease payments range from $0.7 million to $1.6 million per year from 2018 to 2024. Rent expense under operating leases for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018 (unaudited) was $1.5 million, $2.0 million, $0.5 million, and $1.0 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 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 income tax provision for the year ended December 31, 2017, and the three months ended March 31, 2018, in accordance with its understanding of the Tax
F-37
Act and guidance available on the date the financial statements were available to be issued. 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 became 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. Because we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we have included GILTI related to current-year operations only in our estimated annual effective tax rate for the three months ended March 31, 2018 (unaudited) and have not provided additional GILTI on deferred items.
Provision for Income Taxes
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 | ) | ||
|
|
|
|
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 | ||||
|
|
|
|
F-38
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 | )% | ||||
|
|
|
|
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):
As of
December 31, |
||||||||
2016 | 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.
F-39
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.
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.
F-40
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, $2.3 million, $0.4 million, and $0.8 million for the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018 (unaudited), respectively.
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, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||||||||||||||||||
Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||
Numerator: |
||||||||||||||||||||||||||||||||
Net loss attributable to common units |
$ | (26,937 | ) | $ | | $ | (135,997 | ) | $ | (24,339 | ) | $ | (11,455 | ) | $ | | $ | (31,255 | ) | $ | (11,428 | ) | ||||||||||
Denominator: |
||||||||||||||||||||||||||||||||
Weighted-average common units outstandingbasic and diluted |
47,480 | | 40,677 | 7,280 | 47,783 | | 35,447 | 12,961 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net loss per unit, basic and diluted |
$ | (0.57 | ) | $ | | $ | (3.34 | ) | $ | (3.34 | ) | $ | (0.24 | ) | $ | | $ | (0.88 | ) | $ | (0.88 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018 (unaudited), the Company incurred net losses and, therefore, the effect of the Companys incentive units, RSUs, warrants to purchase common units, 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, |
As of
March 31, |
|||||||||||||||
2016 | 2017 | 2017 | 2018 | |||||||||||||
Conversion of redeemable convertible preferred units |
48,448 | 48,448 | 48,448 | 48,448 | ||||||||||||
Incentive units outstanding |
14,000 | 15,792 | 13,951 | 15,784 | ||||||||||||
Class B incentive units outstanding |
| 3,000 | | 3,000 | ||||||||||||
Unvested restricted share units |
| 2,178 | | 2,702 | ||||||||||||
Unvested Class B restricted share units |
| 3,000 | | 3,000 | ||||||||||||
Warrants to purchase Class A common units |
| | | 424 | ||||||||||||
Equity appreciation rights |
43 | 43 | 43 | 43 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
62,491 | 72,461 | 62,442 | 73,401 | ||||||||||||
|
|
|
|
|
|
|
|
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, on a one-for-one basis, into 48,447,880
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Class A common units. The unaudited pro forma net loss per unit, basic and diluted, for the year ended December 31, 2017 and the three months ended March 31, 2018 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.
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 |
Three Months Ended
March 31, 2018 |
|||||||||||||||
Class A | Class B | Class A | Class B | |||||||||||||
Numerator: |
||||||||||||||||
Net loss attributable to common units |
$ | (135,997 | ) | $ | (24,339 | ) | $ | (31,255 | ) | $ | (11,428 | ) | ||||
Pro forma adjustment related to accretion of Series A redeemable convertible preferred units |
54,115 | 9,685 | 14,297 | 5,228 | ||||||||||||
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 | (3,101 | ) | 3,101 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pro forma net loss attributable to common units |
$(89,246 | ) | $(7,290 | ) | $ | (20,059 | ) | $(3,099 | ) | |||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted-average common units outstandingbasic and diluted |
40,677 | 7,280 | 35,447 | 12,961 | ||||||||||||
Pro forma adjustment for assumed conversion of redeemable convertible preferred units to Class A common units |
48,448 | | 48,448 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common units used in computing basic and diluted pro forma net loss per unit |
89,125 | 7,280 | 83,895 | 12,961 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pro forma net loss per unit, basic and diluted |
$ | (1.00 | ) | $ | (1.00 | ) | $ | (0.24 | ) | $ | (0.24 | ) | ||||
|
|
|
|
|
|
|
|
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.
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14. Subsequent Events (unaudited)
The Company has evaluated subsequent events through May 7, 2018, the date the consolidated financial statements were available for issuance.
Subsequent to March 31, 2018, 1,856,125 RSUs were granted to employees under the 2017 Equity Incentive Plan. The RSUs are subject to both time-based and liquidity-based vesting conditions and were measured at a weighted-average grant date fair value of $9.16 per unit, which will result in an increase of compensation expense of $17.0 million. As the vesting of RSUs is contingent upon satisfying a liquidity condition, the timing of when this additional compensation expense will be recognized is not known.
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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 |
$ | 35,565 | ||
FINRA filing fee |
43,349 | |||
Exchange listing fee |
225,000 | |||
Printing and engraving expenses |
335,000 | |||
Legal fees and expenses |
2,900,000 | |||
Accounting fees and expenses |
1,800,000 | |||
Transfer agent and registrar fees |
4,000 | |||
Miscellaneous |
757,086 | |||
|
|
|||
Total |
$ | 6,100,000 | ||
|
|
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, officer, employee, or agent 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. 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.
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(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
# |
Previously filed. |
+ |
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 7th day of May, 2018.
PLURALSIGHT , INC . | ||
By: |
/s/ Aaron Skonnard |
|
Aaron Skonnard Chief Executive Officer |
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) |
May 7, 2018 | ||
/s/ James Budge James Budge |
Chief Financial Officer (Principal Financial and Accounting Officer) |
May 7, 2018 | ||
* Gary Crittenden |
Director |
May 7, 2018 | ||
* Scott Dorsey |
Director |
May 7, 2018 | ||
* Arne Duncan |
Director |
May 7, 2018 | ||
* Ryan Hinkle |
Director |
May 7, 2018 | ||
* Timothy Maudlin |
Director |
May 7, 2018 | ||
* Frederick Onion |
Director |
May 7, 2018 | ||
* Brad Rencher |
Director |
May 7, 2018 | ||
* Karenann Terrell |
Director |
May 7, 2018 |
*By: |
/s/ Aaron Skonnard |
|
Aaron Skonnard | ||
Attorney-in-Fact |
Exhibit 1.1
_______________ Shares
PLURALSIGHT, INC.
CLASS A COMMON STOCK, PAR VALUE $0.0001 PER SHARE
UNDERWRITING AGREEMENT
[__________], 2018
[____________], 2018
Morgan Stanley & Co. LLC
J.P. Morgan Securities LLC
c/o Morgan Stanley & Co. LLC
1585 Broadway
New York, New York 10036
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
Ladies and Gentlemen:
Pluralsight, Inc., a Delaware corporation (the Company ), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the Underwriters ), for which you are acting as representatives (the Representatives ), [_______________] shares of Class A common stock, par value $0.0001 per share (the Class A Common Stock ), of the Company (the Firm Shares ). The Company also proposes to issue and sell to the several Underwriters not more than an additional [______________] shares of its Class A Common Stock (the Additional Shares ), if and to the extent that you, as managers of the offering, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the Shares .
The shares of Class A Common Stock to be outstanding after giving effect to the sales contemplated hereby and the Reorganization Transactions (as defined herein), together with the shares of Class B common stock, par value $0.0001 per share of the Company (the Class B Common Stock ), and Class C common stock, par value $0.0001 per share (the Class C Common Stock ), of the Company are hereinafter referred to as the Common Stock .
In connection with the offering contemplated by this Agreement, the Company will become the sole managing member of Pluralsight Holdings, LLC, a Delaware limited liability company ( Pluralsight LLC ), and will directly own a [__]% membership interest in Pluralsight LLC, assuming no exercise of the option to purchase Additional Shares described in Section 2 hereof.
Any reference in this Agreement, to the extent the context requires, to the Reorganization Transactions shall have the meanings ascribed to the term Reorganization Transactions in the Prospectus (as defined below). In connection with the offering contemplated by this Agreement and the Reorganization Transactions, (a) the Company will enter into a tax receivable agreement (the Tax Receivable Agreement )
1
with certain existing holders of membership interests of Pluralsight LLC; (b) the Company will enter into an amended and restated registration rights agreement with Pluralsight LLC and certain existing holders of membership interests of Pluralsight LLC (the Registration Rights Agreement ); (c) Pluralsight LLC has amended and restated its limited liability company agreement to provide for the reclassification of existing units of Pluralsight LLC into non-voting common units, add the Company as a member of Pluralsight LLC and designate the Company as the sole managing member of Pluralsight LLC (as so amended and restated, the Pluralsight LLC Agreement ); and (d) the Company has amended and restated its certificate of incorporation (as so amended and restated, the Amended and Restated Charter ).
This Agreement, the Pluralsight LLC Agreement, the Amended and Restated Charter, the Tax Receivable Agreement and the Registration Rights Agreement are collectively referred to herein as the Transaction Documents .
The Company has filed with the Securities and Exchange Commission (the Commission ) a registration statement, including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the Securities Act ), is hereinafter referred to as the Registration Statement ; the prospectus in the form first used to confirm sales of the Shares (or in the form first made available to the Underwriters by the Company to meet requests of purchasers pursuant to Rule 173 under the Securities Act) is hereinafter referred to as the Prospectus . If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the Rule 462 Registration Statement ), then any reference herein to the term Registration Statement shall be deemed to include such Rule 462 Registration Statement.
For purposes of this Agreement, free writing prospectus has the meaning set forth in Rule 405 under the Securities Act, Time of Sale Prospectus means the preliminary prospectus contained in the Registration Statement at the time of its effectiveness together with the documents and pricing information and the free writing prospectuses, if any, set forth in Schedule II hereto, and broadly available road show means a bona fide electronic road show as defined in Rule 433(h)(5) under the Securities Act that has been made available without restriction to any person. As used herein, the terms Registration Statement, preliminary prospectus, Time of Sale Prospectus and Prospectus shall include the documents, if any, incorporated by reference therein as of the date hereof.
Morgan Stanley & Co. LLC ( Morgan Stanley ) has agreed to reserve a portion of the Shares to be purchased by it under this Agreement for sale to certain authors who provide or have provided services to the Company (collectively, the Participants ), as set forth in the Prospectus under the heading Underwriters (the Directed Share Program ). The Shares to be sold by Morgan Stanley and its affiliates pursuant to the Directed Share Program, at the direction of the Company, are referred to hereinafter as the Directed Shares ). Any Directed Shares not orally confirmed for purchase by any Participant by the end of the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus.
2
1. Representations and Warranties . Each of the Company and Pluralsight LLC, jointly and severally, represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose or pursuant to Section 8A of the Securities Act are pending before or, to the Companys knowledge, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not, as of the date of such amendment or supplement, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply, when filed, in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Time of Sale Prospectus does not, and at the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers and at the Closing Date (as defined in Section 4) and any Option Closing Date (as defined in Section 2), the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iv) each broadly available road show, if any, when considered together with the Time of Sale Prospectus, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (v) the Prospectus, as of its date, and as of the Closing Date and any Option Closing Date, does not contain and, as amended or supplemented, if applicable, will not contain, as of the date of such amendment or supplement, any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement, the Time of Sale Prospectus or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.
(c) The Company is not an ineligible issuer in connection with the offering pursuant to Rules 164, 405 and 433 under the Securities Act. Any free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the applicable rules
3
and regulations of the Commission thereunder. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or will comply, when filed, in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Except for the free writing prospectuses, if any, identified in Schedule II hereto, and electronic road shows, if any, each furnished to you before first use, the Company has not prepared, used or referred to, and will not, without your prior consent, prepare, use or refer to, any free writing prospectus.
(d) Each of the Company and Pluralsight LLC has been duly incorporated or formed, as applicable, is validly existing as a corporation or limited liability company, as applicable, in good standing under the laws of the State of Delaware, has the corporate or limited liability company power and authority to own or lease its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a material adverse effect on the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole.
(e) Each significant subsidiary (as such term is defined in Rule 1-02 of Regulation S-X) of the Company and each significant subsidiary (as such term is defined in Rule 1-02 of Regulation S-X) of Pluralsight LLC has been duly organized or formed, as applicable, is validly existing as a corporation or limited liability company, as applicable, in good standing under the laws of the jurisdiction of its incorporation, organization, or formation, has the corporate or limited liability company power and authority, as applicable, to own or lease its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing (to the extent such concept of good standing is applicable in such jurisdiction) in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification (to the extent such concepts are applicable under such laws), except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a material adverse effect on the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole; all of the issued equity interests of each significant subsidiary (as such term is defined in Rule 1-02 of Regulation S-X) of the Company and each significant subsidiary (as such term is defined in Rule 1-02 of Regulation S-X) of Pluralsight LLC have been duly and validly authorized and issued, are fully paid and non-assessable (to the extent such concepts are applicable under such laws) and are owned directly or indirectly by the Company or Pluralsight LLC, as applicable, free and clear of all liens, encumbrances, equities or claims, except as described in the Time of Sale Prospectus.
4
(f) This Agreement has been duly authorized, executed and delivered by the Company and Pluralsight LLC. Each of the other Transaction Documents (other than the Amended and Restated Charter and this Agreement) has been duly authorized and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute the valid and legally binding obligations of the Company and Pluralsight LLC, as applicable, enforceable in accordance with its terms, (i) subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles and (ii) with respect to provisions regarding indemnity, contribution and exculpation, except to the extent such provisions may not be enforceable due to applicable law or principles of public policy.
(g) Each of the Transaction Documents conforms in all material respects to the description thereof contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus. The Reorganization Transactions conform in all material respects to the descriptions thereof contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus.
(h) As of the Closing Date, the authorized capital stock of the Company and the authorized membership interests of Pluralsight LLC will conform as to legal matters to the descriptions thereof contained in each of the Time of Sale Prospectus and the Prospectus.
(i) The shares of Common Stock outstanding prior to the issuance of the Shares and the membership interests of Pluralsight LLC outstanding prior to the consummation of this offering have been duly authorized and are validly issued, fully paid and non-assessable. Except as described in or expressly contemplated by the Time of Sale Prospectus and the Prospectus, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company, Pluralsight LLC or any subsidiaries of the Company or Pluralsight LLC, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company, Pluralsight LLC or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options.
(j) The Shares to be sold by the Company have been duly authorized and, when issued and delivered and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights that have not been validly waived. The shares of Class B Common Stock and Class C Common Stock, respectively, to be issued by the Company pursuant to the Reorganization Transactions have been duly authorized and, when issued and delivered as provided in the Reorganization Documents, will be validly issued, fully paid and non-assessable and will conform to the respective description
5
thereof in each of the Time of Sale Prospectus and the Prospectus, and the issuance of such shares of Class B Common Stock and Class C Common Stock will not be subject to any preemptive or similar rights that have not been validly waived. All of the membership interests of Pluralsight LLC outstanding as of the Closing Date have been duly authorized and, after giving effect to the Reorganization Transactions, will be validly issued, and to the extent owned by the Company, will be owned free and clear of any liens, encumbrances or claims.
(k) With respect to the stock options granted pursuant to the stock-based compensation plans of the Company, Pluralsight LLC and their subsidiaries (the Stock Plans ), each grant of a stock option was made in accordance with the terms of the Stock Plans and all applicable laws and regulatory rules or requirements, including all applicable federal securities laws.
(l) The execution and delivery by the Company and Pluralsight LLC of, and the performance by the Company and Pluralsight LLC of their obligations under, each of the Transaction Documents will not contravene (i) any provision of applicable law, (ii) the certificate of incorporation, certificate of formation, bylaws or limited liability company agreement of the Company or Pluralsight LLC, as applicable, (iii) any agreement or other instrument binding upon the Company, Pluralsight LLC or the subsidiaries of the Company or Pluralsight LLC that is material to the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole, or (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company, Pluralsight LLC or any subsidiary of the Company or Pluralsight LLC, except that in the case of clauses (i), (iii) and (iv) above, where such contravention would not, individually or in the aggregate, reasonably be expected to have a material adverse effect (1) on the Company, Pluralsight LLC or any of their subsidiaries, taken as a whole, or (2) on the power or ability of the Company or Pluralsight LLC to perform its obligations under each of the Transaction Documents or to consummate the transactions contemplated by the Time of Sale Prospectus. No consent, approval, authorization or order of, or qualification with, any governmental body or agency is required to be obtained for the performance by the Company or Pluralsight LLC of their obligations under this Agreement, except (i) such as has previously been obtained and (ii) such as may be required by the securities or Blue Sky laws of the various states or foreign jurisdictions or the rules and regulations of the Financial Industry Regulatory Authority, Inc. ( FINRA ) in connection with the offer and sale of the Shares.
(m) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business, management or operations of the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole, from that set forth in the Time of Sale Prospectus.
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(n) Neither the Company nor Pluralsight LLC is (i) in violation of its certificate of incorporation, certificate of formation, bylaws or limited liability company agreement, as applicable; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or Pluralsight LLC is a party or by which the Company, Pluralsight LLC or any of their respective subsidiaries is bound or to which any of the property of assets of the Company or Pluralsight LLC is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation or any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, have a material adverse effect on the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole.
(o) There are no legal or governmental proceedings pending or, to the knowledge of the Company or Pluralsight LLC, threatened to which the Company, Pluralsight LLC or any of their respective subsidiaries is a party or to which any of the properties of the Company, Pluralsight LLC or any of their subsidiaries is subject (i) other than proceedings accurately described in all material respects in the Time of Sale Prospectus and proceedings that would not reasonably be likely to have a material adverse effect on the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole, or on the power or ability of the Company or Pluralsight LLC to perform their obligations under this Agreement or to consummate the transactions contemplated by the Time of Sale Prospectus or (ii) that are required to be described in the Registration Statement or the Prospectus and are not so described in all material respects in the Registration Statement, the Time of Sale Prospectus and the Prospectus; and there are no statutes, regulations, contracts or other documents to which the Company, Pluralsight LLC or any subsidiary of the Company or Pluralsight LLC is subject to or by which the Company or Pluralsight LLC or any such subsidiary is bound, that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described in all material respects or filed as required.
(p) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder.
(q) The Company is not, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will not be, required to register as an investment company as such term is defined in the Investment Company Act of 1940, as amended.
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(r) The Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ( Environmental Laws ), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole.
(s) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, reasonably be likely to have a material adverse effect on the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole.
(t) There are no contracts, agreements or understandings between the Company or Pluralsight LLC and any person granting such person the right to require the Company or Pluralsight LLC, as applicable, to file a registration statement under the Securities Act with respect to any securities of the Company or Pluralsight LLC or to require the Company or Pluralsight LLC to include such securities with the Shares registered pursuant to the Registration Statement, except as have been validly waived in connection with the issuance and sale of the Shares contemplated hereby and as have been described in the Time of Sale Prospectus.
(u) (i) None of the Company, Pluralsight LLC or any of their respective subsidiaries or controlled affiliates, nor any director or officer of the Company, Pluralsight LLC or any of their respective subsidiaries, or, to the knowledge of the Company or Pluralsight LLC, any employee, agent or representative of the Company, Pluralsight LLC or any of their respective subsidiaries or controlled affiliates, has taken any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment, giving or receipt of money, property, gifts or anything else of value, directly or indirectly, to any government official (including any officer or employee of a government or government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office) ( Government Official ) in order to improperly influence official action, or to any person in violation of any applicable anti-corruption laws; (ii) the Company, Pluralsight LLC and their respective subsidiaries and controlled affiliates have conducted their businesses in compliance with applicable anti-
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corruption laws and have instituted and maintained policies and procedures reasonably designed to promote and achieve compliance with such laws and with the representations and warranties contained herein; and (iii) none of the Company, Pluralsight LLC or their respective subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of any applicable anti-corruption laws.
(v) The operations of the Company, Pluralsight LLC and their respective subsidiaries are and have been conducted at all times in material compliance with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Company, Pluralsight LLC and their respective subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws ), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company, Pluralsight LLC or their respective subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company or Pluralsight LLC, threatened.
(w) (i) None of the Company, Pluralsight LLC, any subsidiaries of the Company or Pluralsight LLC, or any director, officer, or employee of the Company, Pluralsight LLC or any subsidiaries of the Company or Pluralsight LLC, or, to the Companys or Pluralsight LLCs knowledge, any agent, affiliate or representative of the Company, Pluralsight LLC or any subsidiaries of the Company or Pluralsight LLC, is an individual or entity ( Person ) that is, or is owned or controlled by one or more Persons that are:
(A) the subject of any sanctions administered or enforced by the U.S. Department of Treasurys Office of Foreign Assets Control ( OFAC ), the United Nations Security Council ( UNSC ), the European Union ( EU ), Her Majestys Treasury ( HMT ), or other relevant sanctions authority (collectively, Sanctions ), or
(B) located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, the Crimea region of the Ukraine, Cuba, Iran, North Korea and Syria).
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(ii) The Company and Pluralsight LLC will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:
(A) to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or
(B) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).
(iii) For the past five years, the Company, Pluralsight LLC and their respective subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not knowingly engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.
(x) Subsequent to the respective dates as of which information is given in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, (i) the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction; (ii) the Company and Pluralsight LLC have not purchased any of their outstanding capital stock or membership interests other than from its employees or other service providers in connection with the termination of their service, as applicable, nor declared, paid or otherwise made any dividend or distribution of any kind on their capital stock or membership interests other than ordinary and customary dividends; and (iii) there has not been any material change in the capital stock or membership interests, short-term debt or long-term debt of the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, except in each case as described in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, respectively.
(y) The Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, have good and marketable title in fee simple to all real property and good and marketable title to all personal property (other than intellectual property, which is covered by Section 1(z) below) owned by them which is material to the business of the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects except such as are described in the Time of Sale Prospectus or such as do not materially diminish the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole; and any real property and buildings held under lease by the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, are held by them under valid, subsisting and to the Companys or Pluralsight LLCs
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knowledge, enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, in each case except as described in the Time of Sale Prospectus.
(z) The Company, Pluralsight LLC and their respective subsidiaries own or possess, or can reasonably promptly acquire on commercially reasonable terms, all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names, domain names and other intellectual property rights, moral rights and other rights throughout the world (collectively, Intellectual Property Rights ) employed by them in connection with, the business now conducted by them or as proposed to be conducted by them in the Time of Sale Prospectus ( Company Intellectual Property ), except where the failure to own, possess or acquire any of the foregoing would not result in a material adverse effect on the Company, Pluralsight LLC, and their respective subsidiaries, taken as a whole; and none of the Company, Pluralsight LLC or any their respective subsidiaries has received any written notice of infringement of or conflict with the Intellectual Property Rights of others that would reasonably be expected to result in a material adverse effect on the Company, Pluralsight LLC, and their respective subsidiaries, taken as a whole. The Company, Pluralsight LLC and their respective subsidiaries have taken all reasonable steps consistent with normal industry practice to secure exclusive ownership rights in the Company Intellectual Property from their employees, consultants, agents and contractors. There are no outstanding options, licenses or agreements of any kind relating to the Company Intellectual Property owned by the Company, Pluralsight LLC or any of their respective subsidiaries that are required to be described in the Registration Statement or the Time of Sale Prospectus and are not described in all material respects. The Company, Pluralsight LLC and their respective subsidiaries are not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Time of Sale Prospectus and are not described in all material respects. No government funding, facilities or resources of a university, college, other educational institution or research center or funding from third parties was used in the development of any Company Intellectual Property that is owned or purported to be owned by the Company, Pluralsight LLC or any of their respective subsidiaries except as would not have a material adverse effect on the Company, Pluralsight LLC and their respective subsidiaries, and no government agency or body, university, college, other educational institution or research center has any claim or right in or to any Company Intellectual Property that is owned or purported to be owned by the Company, Pluralsight LLC or any of their respective subsidiaries. The Company, Pluralsight LLC and their respective subsidiaries have used all software and other materials distributed under a free, open source, or similar licensing model (including but not limited to the GNU General Public License, GNU Lesser General Public License and GNU Affero General Public License) ( Open Source Materials ) in compliance with all license terms
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applicable to such Open Source Materials, except where the failure to comply would not reasonably be expected to have a material adverse effect on the Company, Pluralsight LLC, and their respective subsidiaries, taken as a whole. None of the Company, Pluralsight LLC or any of their respective subsidiaries has used or distributed any Open Source Materials in a manner that requires or has required (i) the Company, Pluralsight LLC or any of their respective subsidiaries to permit reverse-engineering of any products or services of the Company, Pluralsight LLC or any of their respective subsidiaries, or any software code or other technology owned by the Company, Pluralsight LLC or any of their respective subsidiaries; or (ii) any products or services of the Company, Pluralsight LLC or any of their respective subsidiaries, or any software code or other technology owned by the Company, Pluralsight LLC or any of their respective subsidiaries, to be (A) disclosed or distributed in source code form, (B) licensed for the purpose of making derivative works, or (C) redistributable at no charge, except in the case of (i) and (ii) above, for the Open Source Materials themselves and otherwise such as would not have a material adverse effect on the Company, Pluralsight LLC, and their respective subsidiaries, taken as a whole.
(aa) No material labor dispute with the employees of the Company, Pluralsight LLC or any of their respective subsidiaries exists, except as described in the Time of Sale Prospectus, or, to the knowledge of the Company or Pluralsight LLC, is imminent; and neither the Company nor Pluralsight LLC is aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could have a material adverse effect on the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole.
(bb) The Company, Pluralsight LLC and each of their respective subsidiaries, taken as a whole, are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company reasonably believes are prudent and customary in the businesses in which they are engaged; none of the Company, Pluralsight LLC or any of their respective subsidiaries have been refused any insurance coverage sought or applied for; and none of the Company, Pluralsight LLC or any of their respective subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole, except as described in the Time of Sale Prospectus.
(cc) The Company, Pluralsight LLC and their respective subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except for such certificates, authorizations and permits, the failure of which to obtain, would not reasonably be expected to have a material adverse effect on the Company, Pluralsight LLC, and their respective subsidiaries,
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taken as a whole, and none of the Company, Pluralsight LLC or any subsidiaries of the Company or Pluralsight LLC has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole, except as described in the Time of Sale Prospectus.
(dd) The Company, Pluralsight LLC and each of their respective subsidiaries, taken as a whole, maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States ( U.S. GAAP ) and to maintain asset accountability; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Time of Sale Prospectus and the Prospectus, since the end of the Companys most recent audited fiscal year, there has been (i) no material weakness in the Companys and Pluralsight LLCs internal control over financial reporting (whether or not remediated) and (ii) no change in the Companys or Pluralsight LLCs internal control over financial reporting that has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Companys and Pluralsight LLCs internal control over financial reporting.
(ee) Other than the Reorganization Transactions and except as described in the Time of Sale Prospectus and the Prospectus, the Company has not sold, issued or distributed any shares of Common Stock during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants.
(ff) The Registration Statement, the Prospectus, the Time of Sale Prospectus and any preliminary prospectus comply, and any amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus, the Time of Sale Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program.
(gg) No consent, approval, authorization or order of, or qualification with, any governmental body or agency, other than those obtained, is required in connection with the offering of the Directed Shares in any jurisdiction where the Directed Shares are being offered.
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(hh) The Company has not offered, or caused Morgan Stanley or any Morgan Stanley Entity as defined in Section 9 to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customers or suppliers level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.
(ii) The Company, Pluralsight LLC and each of their respective subsidiaries have filed all federal, state, local and foreign tax returns required to be filed through the date of this Agreement or have requested extensions thereof (except where the failure to file would not, individually or in the aggregate, have a material adverse effect on the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole) and have paid all taxes required to be paid thereon (except for cases in which the failure to file or pay would not have a material adverse effect on the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, or, except as currently being contested in good faith and for which reserves required by U.S. GAAP have been created in the financial statements of the Company and Pluralsight LLC), and no unpaid tax deficiency has been determined adversely to the Company, Pluralsight LLC or any of their respective subsidiaries which has had (nor do the Company, Pluralsight LLC or any of their respective subsidiaries have any notice or knowledge of any unpaid tax deficiency which could reasonably be expected to be determined adversely to the Company, Pluralsight LLC or any of their respective subsidiaries and which would reasonably be expected to have) a material adverse effect on the Company, Pluralsight LLC and their subsidiaries, taken as a whole.
(jj) The Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration Statement, it, and to the Companys knowledge, its directors and officers, in their capacities as such, will be in compliance with all provisions of the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act ), and all rules and regulations promulgated thereunder applicable to the Company and its officers and directors at such time, and is taking steps designed to ensure that it will be in compliance, at all times, with the other provisions of the Sarbanes-Oxley Act when they become applicable to the Company after the effectiveness of the Registration Statement.
(kk) The financial statements of the Company and Pluralsight LLC included in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus present fairly in all material respects the consolidated financial position of the Company, Pluralsight LLC and the subsidiaries of the Company and Pluralsight LLC as of the dates indicated and the results of their operations and cash flows for the periods specified. Such financial statements have been prepared in conformity with U.S. GAAP applied on a consistent basis throughout the periods involved. The other financial information of the Company and Pluralsight LLC included in the Registration Statement, the Time of Sale Prospectus and the Prospectus have been derived from accounting or other records of the Company, Pluralsight LLC and their respective subsidiaries and presents fairly in all material respects the information shown thereby.
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(ll) From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an emerging growth company, as defined in Section 2(a) of the Securities Act (an Emerging Growth Company ). Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(mm) The Company (i) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representatives and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule III hereto. Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.
(nn) As of the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers, none of (A) the Time of Sale Prospectus, (B) any free writing prospectus, when considered together with the Time of Sale Prospectus, and (C) any individual Written Testing-the-Waters Communication, when considered together with the Time of Sale Prospectus, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(oo) The Company, Pluralsight LLC and each of their respective subsidiaries have complied, and are presently in compliance with, its privacy and data and information security policies in effect from time to time, with contractual privacy and data and information security obligations and with applicable law and regulations regarding the collection, use, transfer, storage, protection, disposal and disclosure of personally identifiable information by the Company, Pluralsight LLC and their respective subsidiaries, except to the extent that the failure to do so would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Company, Pluralsight LLC and their respective subsidiaries, taken as a whole. The Company, Pluralsight LLC and their respective subsidiaries, taken as a whole, have (i) taken commercially reasonable steps to protect the information technology assets and personally identifiable information within their control and (ii) have established and maintained commercially reasonable disaster recovery and security plans, procedures and
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facilities for the business consistent with prevalent industry practices. The information technology systems, used by the Company, Pluralsight LLC and their respective subsidiaries in their respective businesses are adequate for, and operate and perform in a manner consistent with prevalent industry practices. To the Companys knowledge, there has been no security breach or attack in which personally identifiable information held by the Company, Pluralsight LLC or any of their respective subsidiaries, has been accessed or acquired by an unauthorized third party.
(pp) PricewaterhouseCoopers, who have certified certain financial statements of the Company, are independent public accountants as required by the Securities Act, and the rules and regulations of the Commission thereunder, and the Public Company Accounting Oversight Board (United States).
(qq) Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in the Registration Statement, the Time of Sale Prospectus, the Prospectus and the broadly available roadshow is not based on or derived from sources that are reliable and accurate in all material respects.
2. Agreements to Sell and Purchase . The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedule I hereto opposite its name at $[______] a share (the Purchase Price ).
On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have the right to purchase, severally and not jointly, up to [_______________] Additional Shares at the Purchase Price, provided, however, that the amount paid by the Underwriters for any Additional Shares shall be reduced by an amount per share equal to any dividends declared by the Company and payable on the Firm Shares but not payable on such Additional Shares. You may exercise this right on behalf of the Underwriters in whole or from time to time in part by giving written notice not later than 30 days after the date of this Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Each purchase date must be at least one business day after the written notice is given and may not be earlier than the closing date for the Firm Shares or later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. On each day, if any, that Additional Shares are to be purchased (an Option Closing Date ), each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased on such Option Closing Date as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares.
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3. Terms of Public Offering . The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at $[___] a share (the Public Offering Price ) and to certain dealers selected by you at a price that represents a concession not in excess of $[____] a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $[___] a share, to any Underwriter or to certain other dealers.
4. Payment and Delivery . Payment for the Firm Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at approximately 10:00 a.m., New York City time, on [________], 2018, or at such other time on the same or such other date, not later than [_________], 2018, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the Closing Date .
Payment for any Additional Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in Section 2 or at such other time on the same or on such other date, in any event not later than [_______], 2018, as shall be designated in writing by you.
The Firm Shares and Additional Shares shall be registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as the case may be. The Firm Shares and Additional Shares shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor.
5. Conditions to the Underwriters Obligations . The obligations of the Company to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than [4:00 p.m.] (New York City time) on the date hereof and that no order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission.
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The several obligations of the Underwriters are subject to the following further conditions:
(a) The respective representations and warranties of the Company and Pluralsight LLC contained herein shall be true and correct on the date hereof and on and as of the Closing Date or the Option Closing Date, as the case may be; and the statements of the Company, Pluralsight LLC and their respective officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or the Option Closing Date, as the case may be;
(b) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, and subsequent to the Closing Date and prior to the Option Closing Date:
(i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the securities of the Company, Pluralsight LLC or any of their respective subsidiaries by any nationally recognized statistical rating organization, as such term is defined in Section 3(a)(62) of the Securities Exchange Act of 1934, as amended (the Exchange Act ); and
(ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business, management or operations of the Company, Pluralsight LLC and the subsidiaries of the Company or Pluralsight LLC, taken as a whole, from that set forth in the Time of Sale Prospectus that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus.
(c) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of each of the Company and Pluralsight LLC, to the effect set forth in Section 5(a) and Section 5(b) above and to the effect that the representations and warranties of the Company and Pluralsight LLC, respectively, contained in this Agreement are true and correct on the date hereof and as of the Closing Date and that the Company and Pluralsight LLC, as applicable, has complied with all of the agreements and satisfied all of the conditions on their respective parts to be performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering each such certificate may rely upon the best of his or her knowledge as to proceedings threatened.
(d) The Underwriters shall have received on the Closing Date an opinion of Wilson Sonsini Goodrich & Rosati, P.C. ( WSGR ), outside counsel for the Company and Pluralsight LLC, dated the Closing Date, in form and substance reasonably satisfactory to the Representatives.
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(e) The Underwriters shall have received on the Closing Date an opinion of Goodwin Procter LLP ( Goodwin ), counsel for the Underwriters, dated the Closing Date, in form and substance reasonably satisfactory to the Representatives.
With respect to Section 5(d) above and Section 5(e) above, WSGR and Goodwin may state that their opinions and beliefs are based upon their participation in the preparation of the Registration Statement, the Time of Sale Prospectus and the Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified.
The opinion of WSGR described in Section 5(d) above shall be rendered to the Underwriters at the request of the Company and Pluralsight LLC and shall so state therein.
(f) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from PricewaterhouseCoopers, independent public accountants, containing statements and information of the type ordinarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Time of Sale Prospectus and the Prospectus; provided that the letter delivered on the Closing Date shall use a cut-off date not earlier than the date hereof.
(g) The lock-up agreements, each substantially in the form of Exhibit A hereto, between you and certain holders of shares of Common Stock or membership interests of Pluralsight LLC or any other securities convertible into or exercisable or exchangeable for Common Stock or units of Pluralsight LLC (such shares of Common Stock, units of Pluralsight LLC or such other securities collectively, the Securities ), officers and directors of the Company and Pluralsight LLC relating to sales and certain other dispositions of Securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.
(h) The Reorganization Transactions shall have been completed as described in the Prospectus.
(i) As of the Closing Date:
(i) the Transaction Documents shall have been executed and delivered; and
(ii) the Amended and Restated Charter shall have been filed with the Secretary of State of the State of Delaware and shall be in full force and effect.
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(j) The Underwriters shall have received, on each of the date hereof and the Closing Date, a certificate of the principal financial officer of each of the Company and Pluralsight LLC dated the date hereof and as of the Closing Date, in form and substance satisfactory to the Underwriters, containing statements and information with respect to certain information contained in the Time of Sale Prospectus and the Prospectus.
(k) The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of the following:
(i) certificates, dated the Option Closing Date and signed by an executive officer of each of the Company and Pluralsight LLC, confirming that the respective certificates of the Company and Pluralsight LLC delivered on the Closing Date pursuant to Section 5(c) hereof remains true and correct as of such Option Closing Date;
(ii) an opinion of WSGR dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 5(d) hereof;
(iii) an opinion of Goodwin Procter LLP, counsel for the Underwriters, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 5(e) hereof;
(iv) a letter dated the Option Closing Date, in form and substance satisfactory to the Underwriters, from PricewaterhouseCoopers, independent public accountants, substantially in the same form and substance as the letter furnished to the Underwriters pursuant to Section 5(f) hereof; provided that the letter delivered on the Option Closing Date shall use a cut-off date not earlier than three business days prior to such Option Closing Date;
(v) a certificate of the principal financial officer of each of the Company and Pluralsight LLC dated the Option Closing Date, substantially in the same form and substance as the letters furnished to the Underwriters pursuant to Section 5(j) hereof, containing statements and information with respect to certain information contained in the Time of Sale Prospectus and the Prospectus; and
(vi) such other documents as you may reasonably request with respect to the good standing of the Company and Pluralsight LLC, the due authorization and issuance of the Additional Shares to be sold on such Option Closing Date and other matters related to the issuance of such Additional Shares.
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6. Covenants of the Company and Pluralsight LLC . Each of the Company and Pluralsight LLC, jointly and severally, covenants with each Underwriter as follows:
(a) To furnish to you, without charge, one (1) signed copy of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(e) or 6(f) below, as many copies of the Time of Sale Prospectus, the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement, the Time of Sale Prospectus or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule.
(c) To furnish to you a copy of each proposed free writing prospectus to be prepared by or on behalf of, used by, or referred to by the Company and not to use or refer to any proposed free writing prospectus to which you reasonably object.
(d) Not to take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of the Underwriter that the Underwriter otherwise would not have been required to file thereunder.
(e) If the Time of Sale Prospectus is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Time of Sale Prospectus in order to make the statements therein, in the light of the circumstances, not misleading, or if any event shall occur or condition exist as a result of which the Time of Sale Prospectus conflicts with the information contained in the Registration Statement then on file, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Time of Sale Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters, subject to Section 6(b) above, and to any dealer upon request, either amendments or supplements to the Time of Sale Prospectus so that the statements in the Time of Sale Prospectus as so amended or supplemented will not, in the light of the circumstances when the Time of Sale Prospectus is delivered to a prospective purchaser, be misleading or so that the Time of Sale Prospectus, as amended or supplemented, will no longer conflict with the Registration Statement, or so that the Time of Sale Prospectus, as amended or supplemented, will comply with applicable law.
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(f) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters, subject to Section 6(b) above, and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law.
(g) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request.
(h) To make generally available to the Companys security holders and to you as soon as practicable an earnings statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the date of this Agreement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.
(i) To comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.
(j) The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Shares within the meaning of the Securities Act and (b) completion of the Restricted Period (as defined below).
(k) If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light
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of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
(l) Each of the Company and Pluralsight LLC also covenants with each Underwriter that, without the prior written consent of each Representative, on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus (the Restricted Period ), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Securities, (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Securities, in cash or otherwise or (3) file or submit any registration statement with the Commission relating to the offering of any Securities or (4) make any public announcement of its intention to do any of the foregoing.
(m) The restrictions contained in the preceding paragraph shall not apply to (a) the Shares to be sold hereunder or the transfer or redemption of Pluralsight LLC securities pursuant to the Reorganization Transactions, (b) the issuance of shares of Common Stock by the Company or membership interests in Pluralsight LLC upon the exercise of an option or warrant or the conversion or vesting of Securities outstanding on the date hereof of which the Underwriters have been advised in writing, (c) the issuance by the Company of any Securities pursuant to any incentive plan or stock ownership plan in effect on the date hereof and described in the Time of Sale Prospectus, (d) the filing by the Company of a registration statement with the Commission on Form S-8 in respect of any Securities issued under or the grant of any award pursuant to an employee benefit plan in effect on the date hereof and described in the Time of Sale Prospectus, (e) the establishment or amendment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that (i) such plan does not provide for the transfer of Common Stock during the Restricted Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by the Company regarding the establishment or amendment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Restricted Period, or (f) the sale or issuance of or entry into an agreement to sell or issue Securities in connection with one or more acquisitions of businesses, products or technologies, joint ventures, commercial relationships or other strategic corporate transactions; provided that the aggregate amounts of Securities (on an as-converted, as-exercised or as-exchanged basis) that the Company or Pluralsight LLC may sell or issue or agree to sell or issue pursuant to this paragraph shall not exceed 5% of the total number of shares of Class A Common Stock of the Company issued and outstanding immediately following the completion of the transactions
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contemplated by this Agreement determined on a fully-diluted basis and assuming that all outstanding membership interests in Pluralsight LLC that are exchangeable for shares of Class A Common Stock are so exchanged, and provided further that each recipient of Securities pursuant to this clause (f) shall execute a lock-up agreement substantially in the form of Exhibit A hereto with respect to the remaining portion of the Restricted Period.
(n) If Morgan Stanley, in its sole discretion, agrees to release or waive the restrictions set forth in a lock-up letter described in Section 5(g) hereof (a form of such release or waiver is set forth on Exhibit B hereto) for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
(o) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, agree to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Companys and Pluralsight LLCs counsel and the Companys accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 6(h) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum (up to a maximum amount, when taken together with the fees and disbursements of counsel for the Underwriters incurred in connection with clause (iv) of this Section 6(p), of $75,000), (iv) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by the Financial Industry Regulatory Authority (provided that the amount payable by the Company pursuant to subsection (iii) and the reasonable fees and disbursements of counsel to the Underwriters described in this subsection (iv) shall not exceed $75,000), (v) all fees and expenses in connection with the preparation and filing of the
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registration statement on Form 8-A relating to the Class A Common Stock and all costs and expenses incident to listing the Shares on The NASDAQ Global Select Market, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any road show undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the preparation or dissemination of any electronic road show, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and 50% of ground transportation costs and 50% of the cost of any aircraft chartered in connection with the road show and any meetings in connection with Testing The Waters Communication, as applicable (the remaining 50% of the cost of such ground transportation and aircraft to be paid by the Underwriters), (ix) the document production charges and expenses associated with printing this Agreement, (x) all reasonable fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program, and (xi) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 8 entitled Indemnity and Contribution, Section 9 entitled Directed Share Program Indemnification and the last paragraph of Section 11 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make and lodging expenses incurred by them in connection with any road show and any meetings in connection with Testing The Waters Communication, as applicable.
(p) The Company will apply the net proceeds from the sale of the Shares as described in the Registration Statement, the Time of Sale Prospectus and the Prospectus under the heading Use of Proceeds.
(q) The Company will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Common Stock.
(r) The Company will use its best efforts to list the Shares on The NASDAQ Global Select Market.
7. Covenants of the Underwriters . Each Underwriter severally covenants with the Company and Pluralsight LLC not to take any action that would result in the Company being required to file with the Commission under Rule 433(d) a free writing prospectus prepared by or on behalf of such Underwriter that otherwise would not be required to be filed by the Company thereunder, but for the action of the Underwriter.
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8. Indemnity and Contribution . (a) The Company and Pluralsight LLC, jointly and severally, agree to indemnify and hold harmless each Underwriter, its directors and officers, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show as defined in Rule 433(h) under the Securities Act (a road show), or the Prospectus or any amendment or supplement thereto, or any Written Testing-the-Waters Communication or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein (such information, the Underwriter Information ).
(b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, Pluralsight LLC, the directors of the Company and Pluralsight LLC, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company or Pluralsight LLC within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company and Pluralsight LLC to such Underwriter, but only with reference to the Underwriter Information.
(c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b), such person (the indemnified party ) shall promptly notify the person against whom such indemnity may be sought (the indemnifying party ) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel chosen by the indemnifying party and reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonably incurred, documented fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed in writing to the retention of
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such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, (iii) the indemnifying party has failed within a reasonable time to retain counsel reasonably satisfactory to the indemnified party, or (iv) the indemnified party shall have reasonably concluded there may be legal defenses available to it that are different from or in addition to those available to the indemnifying party. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (i) the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by the Representatives, in the case of parties indemnified pursuant to Section 8(a), and by the Company and Pluralsight LLC, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement (x) includes an unconditional release of such indemnified party, in form and substance reasonably satisfactory to such indemnified party, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statements to or any admission of fault, culpability or failure to act by or on behalf of any indemnified party.
(d) To the extent the indemnification provided for in Section 8(a) or 8(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 8(d)(i)
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above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and Pluralsight LLC on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and Pluralsight LLC or by the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters respective obligations to contribute pursuant to this Section 8 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint.
(e) The Company, Pluralsight LLC and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
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(f) The indemnity and contribution provisions contained in this Section 8 and the representations, warranties and other statements of the Company and Pluralsight LLC contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter, its directors and officers, any person controlling any Underwriter or any affiliate of any Underwriter or by or on behalf of the Company, Pluralsight LLC, their officers or directors or any person controlling the Company or Pluralsight LLC and (iii) acceptance of and payment for any of the Shares.
9. Directed Share Program Indemnification . (a) The Company agrees to indemnify and hold harmless Morgan Stanley, each person, if any, who controls Morgan Stanley within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and each affiliate of Morgan Stanley within the meaning of Rule 405 of the Securities Act ( Morgan Stanley Entities ) from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation) shall be instituted involving any Morgan Stanley Entity in respect of which indemnity may be sought pursuant to Section 9(a), the Morgan Stanley Entity seeking indemnity, shall promptly notify the Company in writing and the Company, upon request of the Morgan Stanley Entity, shall retain counsel reasonably satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity and any others the Company may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Morgan Stanley Entity shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Morgan Stanley Entity unless (i) the Company shall have agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Morgan Stanley Entity and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not, in respect of the legal expenses of the Morgan Stanley Entities in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonably incurred, documented fees and expenses of more than one separate firm (in addition to any local counsel) for all Morgan Stanley Entities. Any such separate firm for the Morgan Stanley Entities shall be designated in writing by Morgan Stanley. The Company shall not be liable for any settlement of any proceeding effected without its written consent, but if
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settled with such consent or if there be a final judgment for the plaintiff, the Company agrees to indemnify the Morgan Stanley Entities from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time a Morgan Stanley Entity shall have requested the Company to reimburse it for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Company agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Company of the aforesaid request and (ii) the Company shall not have reimbursed the Morgan Stanley Entity in accordance with such request prior to the date of such settlement. The Company shall not, without the prior written consent of Morgan Stanley, effect any settlement of any pending or threatened proceeding in respect of which any Morgan Stanley Entity is or could have been a party and indemnity could have been sought hereunder by such Morgan Stanley Entity, unless such settlement includes an unconditional release of the Morgan Stanley Entities from all liability on claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section 9(a) is unavailable to a Morgan Stanley Entity or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the Company in lieu of indemnifying the Morgan Stanley Entity thereunder, shall contribute to the amount paid or payable by the Morgan Stanley Entity as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Morgan Stanley Entities on the other hand from the offering of the Directed Shares or (ii) if the allocation provided by clause 9(c)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(c)(i) above but also the relative fault of the Company on the one hand and of the Morgan Stanley Entities on the other hand in connection with any statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Morgan Stanley Entities on the other hand in connection with the offering of the Directed Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Directed Shares (before deducting expenses) and the total underwriting discounts and commissions received by the Morgan Stanley Entities for the Directed Shares, bear to the aggregate Public Offering Price of the Directed Shares. If the loss, claim, damage or liability is caused by an untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, the relative fault of the Company on the one hand and the Morgan Stanley Entities on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or the omission or alleged omission relates to information supplied by the Company or by the Morgan Stanley Entities and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
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(d) The Company and the Morgan Stanley Entities agree that it would not be just or equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Morgan Stanley Entities were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 9(b). The amount paid or payable by the Morgan Stanley Entities as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the Morgan Stanley Entities in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9, no Morgan Stanley Entity shall be required to contribute any amount in excess of the amount by which the total price at which the Directed Shares distributed to the public were offered to the public exceeds the amount of any damages that such Morgan Stanley Entity has otherwise been required to pay. The remedies provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
(e) The indemnity and contribution provisions contained in this Section 9 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Morgan Stanley Entity or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Directed Shares.
10. Termination . The Underwriters may terminate this Agreement by notice given by you to the Company and Pluralsight LLC, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, any of the New York Stock Exchange or The NASDAQ Global Select Market, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a material disruption in securities settlement, payment or clearance services in the United States shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and which, singly or together with any other event specified in this clause (v), makes it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus or the Prospectus.
11. Effectiveness; Defaulting Underwriters . This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.
31
If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on such date, and arrangements satisfactory to you, the Company and Pluralsight LLC for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter, the Company or Pluralsight LLC. In any such case you, the Company or Pluralsight LLC shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement, in the Time of Sale Prospectus, in the Prospectus or in any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares to be sold on such Option Closing Date or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them, pursuant to Section 10 above or because of any failure or refusal on the part of the Company or Pluralsight LLC to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company or Pluralsight LLC shall be unable to perform its obligations under this Agreement, the Company and Pluralsight LLC, jointly and severally, will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder.
12. Entire Agreement . (a) This Agreement, together with any contemporaneous written agreements and any prior written agreements (to the extent not superseded by this Agreement) that relate to the offering of the Shares represents the entire agreement between the Company and Pluralsight LLC, on the one hand, and the Underwriters, on the other, with respect to the preparation of any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, the conduct of the offering, and the purchase and sale of the Shares.
32
(b) The Company and Pluralsight LLC acknowledge that in connection with the offering of the Shares: (i) the Underwriters have acted at arms length, are not agents of, and owe no fiduciary duties to, the Company, Pluralsight LLC or any other person, (ii) the Underwriters owe the Company and Pluralsight LLC only those duties and obligations set forth in this Agreement and prior written agreements (to the extent not superseded by this Agreement), if any, and (iii) the Underwriters may have interests that differ from those of the Company and those of Pluralsight LLC. Each of the Company and Pluralsight LLC waives to the full extent permitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Shares.
13. Counterparts . This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
14. Applicable Law . This Agreement, and any claim, controversy or dispute arising under or related thereto, shall be governed by and construed in accordance with the internal laws of the State of New York.
15. Headings . The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement.
16. Patriot Act . In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company and Pluralsight LLC, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
17. Notices. All communications hereunder shall be in writing and effective only upon receipt and if to the Underwriters shall be delivered, mailed or sent to you in care of Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department; in care of J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358); Attention: Equity Syndicate Desk; and if to the Company or Pluralsight LLC, shall be delivered, mailed or sent to 182 North Union Avenue, Farmington, Utah 84025.
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Very truly yours, | ||
PLURALSIGHT, INC. |
By: | ||
Name: | ||
Title: |
PLURALSIGHT HOLDINGS, LLC |
By: |
||
Name: |
||
Title: |
34
Accepted as of the date hereof
Morgan Stanley & Co. LLC
J.P. Morgan Securities LLC
Acting severally on behalf of themselves and the
several Underwriters named in Schedule I hereto
By: |
Morgan Stanley & Co. LLC |
By: |
||
Name: |
||
Title: |
By: |
J.P. Morgan Securities LLC |
By: |
||
Name: |
||
Title: |
35
SCHEDULE I
Underwriter |
Number of Firm Shares
To Be Purchased |
|||
Morgan Stanley & Co. LLC |
||||
J.P. Morgan Securities LLC |
||||
Barclays Capital Inc. |
||||
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
||||
First Analysis Securities Corporation |
||||
SunTrust Robinson Humphrey, Inc. |
||||
Raymond James & Associates, Inc. |
||||
Needham & Company, LLC |
||||
|
|
|||
Total: |
||||
|
|
II-1
SCHEDULE II
Time of Sale Prospectus
1. | Preliminary Prospectus issued [date] |
2. | [identify any free writing prospectuses filed by the Company under Rule 433(d) of the Securities Act that are meant to be treated as part of the Time of Sale Prospectus] |
3. | [free writing prospectus containing a description of terms that does not reflect final terms, if the Time of Sale Prospectus does not include a final term sheet] |
4. | The initial public offering price per share for the Shares is $[ ]. |
5. | The number of Firm Shares is [ ]. |
6. | The number of Additional Shares is [ ]. |
7. | The settlement date is [ ], 2018. |
III-1
SCHEDULE III
Written Testing-the-Waters Communications
IV-1
EXHIBIT A
FORM OF LOCK-UP LETTER
, 201[7][8]
Morgan Stanley & Co. LLC
c/o Morgan Stanley & Co. LLC
1585 Broadway
New York, NY 10036
Ladies and Gentlemen:
The undersigned understands that Morgan Stanley & Co. LLC ( Morgan Stanley ) proposes to enter into an Underwriting Agreement (the Underwriting Agreement ) with Pluralsight, Inc., a Delaware corporation (the Company ), which has been or will be formed to hold a portion of the units of Pluralsight Holdings, LLC ( Pluralsight LLC ), providing for the public offering (the Public Offering ) by the several Underwriters, including Morgan Stanley (the Underwriters ), of shares (the Shares ) of the Class A common stock of the Company (the Class A Common Stock ). The undersigned further understands that, prior to the consummation of the Public Offering, the Company will be authorized to issue, in addition to the Class A Common Stock, shares of its Class B Common Stock (the Class B Common Stock ) and Class C Common Stock (the Class C Common Stock , and collectively with the Class A Common Stock and Class B Common Stock, the Common Stock ).
To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus (the Restricted Period ) relating to the Public Offering (the Prospectus ), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or units of Pluralsight LLC beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the Exchange Act )), by the undersigned or any other securities so owned convertible into or exercisable or exchangeable for Common Stock or units of Pluralsight LLC (such shares of Common Stock, units of Pluralsight LLC or such other securities collectively, the Securities , and any such Securities beneficially owned by the undersigned, the Undersigneds Securities ) or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of the Securities, in cash or otherwise.
1
The restrictions described in the foregoing sentence shall not apply to:
(a) transactions relating to Shares acquired from the Underwriters in the Public Offering or in open market transactions after the completion of the Public 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;
(b) the transfer of the Undersigneds Securities (i) to the spouse, domestic partner, parent, child or grandchild of the undersigned or any other person with whom the undersigned has a relationship by blood, marriage or adoption not more remote than first cousin (each, an immediate family member ) or to a trust or other entity formed for estate planning purposes for the direct or indirect benefit of the undersigned or an immediate family member, (ii) by bona fide gift, will or intestacy, (iii) if the undersigned is a trust, to a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust[, or (iv) beginning 30 days after the date of the Prospectus, by gift to or for the benefit of the Pluralsight One Fund by the undersigned, so long as the aggregate amount of such gift taken together with all such other gifts by the undersigned, [Aaron Skonnard] [Frederick Onion] and each of their respective affiliates does not exceed 1% of the total fully diluted capitalization of the Company, provided, that the aggregate amount of such gift taken together with all such other gifts by the undersigned, [Aaron Skonnard] [Frederick Onion] and each of their respective affiliates that exceeds 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, may only be gifted to or for the benefit of the Pluralsight One Fund, subject to and contingent upon the Pluralsight One Fund agreeing to be bound by the restrictions set forth herein (the Permitted Donation )]; 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[, including, but not limited to, any filing made in connection with a Permitted Donation)];
(c) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity, the transfer of the Undersigneds Securities (i) 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 undersigned or affiliates of the undersigned (including, for the avoidance of doubt, where the undersigned is a partnership, to its general partner or a successor partnership or fund, or any other funds managed by such partnership), or (ii) as part of a disposition, transfer or distribution by the undersigned to its stockholders, partners, members or other equity holders;
(d) the establishment or amendment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock; provided that (i) such plan does not provide for the transfer of shares of Common Stock during the Restricted Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment or amendment of such plan, such announcement or filing shall include a statement to the effect that no transfer of shares of Common Stock may be made under such plan during the Restricted Period;
(e) the transfer of the Undersigneds Securities to the Company or Pluralsight LLC in connection with the vesting or settlement of restricted stock units 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 the Company or Pluralsight LLC for the payment of tax withholdings or remittance payments due as a result of the vesting, settlement or exercise of such restricted stock units, incentive units, options or rights; provided that if the undersigned is
2
required to file a report under Section 16(a) of the Exchange Act during the Restricted Period, the undersigned shall include a statement in any such report to the effect that such transfer is in connection with the vesting or settlement of restricted stock units or incentive units, or the net or cashless exercise of options or other rights to purchase shares of Common Stock, as applicable;
(f) the transfer of the Undersigneds Securities to the Company or Pluralsight LLC pursuant to agreements under which the Company, Pluralsight LLC or any of their respective equity holders has the option to repurchase such Securities upon termination of service of the undersigned;
(g) the transfer of the Undersigneds Securities pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of Securities of the Company or Pluralsight LLC involving a change of control (as defined below) of the Company or Pluralsight LLC occurring after the consummation of the Public Offering, that has been approved by the board of directors of the Company or the board of managers of Pluralsight LLC, as the case may be; provided that in the event that the tender offer, merger, consolidation or other such transaction is not completed, the Undersigneds Securities shall remain subject to the terms of this letter;
(h) the exchange, redemption, or repurchase of any units of Pluralsight LLC (or securities convertible into or exercisable or exchangeable for units of Pluralsight LLC) and a corresponding number of shares of Class B Common Stock or Class C 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 the Companys option, for cash or Class A Common Stock, pursuant to either an exchange agreement between the Company and certain unit holders of Pluralsight LLC or the Pluralsight LLC amended and restated limited liability agreement, which agreement, as applicable, is described in the Prospectus (the Transfer Agreement ); provided that (i) such shares of Class A Common Stock and other securities remain subject to the terms of this letter and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the 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 Transfer 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;
(i) the transfer, conversion, reclassification, redemption, or exchange of any securities pursuant to the reorganization transactions described in the Prospectus; provided that any shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock received in the reorganization transactions remain subject to the terms of this letter; and
(j) the transfer of the Undersigneds Securities that occurs pursuant to a domestic order or in connection with a divorce settlement;
provided, that (A) in the case of (b), (c) and (j) above, [other than in the case of a Permitted Donation of up to $5 million in the aggregate by the undersigned, [Aaron Skonnard] [Frederick Onion] and each of their respective affiliates,] 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 set forth herein, (B) in the case of (c), (f) and (j) above, no filing under Section 16(a)
3
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 voluntarily made during the Restricted Period, and (C) in the case of clause (f) and (j) above, if the undersigned is required to file a report under Section 16(a) of the Exchange Act during the Restricted Period, the undersigned shall include a statement in such report to the effect that such transfer is to the Company in connection with the repurchase of the Undersigneds Securities or pursuant to a qualified domestic order or in connection with a divorce settlement, as the case may be.
For purposes of clause (g) above, change of control means the consummation of any bona fide third party tender offer, merger, consolidation or other similar transaction the result of which is that any person (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, other than the Company, 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 the voting stock of the Company or Pluralsight LLC.
In addition, the Undersigned agrees that, without the prior written consent of Morgan Stanley, it will not, during the Restricted Period, make any demand for or exercise any right with respect to, the registration of any of the Undersigneds Securities, if such demand would require the Company during the Restricted Period to file, or make a public announcement of its intention to file, a registration statement. The undersigned also agrees and consents to the entry of stop transfer instructions with the Companys transfer agent and registrar against the transfer of the Undersigneds Securities during the Restricted Period except in compliance with the foregoing restrictions.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Shares the undersigned may purchase in the offering.
If the undersigned is an officer or director of the Company, (i) Morgan Stanley agrees that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, Morgan Stanley will notify the Company of the impending release or waiver, and (ii) the Company has agreed or will agree in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service (or other medium and method acceptable to the Financial Industry Regulatory Authority, Inc. ( FINRA )) at least two business days before the effective date of the release or waiver. Any release or waiver granted by Morgan Stanley hereunder to any such officer or director shall only be effective two business days after the publication date of such public notification, if required by FINRA Rule 5131 (or any successor provision thereto). The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
The undersigned understands that the Company and the Underwriters are relying upon this letter in proceeding toward consummation of the Public Offering. The undersigned further understands that this letter is irrevocable and shall be binding upon the undersigneds heirs, legal representatives, successors and assigns. The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this letter. This letter shall be governed by, and construed in accordance with, the laws of the state of New York. Notwithstanding anything to the contrary contained herein, this letter will automatically terminate and the undersigned will be released from all obligations hereunder upon the earliest to occur, if any, of (i) the date on
4
which the Company advises Morgan Stanley in writing, prior to the execution of the Underwriting Agreement, that it has determined not to proceed with the Public Offering, (ii) the date of termination of the Underwriting Agreement, or (iii) June 30, 2018, in the event that the Underwriting Agreement has not been executed by such date; provided, however, that the Company may, by written notice to the undersigned prior to such date, extend such date for a period of up to three additional months. This letter shall not be amended without the prior written consent of the undersigned.
The undersigned hereby consents to receipt of this letter in electronic form and understands and agrees that this letter may be signed electronically. In the event that any signature is delivered by facsimile transmission, electronic mail, or otherwise by electronic transmission evidencing an intent to sign this letter, such facsimile transmission, electronic mail or other electronic transmission shall create a valid and binding obligation of the undersigned with the same force and effect as if such signature were an original. Execution and delivery of this letter by facsimile transmission, electronic mail or other electronic transmission is legal, valid and binding for all purposes.
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters.
[Signature Page Follows]
5
Very truly yours, |
|
(Print Name of Security Holder) |
|
(Signature) |
6
EXHIBIT B
FORM OF WAIVER OF LOCK-UP
, 20
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Pluralsight, Inc. (the Company ) of [ ] shares of Class A common stock, $0.0001 par value (the Class A Common Stock ), of the Company and the lock-up letter dated [ ], 201[ ] (the Lock-up Letter ), executed by you in connection with such offering, and your request for a [waiver] [release] dated [ ], 2018, with respect to [ ] shares of Class A Common Stock (the Shares ).
Morgan Stanley & Co. LLC hereby agrees to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective [ ], 2018; provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company and Pluralsight LLC of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.
Very truly yours, |
Morgan Stanley & Co. LLC |
1
Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto | ||
MORGAN STANLEY & CO. LLC | ||
By: | ||
Name: | ||
Title: |
cc: Pluralsight, Inc.
2
EXHIBIT C
FORM OF PRESS RELEASE
Pluralsight, Inc.
[Date]
Pluralsight, Inc. (the Company ) announced today that Morgan Stanley & Co. LLC, the lead book-running manager in the Companys recent public sale of [ ] shares of Class A common stock is [waiving][releasing] a lock-up restriction with respect to [ ] shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver][release] will take effect on [ ], 2018, and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
3
Exhibit 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PLURALSIGHT, INC.
Pluralsight, Inc., a Delaware corporation, hereby certifies that:
1. The name of the corporation is Pluralsight, Inc. and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on December 4, 2017.
2. This Amended and Restated Certificate of Incorporation of the corporation attached hereto as Exhibit A, which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation as heretofore amended and/or restated, has been duly adopted by the corporations Board of Directors and by the stockholder of the corporation in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, with the approval of the corporations stockholder having been given by written consent without a meeting in accordance with Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct.
Dated: , 2018 | PLURALSIGHT, INC. |
By: |
Name: Aaron Skonnard | ||||||||||
Title: Chief Executive Officer |
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PLURALSIGHT, INC.
ARTICLE I
The name of the corporation is Pluralsight, Inc. (the Corporation ).
ARTICLE II
The address of the Corporations registered office in the State of Delaware is Corporation Service Company, 251 Little Falls Drive, in the city of Wilmington, County of New Castle, Delaware 19801. The name of the registered agent at such address is the Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware, as the same exists or as may hereafter be amended from time to time (the DGCL ).
ARTICLE IV
This Corporation is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock . The total number of shares of Common Stock authorized to be issued is 1,250,000,000, 1,000,000,000 shares of which are designated Class A Common Stock, par value $0.0001 per share (the Class A Common Stock ), 200,000,000 shares of which are designated Class B Common Stock, par value $0.0001 per share (the Class B Common Stock ), and 50,000,000 shares of which are designated Class C Common Stock, par value $0.0001 per share (the Class C Common Stock ). The total number of shares of Preferred Stock authorized to be issued is 100,000,000 shares, par value $0.0001 per share.
ARTICLE V
The rights, powers, preferences, privileges, restrictions and other matters relating to the Common Stock are as follows:
1. Definitions . For purposes of this Amended and Restated Certificate, the following definitions apply:
a. Acquisition means (A) any consolidation or merger of the Corporation with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the shares of capital stock of the Corporation immediately prior to such consolidation, merger or reorganization continue to represent a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its Parent) immediately after such consolidation, merger or reorganization; provided, that , for the purpose of this Section V.1(a), all stock, options, warrants, purchase rights or other securities exercisable for or convertible into Common Stock outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of capital stock are converted or exchanged; or (B) any transaction or series of related transactions to which the Corporation is a party in which shares of the Corporation are transferred such that in excess of fifty percent (50%) of the Corporations voting power is transferred; provided , that , an Acquisition shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Corporation or any successor or indebtedness of the Corporation is cancelled or converted or a combination thereof.
b. Affiliate means, any Person who or which directly or indirectly, controls, is controlled by, or is under common control with another Person. A Person shall be deemed to control an entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, or otherwise.
c. Amended and Restated Certificate means this Amended and Restated Certificate of Incorporation of the Corporation, as may be amended.
d. Asset Transfer means a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Corporation.
e. Board means the Board of Directors of the Corporation.
f. Cause means, with respect to an individual: (a) such individuals willful conduct that is materially injurious to the Corporation 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 Corporation; (b) such individuals conviction of a felony or of any misdemeanor involving a crime of moral turpitude; (c) such individuals fraud, misappropriation of money, assets, or other property of the Corporation, embezzlement, or the like; (d) such individuals 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 Corporation that has reasonable and legitimate objectives; or (e) such individuals material breach of any of his or her obligations, duties, or agreements to the Corporation, 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.
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g. Code means the Internal Revenue Code of 1986, as amended from time to time.
h. Designated Proxy Holder means, with respect to a holder of shares of Class C Common Stock, or any trust receiving or holding a holders shares of Class C Common Stock, a person or persons, with full power of substitution and re-substitution, selected by the members of the entire Board acting by majority vote to act as such holders proxy and attorney-in-fact.
i. Disability means with respect to an individual, any physical or mental incapacitation that results in such individuals inability to perform substantially all of his or her duties and responsibilities for the Corporation 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 Board in its good faith judgment.
j. Exempt Trusts means, collectively, the True Nord Trust dated December 5, 2014 and the Aaron and Monica Skonnard Legacy Trust dated December 5, 2014.
k. Family Group means, as to any Person, (i) an individual, his or her parents, spouses and descendants and the spouses of such descendants (collectively, the Individual Group ); (ii) all trusts, the primary beneficiaries of which are one or more members of the Individual Group ( Family Trusts ); and (iii) all entities which are wholly-owned, directly or indirectly, by one or more members of the Individual Group and/or Family Trusts. Notwithstanding the foregoing, and for the avoidance of doubt, the Family Trusts of the Founder shall include the Aaron & Monica Skonnard Revocable Trust, any Skonnard GRAT and the Exempt Trusts.
l. Founder means Aaron Skonnard.
m. IPO Date means the first date that shares of a class of the Corporations capital stock have been listed for trading on the NASDAQ Global Select Market or NASDAQ Global Market or any successor markets or exchanges.
n. Liquidation Event means any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, or any Acquisition or Asset Transfer.
o. Listing Standards means (i) the requirements of any national stock exchange under which the Corporations equity securities are listed for trading that are generally applicable to companies with common equity securities listed thereon or (ii) if the Corporations equity securities are not listed for trading on a national stock exchange, the requirements of the Nasdaq Stock Market generally applicable to companies with equity securities listed thereon.
p. LLC Agreement means that certain Fourth Amended and Restated Limited Liability Company Agreement, dated as of the date hereof, of Pluralsight Holdings, LLC as such agreement may be further amended, restated, amended and restated, supplemented or otherwise modified from time to time.
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q. LLC Unit means a limited liability company interest in Pluralsight Holdings, LLC, authorized and issued under the LLC Agreement, and constituting a Common Unit as defined in the LLC Agreement.
r. Parent of an entity means any entity that directly or indirectly owns or controls a majority of the voting power of the voting securities of such entity.
s. Person means any individual, corporation, partnership, unincorporated association or other entity.
t. Skonnard GRAT means any grantor-retained annuity trust over which Aaron Skonnard serves as the sole trustee, including the Skonnard Family GRAT 2018 and the Skonnard Family GRAT 2021.
u. Transfer means with respect to any share of Class B Common Stock or Class C Common Stock, the direct or indirect sale, assignment, conveyance, transfer, gift, bequest, devise, levy, execution, pledge, encumbrance, hypothecation or other disposition by a Person of all or any portion of his, her or its shares of Class B Common Stock or Class C Common Stock in any manner whatsoever, whether voluntary or involuntary; provided , however , that the entry into a trading plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, with a broker or other nominee shall not constitute a Transfer; provided , further , that a sale of such shares of Class B Common Stock or Class C Common Stock pursuant to such trading plan shall constitute a Transfer at the time of such sale; provided , further , that entry into a support, voting, tender or similar agreement or understanding (with or without granting a proxy) in connection with an Acquisition or Asset Transfer approved by the Board shall not constitute a Transfer; provided , further , that a sale of such shares of Class B Common Stock or Class C Common Stock in connection with an Acquisition or Asset Transfer shall constitute a Transfer at the time of such sale (unless otherwise determined by the Board); provided, further , that the tender of Class B Common Stock or Class C Common Stock in connection with an Acquisition or Asset Transfer approved by the Board shall not be deemed a Transfer unless and until the Class B Common Stock or Class C Common Stock is accepted for payment, and paid for, in such Acquisition or Asset Transfer; provided , further , that granting a proxy to a Designated Proxy Holder or designating a Designated Proxy Holder as an attorney-in-fact shall not constitute a Transfer; provided, further, that granting a revocable proxy to officers or directors of the Corporation at the request of the Board in connection with actions to be taken at an annual or special meeting of stockholders or in connection with any action by written consent of the stockholders solicited by the Board shall not constitute a Transfer.
v. Whole Board means the total number of authorized directors whether or not there exist any vacancies or unfilled seats in previously authorized directorships.
2. Voting Rights.
a. Common Stock . Except as otherwise required by applicable law,
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(a) Class A Common Stock . Each share of Class A Common Stock shall entitle the record holder thereof as of the applicable record date to one (1) vote per share in person or by proxy on all matters submitted to a vote of the holders of Class A Common Stock, whether voting separately as a class or otherwise.
(b) Class B Common Stock . Each share of Class B Common Stock shall entitle the record holder thereof as of the applicable record date to one (1) vote per share in person or by proxy on all matters submitted to a vote of the holders of Class B Common Stock, whether voting separately as a class or otherwise, except as otherwise provided pursuant to Section V.6(c) below.
(c) Class C Common Stock. Each share of Class B Common Stock shall entitle the record holder thereof as of the applicable record date to ten (10) votes per share in person or by proxy on all matters submitted to a vote of the holders of Class C Common Stock, whether voting separately as a class or otherwise, except as otherwise provided pursuant to Section V.6(c) below.
b. General . Except as otherwise expressly required in this Amended and Restated Certificate or as required by applicable law, the holders of Class A Common Stock, Class B Common Stock, and Class C Common Stock shall vote together as a single class (or, if the holders of more than one series of Preferred Stock are entitled to vote together with the holders of Class A Common Stock, Class B Common Stock and Class C Common Stock, together as a single class with the holders of such other series of Preferred Stock) on all matters submitted to the vote of stockholders generally.
c. Authorized Shares . The number of authorized shares of any or all of Class A Common Stock, Class B Common Stock, and Class C Common Stock may be increased or decreased (but not below the number of shares of Common Stock or, in the case of a class or series of Common Stock, such class or series, then outstanding) by the affirmative vote of the holders of a majority of the voting power of the Class A Common Stock, Class B Common Stock, and Class C Common Stock, voting together as a single class, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto); provided , that , the number of authorized shares of Class C Common Stock shall not be increased without the affirmative vote of the holders of a majority of the outstanding shares of Class C Common Stock, voting as a separate class.
3. Issuance of Class B Common Stock and Class C Common Stock . No shares of Class B Common Stock or Class C Common Stock, as applicable, may be issued except to a holder of LLC Units (other than the Corporation or any subsidiary of the Corporation that is a holder of LLC Units), such that after such issuance of Class B Common Stock or Class C Common Stock, as applicable, such holder of LLC Units holds an identical number of LLC Units and shares of Class B Common Stock or Class C Common Stock, as applicable. Except as provided in Section V.6, no shares of Class B Common Stock or Class C Common Stock may be Transferred by the holder thereof. Any stock certificates representing shares of Class B Common Stock or Class C Common Stock, as applicable, shall include a legend referencing the transfer restrictions set forth herein.
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4. Liquidation Rights . In the event of a Liquidation Event, after payment or provision of the debts and other liabilities of the Corporation and subject to the rights, if any, of the holders of any outstanding series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Class A Common Stock with respect to the distribution of the assets in the Liquidation Event, the holders of Class A Common Stock, Class B Common Stock and Class C Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares held by such stockholder; provided , that the holders of shares of Class B Common Stock and Class C Common Stock shall be entitled to receive $0.0001 per share, and upon receiving such amount, such holders of shares of Class B Common Stock and Class C Common Stock, as such, shall not be entitled to receive any other assets or funds of the Corporation.
5. Dividends . Subject to applicable law and the rights, if any, of holders of any outstanding series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Class A Common Stock with respect to the payment of dividends, dividends may be declared and paid ratably on the Class A Common Stock out of the assets of the Corporation that are legally available for this purpose at such times and in such amounts as the Board in its discretion shall determine. Dividends and other distributions shall not be declared or paid on the Class B Common Stock or the Class C Common Stock.
6. Transfer of Class B Common Stock or Class C Common Stock.
a. For the avoidance of doubt, a holder of Class B Common Stock or Class C Common Stock, as applicable, may surrender such shares of Class B Common Stock or Class C Common Stock, as applicable, to the Corporation for no consideration at any time. Following the surrender of any shares of Class B Common Stock or Class C Common Stock to the Corporation, the Corporation will take all actions necessary to retire such shares and such shares will not be reissued by the Corporation.
b. Except as set forth in Section V.6(a), a holder of Class B Common Stock or Class C Common Stock may Transfer or assign shares of Class B Common Stock or Class C Common Stock, as applicable (or any legal or beneficial interest in such shares), to any transferee or assignee only to the extent permitted by the LLC Agreement (a Permitted Transfer and a holder of such Class B Common Stock or Class C Common Stock, as applicable, pursuant to a Permitted Transfer, a Permitted Transferee ) and only if such holder also simultaneously Transfers an equal number of such holders LLC Units to such transferee in compliance with the LLC Agreement. The transfer restrictions described in this Section V.6 are referred to as the Restrictions .
c. Any purported Transfer of shares of Class B Common Stock or Class C Common Stock in violation of the Restrictions shall be null and void. If, notwithstanding the Restrictions, a Person shall, voluntarily or involuntarily, purportedly become or attempt to become, the purported owner (the Purported Owner ) of shares of Class B Common Stock or Class C Common Stock in violation of the Restrictions, then the Purported Owner shall not obtain any rights in and to such shares of Class B Common Stock or Class C Common Stock (the Restricted Shares ), and the purported Transfer of the Restricted Shares to the Purported Owner shall not be
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recognized by the Corporation, the Corporations transfer agent (the Transfer Agent ) or the Secretary of the Corporation, as determined by the Board, and each Restricted Share shall, to the fullest extent permitted by law, automatically, without any further action on the part of the Corporation, the holder thereof, or any other party, lose all voting rights as set forth herein and become a non-voting share.
d. Upon a determination by the Board that a Person has attempted or may attempt to transfer or acquire Restricted Shares in violation of the Restrictions, the Board may take such actions as it deems advisable to refuse to give effect to such transfer or acquisition on the books and records of the Corporation, including without limitation to cause the Transfer Agent or the Secretary of the Corporation, as applicable, to not record the Purported Owner as the record owner of the Restricted Shares, and to institute proceedings to enjoin or rescind any such transfer or acquisition.
e. The Board may, to the extent permitted by law, from time to time establish, modify, amend, or rescind by bylaw or otherwise, regulations and procedures not inconsistent with the provisions of this Section V.6. Any such procedures and regulations shall be kept on file with the Secretary of the Corporation and with its Transfer Agent and shall be made available for inspection by any prospective transferee and, upon written request, shall be mailed to holders of shares of Class B Common Stock or Class C Common Stock, as applicable.
f. The Board shall have all powers necessary to implement the Restrictions, including without limitation the power to prohibit the transfer and acquisition of any shares of Class B Common Stock or Class C Common Stock, as applicable, on the books and records of the Corporation in violation thereof.
g. Transfers of Class C Common Stock are further subject to the provisions set forth in Section V.7.
7. Conversion of the Class C Common Stock . With respect to any holder of Class C Common Stock, each share of Class C Common Stock held by such holder will automatically be converted into one fully paid and nonassessable share of Class B Common Stock, as follows:
a. on the affirmative written election of such holder or, if later, at the time or the happening of a future event specified in such written election (which election may be revoked by such holder prior to the date on which the automatic conversion would otherwise occur unless otherwise specified by such holder);
b. except in the event of the death or Disability of the Founder, in which case this Section V.7(b) shall not apply, any Transfer of such share of Class C Common Stock by any such holder of Class C Common Stock, except for (A) Transfers made by a holder of Class C Common Stock for estate planning or tax planning purposes to a Family Trust (or other Affiliate of such holder of Class C Common Stock) where the Founder maintains, directly or indirectly, sole voting power (including by means of voting agreement, proxy or other similar agreement or instrument), with respect to the Class C Common Stock held by such Family Trust (or other Affiliate
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of such holder of Class C Common Stock); provided such Transfer does not involve any payment of cash, securities, property or other consideration (other than an interest in such Family Trust or other Affiliate); and, provided , further , that in the event that the Founder no longer has, directly or indirectly, sole voting power (including by means of voting agreement, proxy or other similar agreement or instrument), with respect to Class C Common Stock held by such Family Trust (other than the shares of Class C Common Stock held by the Exempt Trusts from time to time) or other Affiliate, each share of Class C Common Stock then held by such Family Trust (other than the shares of Class C Common Stock held by the Exempt Trusts from time to time) or other Affiliate shall automatically be, and be deemed to be, converted into one (1) share of Class B Common Stock; (B) Transfers to a trust under the terms of which the Founder has retained, directly or indirectly, a qualified interest within the meaning of Section 2702(b)(1) of the Code and/or a reversionary interest so long as the Founder has, directly or indirectly, sole voting power (including by means of voting agreement, proxy or other similar agreement or instrument) with respect to the shares of Class C Common Stock held by such trust; provided , however , that in the event the Founder no longer has, directly or indirectly, sole voting power (including by means of voting agreement, proxy or other similar agreement or instrument) with respect to the shares of Class C Common Stock then held by such trust, each share of Class C Common Stock then held by such trust (other than the shares of Class C Common Stock held by the Exempt Trusts from time to time) shall automatically be, and be deemed to be, converted into one (1) share of Class B Common Stock; (C) Transfers to an Individual Retirement Account (as defined in Section 408(a) of the Code), or a pension, profit sharing, stock bonus or other type of plan or trust of which the Founder is, directly or indirectly, a participant or beneficiary and which satisfies the requirements for qualification under Section 401 of the Code; provided , that in each case the Founder has, directly or indirectly, sole voting power (including by means of voting agreement, proxy or other similar agreement or instrument) with respect to such shares of Class C Common Stock held in such account, plan or trust, and provided , further , that in the event the Founder no longer has, directly or indirectly, sole voting power (including by means of voting agreement, proxy or other similar agreement or instrument) with respect to the shares of Class C Common Stock then held by such account, plan or trust, each share of Class C Common Stock held by such account, plan or trust shall automatically be, and be deemed to be, converted into one (1) share of Class B Common Stock; (D) Transfers from a Skonnard GRAT to either an Exempt Trust or another Family Trust of the Founder; (E) Transfers from one Exempt Trust to another Exempt Trust; and (F) Transfers to a corporation, partnership or limited liability company in which the Founder directly, or indirectly through one or more Permitted Transferees, owns shares, partnership interests or membership interests, as applicable, with sufficient voting power in the corporation, partnership or limited liability company, as applicable, or otherwise has legally enforceable rights, such that the Founder retains, directly or indirectly, sole voting power (including by means of voting agreement, proxy or other similar agreement or instrument), with respect to the shares of Class C Common Stock held by such corporation, partnership or limited liability company; provided, that in the event the Founder no longer owns, directly or indirectly, sufficient shares, partnership interests or membership interests, as applicable, or no longer has sufficient legally enforceable rights to ensure that the Founder retains, directly or indirectly, sole voting power (including by means of voting agreement, proxy or other similar agreement or instrument), with respect to the shares of Class C Common Stock held by such corporation, partnership or limited liability company, as applicable, each share of Class C Common Stock then held by such corporation, partnership or limited liability company, as applicable, shall automatically be, and be deemed to be, converted into one (1) share of Class B Common Stock;
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c. upon either (A) the death or Disability of the Founder, if the Designated Proxy Holder does not hold exclusive voting control over such shares of Class C Common Stock immediately following the death or Disability of the Founder, or (B) if the Designated Proxy Holder does hold exclusive voting control over such shares of Class C Common Stock immediately following the death or Disability of the Founder, the date that is the earlier of (i) nine (9) months after the death or Disability of the Founder and (ii) the date upon which the Designated Proxy Holder ceases to hold exclusive voting control of such shares of Class C Common Stock;
d. upon termination for Cause by the Corporation, Pluralsight Holdings, LLC or any subsidiary thereof, of the employment of the Founder with the Corporation, Pluralsight Holdings, LLC or any subsidiary thereof;
e. upon the date that is seven (7) years following the IPO Date;
f. upon the date that is one (1) year after the Founder resigns from his position as the Corporations Chief Executive Officer and is no longer serving as chairman of the Board; and
g. upon the date when the Founder, his Family Group and their respective Affiliates over whom the Founder maintains, directly or indirectly, sole voting power (including by means of voting agreement, proxy or similar agreement or instrument) with respect to the shares of Class C Common Stock held by them no longer beneficially own, in the aggregate, a number of shares of Class C Common Stock equal to at least twenty-five percent (25%) of the shares of Class C Common Stock held by the Founder, his Family Group and their respective Affiliates as of the date hereof.
8. Procedures . The Corporation may, from time to time, establish such policies and procedures relating to the conversion of the Class C Common Stock into Class B Common Stock and the general administration of this dual class stock structure, including the issuance of stock certificates with respect thereto, as it may deem necessary or advisable, and may from time to time request that holders of shares of Class C Common Stock furnish certifications, affidavits or other proof to the Corporation as it deems necessary to verify the ownership of Class C Common Stock and to confirm that a conversion to Class B Common Stock has not occurred. A determination by the Corporation as to whether or not a Transfer has occurred, or whether a Transfer complied with Section V.6, and results in a conversion from Class C Common Stock to Class B Common Stock, or the consequences set forth in Section V.6, shall be conclusive and binding.
9. Immediate Effect . In the event of and upon a conversion of shares of Class C Common Stock to Class B Common Stock pursuant to Section V.7, such conversion shall be deemed to have been made at the time that the Transfer of shares, death or Disability or other applicable event occurred, subject in all cases to any transition periods specifically provided for in this Amended and Restated Certificate. Upon any conversion of shares of Class C Common Stock to Class B Common Stock in accordance with this Amended and Restated Certificate, all rights of the
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holder of such shares of Class C Common Stock shall cease with respect to such shares and the person or persons in whose names or names the certificate or certificates representing the shares of Class B Stock to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Class B Common Stock.
10. Reservation of Stock Issuable Upon Conversion . The Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class B Common Stock, solely for the purpose of effecting the conversion of the shares of Class C Common Stock, such number of its shares of Class B Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class C Common Stock; and if at any time the number of authorized but unissued shares of Class B Common Stock will not be sufficient to effect the conversion of all then-outstanding shares of Class C Common Stock the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Class B Common Stock to such number of shares as will be sufficient for such purpose.
11. LLC Units and Common Stock Ratio . The Corporation shall, to the fullest extent permitted by law, undertake all actions, including, without limitation, a reclassification, dividend, division or recapitalization, with respect to:
a. the shares of Class A Common Stock necessary to maintain at all times a one-to-one ratio between the number of LLC Units owned by the Corporation or any subsidiary of the Corporation that is a holder of LLC Units and the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, (i) shares of Class A Common Stock issuable pursuant to awards granted under the Corporations 2018 Incentive Award Plan (as may be amended, supplemented or modified, the 2018 Incentive Award Plan ), and any other stock incentive plan adopted by the Corporation from time to time, that have not vested thereunder and have not settled in, or been exercised for, Class A Common Stock in accordance with the terms thereof, (ii) treasury stock, or (iii) Preferred Stock or other debt or equity securities (including, without limitation, warrants, options, and rights) issued by the Corporation that are convertible or exercisable or exchangeable for Class A Common Stock (except to the extent such securities have been converted, exercised or exchanged for Class A Common Stock and the net proceeds from such other securities, including without limitation, any exercise or purchase price payable upon conversion, exercise or exchange thereof, have been contributed by the Corporation to the equity capital of Pluralsight Holdings, LLC); and
b. the shares of Class B Common Stock and Class C Common Stock, as applicable, necessary to maintain at all times a one-to-one ratio between the number of outstanding LLC Units (other than LLC Units held by the Corporation or any subsidiary of the Corporation that is a holder of LLC Units) and the number of outstanding shares of Class B Common Stock and Class C Common Stock, as applicable.
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12. LLC Units and Common Stock Ratio upon a Stock Split . The Corporation shall not undertake or authorize any subdivision (by any stock split, stock dividend, reclassification, recapitalization or similar event) or combination (by reverse stock split, reclassification, recapitalization or similar event) of (i) the Class B Common Stock that is not accompanied by an identical subdivision or combination (by any such events listed above in this Section V.12) of the LLC Units to maintain at all times a one-to-one ratio between the number of outstanding LLC Units and the number of outstanding shares of Class B Common Stock, unless such action is necessary to maintain at all times a one-to-one ratio between the number of outstanding LLC Units and the number of outstanding shares of Class B Common Stock; or (ii) the Class C Common Stock that is not accompanied by an identical subdivision or combination (by any such events listed above in this Section V.12) of the LLC Units to maintain at all times, subject to the provisions of this Amended and Restated Certificate, a one-to-one ratio between the number of LLC Units owned by all holders of Class C Common Stock and the number of outstanding shares of Class C Common Stock, unless such action is necessary to maintain at all times a one-to-one ratio between the number of LLC Units owned by all holders of Class C Common Stock and the number of outstanding shares of Class C Common Stock.
13. LLC Units and Class A Common Stock Ratio upon a Sale or Repurchase; Preferred Stock . The Corporation shall not issue, transfer or deliver from treasury stock or repurchase shares of Class A Common Stock unless in connection with any such issuance, transfer, delivery or repurchase the Corporation takes or authorizes all requisite action such that, after giving effect to all such issuances, transfers, deliveries or repurchases, the number of LLC Units owned by the Corporation will equal on a one-for-one basis the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, (i) shares of Class A Common Stock issuable pursuant to awards granted under the 2018 Incentive Award Plan, and any other stock incentive plan adopted by the Corporation from time to time, that have not vested thereunder and have not settled in, or been exercised for, Class A Common Stock in accordance with the terms thereof, (ii) treasury stock, or (iii) Preferred Stock or other debt or equity securities (including, without limitation, warrants, options and rights) issued by the Corporation that are convertible or exercisable, or exchangeable for Class A Common Stock (except to the extent such securities have been converted, exercised, or exchanged for Class A Common Stock and the net proceeds from such other securities, including, without limitation, any exercise or purchase price payable upon conversion, exercise, or exchange thereof, have been contributed by the Corporation to the equity capital of Pluralsight Holdings, LLC). The Corporation shall not issue, transfer or deliver from treasury stock or repurchase or redeem shares of Preferred Stock unless in connection with any such issuance, transfer, delivery, repurchase, or redemption the Corporation takes all requisite action such that, after giving effect to all such issuances, transfers, repurchases, or redemptions, the Corporation holds (in the case of any issuance, transfer or delivery) or ceases to hold (in the case of any repurchase or redemption) equity interests in Pluralsight Holdings, LLC which (in the good faith determination by the Board) are in the aggregate substantially equivalent in all respects to the outstanding Preferred Stock so issued, transferred, delivered, repurchased, or redeemed.
14. LLC Units and Class A Common Stock Ratio upon a Merger . Unless otherwise consented to in writing by the holders of a majority of the voting power of Class B Common Stock and Class C Common Stock (voting together), the Corporation shall not consolidate, merge, combine, or consummate any other transaction (other than an action or transaction for which an adjustment is provided in any of Sections V.3, V.11, V.12 or V.13) in which shares of Class A Common Stock are
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exchanged for or converted into other stock or securities, or the right to receive cash and/or any other property (a Transaction ), unless in connection with any such Transaction, each LLC Unit that is redeemable by the holder thereof pursuant to the terms of the LLC Agreement for, at the option of the Corporation, a share of Class A Common Stock or a cash payment, shall be entitled to be exchanged for or converted into (without duplication of any corresponding share of Class A Common Stock which the Corporation may elect to issue upon a redemption of such LLC Unit by the holder thereof) the same kind and amount of stock or securities, cash, and/or other property, as the case may be, into which or for which each share of Class A Common Stock is exchanged or converted (such stock or securities, cash, and/or other property shall be referred to herein as the Consideration ), to maintain at all times a one-to-one ratio between (x) the Consideration issuable in such Transaction in exchange for or conversion of one share of Class A Common Stock and (y) the Consideration issuable in such Transaction in redemption of, exchange for or conversion of one LLC Unit.
15. No Reissuance of Class B Common Stock . No share or shares of Class B Common Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired, and eliminated from the shares that the Corporation shall be authorized to issue.
16. No Reissuance of Class C Common Stock . No share or shares of Class C Common Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired, and eliminated from the shares that the Corporation shall be authorized to issue.
17. Preemptive Rights . No stockholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and a stockholder.
ARTICLE VI
1. Rights of Preferred Stock . The Board is authorized, subject to any limitations prescribed by law but to the fullest extent possible permitted by law, to provide, by resolution of the Board (authority to do so being hereby expressly vested in the Board), for the issuance of shares of Preferred Stock in one or more series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a Preferred Stock Designation ), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers (which may include, without limitation, full, limited or no voting power), preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof.
2. Vote to Increase or Decrease Authorized Shares . The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of stock of the Corporation entitled to vote thereon, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto).
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ARTICLE VII
1. Board Size . Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors that constitutes the entire Board shall be fixed by, or in the manner provided in, the Bylaws of the Corporation. At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected and until their successors have been duly elected and qualified or until their earlier resignation or removal; except that if any such election shall not be so held, such election shall take place at a stockholders meeting called and held in accordance with the DGCL.
2. Board Structure . Effective upon the IPO Date, the directors, other than any who may be elected by the holders of any series of Preferred Stock under specified circumstances, shall be divided into three (3) classes as nearly equal in size as is practicable, hereby designated Class I, Class II, and Class III. The Board may assign members of the Board already in office to such classes, such assignment to become effective on the IPO Date. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of the stockholders following the IPO Date, the term of office of the initial Class II directors shall expire at the second annual meeting of the stockholders following the IPO Date, and the term of office of the initial Class III directors shall expire at the third annual meeting of the stockholders following the IPO Date. At each annual meeting of stockholders following the IPO Date, successors shall be elected to the directors of a Class whose term expired at such annual meeting and shall hold office until either the third succeeding annual meeting and until such directors successor shall have been duly elected and qualified, or until such directors death, resignation, or removal.
From and after the IPO Date, if the number of directors is thereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. No decrease in the number of directors constituting the Whole Board, whether before or after the IPO Date, shall shorten the term of any incumbent director.
3. Removal; Vacancies . Subject to any rights of the holders of Preferred Stock then outstanding, following the IPO Date any director may be removed from office by the stockholders of the Corporation only for cause, at a meeting called for that purpose. Vacancies occurring on the Board for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled only by vote of a majority of the remaining members of the Board, although less than a quorum, or by a sole remaining director, at any meeting of the Board, and not by the stockholders. A person elected to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall be duly elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal.
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ARTICLE VIII
The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:
1. Board Power . The business and affairs of the Corporation shall be managed by or under the direction of the Board. In addition to the powers and authority expressly conferred by statute or by this Amended and Restated Certificate or the Bylaws of the Corporation, the Board is hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
2. Written Ballot . Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation.
3. Amendment of Bylaws . In furtherance and not in limitation of the powers conferred by the DGCL, the Board is expressly authorized to adopt, amend, or repeal the Bylaws of the Corporation.
4. Special Meetings . Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of the stockholders of the Corporation may be called only by (i) the Board pursuant to a resolution adopted by a majority of the Whole Board; (ii) the chairman of the Board; or (iii) the chief executive officer of the Corporation.
5. Availability of Stockholder Action by Written Consent . Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by stockholders of the Corporation, provided, however, that any action required or permitted to be taken by the holders of Preferred Stock, voting separately as one or more series or separately as a class, may be taken without a meeting, without prior notice and without a vote, to the extent expressly so provided by the applicable certificate of designation relating to such series of Preferred Stock.
6. No Cumulative Voting . No stockholder will be permitted to cumulate votes at any election of directors.
ARTICLE IX
To the fullest extent permitted by law, no director of the Corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the DGCL is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Neither any amendment nor repeal of this Article IX, nor the adoption of any provision of this Amended and Restated Certificate inconsistent with this Article IX, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision.
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ARTICLE X
If any provision of this Amended and Restated Certificate becomes or is declared on any ground 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 Amended and Restated Certificate, and the court will replace such illegal, void or unenforceable provision of this Amended and Restated Certificate with a valid and enforceable provision that most accurately reflects the Corporations intent, in order to achieve, to the maximum extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Amended and Restated Certificate shall be enforceable in accordance with its terms.
Except as provided in Article IX above, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided , however , that, except in the case of the adoption of a Preferred Stock Designation, notwithstanding any other provision of this Amended and Restated Certificate or any provision of law that might otherwise permit a lesser vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Amended and Restated Certificate, the affirmative vote of the holders of at least two-thirds of the voting power of the outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate or adopt any new provision of this Amended and Restated Certificate; provided , that any amendment to this Amended and Restated Certificate that gives holders of the Class B Common Stock or Class C Common Stock (i) any rights to receive dividends or any other kind of distribution, (ii) any right to convert into or be exchanged for Class A Common Stock or (iii) any other economic rights shall, in addition to the affirmative vote of the holders of a majority of the voting power of all of the outstanding voting stock of the Corporation, be effective only upon the affirmative vote of a majority of shares of Class A Common Stock voting separately as a class; provided , further , if shares of Class C Common Stock are outstanding, then the affirmative vote of at least a majority of the Class C Common Stock shall be required to amend or repeal, or adopt any provision of this Amended and Restated Certificate inconsistent with, Sections V.2 and V.7, any of the terms defined in Section V.1 and used in such Sections V.2 or V.7, or this Article X.
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Exhibit 3.4
AMENDED AND RESTATED BYLAWS OF
Pluralsight, Inc.
(as amended on May 3, 2018 effective as of the
closing of the corporations initial public offering)
TABLE OF CONTENTS
Page | ||||||||
ARTICLE I - CORPORATE OFFICES |
1 | |||||||
1.1 | REGISTERED OFFICE | 1 | ||||||
1.2 | OTHER OFFICES | 1 | ||||||
ARTICLE II - MEETINGS OF STOCKHOLDERS |
1 | |||||||
2.1 | PLACE OF MEETINGS | 1 | ||||||
2.2 | ANNUAL MEETING | 1 | ||||||
2.3 | SPECIAL MEETING | 1 | ||||||
2.4 | ADVANCE NOTICE PROCEDURES | 2 | ||||||
2.5 | NOTICE OF STOCKHOLDERS MEETINGS | 6 | ||||||
2.6 | QUORUM | 6 | ||||||
2.7 | ADJOURNED MEETING; NOTICE | 6 | ||||||
2.8 | CONDUCT OF BUSINESS | 7 | ||||||
2.9 | VOTING | 7 | ||||||
2.10 | STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING | 7 | ||||||
2.11 | RECORD DATES | 7 | ||||||
2.12 | PROXIES | 8 | ||||||
2.13 | LIST OF STOCKHOLDERS ENTITLED TO VOTE | 8 | ||||||
2.14 | INSPECTORS OF ELECTION | 9 | ||||||
ARTICLE III - DIRECTORS |
9 | |||||||
3.1 | POWERS | 9 | ||||||
3.2 | NUMBER OF DIRECTORS | 9 | ||||||
3.3 | ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS | 9 | ||||||
3.4 | RESIGNATION AND VACANCIES | 9 | ||||||
3.5 | PLACE OF MEETINGS; MEETINGS BY TELEPHONE | 10 | ||||||
3.6 | REGULAR MEETINGS | 10 | ||||||
3.7 | SPECIAL MEETINGS; NOTICE | 10 | ||||||
3.8 | QUORUM; VOTING | 11 | ||||||
3.9 | BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING | 11 | ||||||
3.10 | FEES AND COMPENSATION OF DIRECTORS | 11 | ||||||
3.11 | REMOVAL OF DIRECTORS | 12 | ||||||
ARTICLE IV - COMMITTEES |
12 | |||||||
4.1 | COMMITTEES OF DIRECTORS | 12 | ||||||
4.2 | COMMITTEE MINUTES | 12 | ||||||
4.3 | MEETINGS AND ACTION OF COMMITTEES | 12 | ||||||
4.4 | SUBCOMMITTEES | 13 | ||||||
ARTICLE V - OFFICERS |
13 | |||||||
5.1 | OFFICERS | 13 | ||||||
5.2 | APPOINTMENT OF OFFICERS | 14 | ||||||
5.3 | SUBORDINATE OFFICERS | 14 | ||||||
5.4 | REMOVAL AND RESIGNATION OF OFFICERS | 14 |
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TABLE OF CONTENTS
(continued)
Page | ||||||||
5.5 | VACANCIES IN OFFICES | 14 | ||||||
5.6 | REPRESENTATION OF SECURITIES OF OTHER ENTITIES | 14 | ||||||
5.7 | AUTHORITY AND DUTIES OF OFFICERS | 14 | ||||||
ARTICLE VI - STOCK |
15 | |||||||
6.1 | STOCK CERTIFICATES; PARTLY PAID SHARES | 15 | ||||||
6.2 | SPECIAL DESIGNATION ON CERTIFICATES | 15 | ||||||
6.3 | LOST CERTIFICATES | 16 | ||||||
6.4 | DIVIDENDS | 16 | ||||||
6.5 | TRANSFER OF STOCK | 16 | ||||||
6.6 | STOCK TRANSFER AGREEMENTS | 16 | ||||||
6.7 | REGISTERED STOCKHOLDERS | 16 | ||||||
ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER |
17 | |||||||
7.1 | NOTICE OF STOCKHOLDERS MEETINGS | 17 | ||||||
7.2 | NOTICE BY ELECTRONIC TRANSMISSION | 17 | ||||||
7.3 | NOTICE TO STOCKHOLDERS SHARING AN ADDRESS | 17 | ||||||
7.4 | NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL | 18 | ||||||
7.5 | WAIVER OF NOTICE | 18 | ||||||
ARTICLE VIII - INDEMNIFICATION |
18 | |||||||
8.1 | INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS | 18 | ||||||
8.2 | INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION | 19 | ||||||
8.3 | SUCCESSFUL DEFENSE | 19 | ||||||
8.4 | INDEMNIFICATION OF OTHERS | 19 | ||||||
8.5 | ADVANCE PAYMENT OF EXPENSES | 19 | ||||||
8.6 | LIMITATION ON INDEMNIFICATION | 20 | ||||||
8.7 | DETERMINATION; CLAIM | 20 | ||||||
8.8 | NON-EXCLUSIVITY OF RIGHTS | 21 | ||||||
8.9 | INSURANCE | 21 | ||||||
8.10 | SURVIVAL | 21 | ||||||
8.11 | EFFECT OF REPEAL OR MODIFICATION | 21 | ||||||
8.12 | CERTAIN DEFINITIONS | 21 | ||||||
ARTICLE IX - GENERAL MATTERS |
22 | |||||||
9.1 | EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS | 22 | ||||||
9.2 | FISCAL YEAR | 22 | ||||||
9.3 | SEAL | 22 | ||||||
9.4 | CONSTRUCTION; DEFINITIONS | 22 |
-ii-
TABLE OF CONTENTS
(continued)
Page | ||||
ARTICLE X - AMENDMENTS |
22 | |||
ARTICLE XI - EXCLUSIVE FORUM |
23 |
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BYLAWS OF PLURALSIGHT, INC.
ARTICLE ICORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of Pluralsight, Inc. shall be fixed in the corporations certificate of incorporation, as the same may be amended from time to time.
1.2 OTHER OFFICES
The corporation may at any time establish other offices at any place or places.
ARTICLE IIMEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. The board of directors 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 ).
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year. The board of directors shall designate the date and time of the annual meeting. At the annual meeting, elections of directors nominated in accordance with Section 2.4(ii) and business brought in accordance with Section 2.4(i) may be transacted. The board of directors, acting pursuant to a resolution adopted by a majority of the Whole Board, may cancel, postpone or reschedule any previously scheduled annual meeting at any time, before or after the notice for such meeting has been sent to the stockholders. For purposes of these bylaws, the term Whole Board shall mean the total number of authorized directors whether or not there exist any vacancies or unfilled seats in previously authorized directorships.
2.3 SPECIAL MEETING
(i) A special meeting of the stockholders may be called as provided in the corporations certificate of incorporation. The board of directors, acting pursuant to a resolution adopted by a majority of the Whole Board, may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.
(ii) Only such business or elections shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the board of directors, chairperson of the board of directors or chief executive officer
2.4 ADVANCE NOTICE PROCEDURES
(i) Advance Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be brought: (A) pursuant to the corporations proxy materials with respect to such meeting, (B) by or at the direction of the board of directors, or (C) by a stockholder of the corporation who (1) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(i), on the record date for the determination of stockholders entitled to notice of the annual meeting and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has timely complied in proper written form with the notice procedures set forth in this Section 2.4(i). In addition, for business to be properly brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action pursuant to these bylaws and applicable law. For the avoidance of doubt, clause (C) above shall be the exclusive means for a stockholder to bring business (other than business included in the corporations proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or any successor thereto (the 1934 Act )) before an annual meeting of stockholders.
(a) To comply with clause (C) of Section 2.4(i) above, a stockholders notice must set forth all information required under this Section 2.4(i) and must be timely received by the secretary of the corporation. To be timely, a stockholders notice must be received by the secretary at the principal executive offices of the corporation not later than the 45th day nor earlier than the 75th day before the one-year anniversary of the date on which the corporation first mailed its proxy materials or a notice of availability of proxy materials (whichever is earlier) for the preceding years annual meeting; provided , however , that in the event that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the one-year anniversary of the date of the previous years annual meeting, then, for notice by the stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the tenth day following the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholders notice as described in this Section 2.4(i)(a). Public Announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the 1934 Act.
(b) To be in proper written form, a stockholders notice to the secretary must set forth as to each matter of business the stockholder intends to bring before the annual meeting: (1) a brief description of the business intended to be brought before the annual meeting, the text of the proposed business (including the text of any resolutions proposed for consideration) and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the corporations books, of the stockholder proposing such business and any Stockholder Associated Person (as defined below), (3) the class and number of shares of the corporation that are held of record or are beneficially owned by the stockholder or any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any Stockholder Associated Person, (4) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of,
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such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, (5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement whether either such stockholder or any Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the corporations voting shares required under applicable law to carry the proposal (such information provided and statements made as required by clauses (1) through (6), a Business Solicitation Statement ). In addition, to be in proper written form, a stockholders notice to the secretary must be supplemented not later than ten days following the record date for the determination of stockholders entitled to notice of the meeting to disclose the information contained in clauses (3) and (4) above as of such record date. For purposes of this Section 2.4, a Stockholder Associated Person of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial owner of shares of stock of the corporation owned of record or beneficially by such stockholder and on whose behalf the proposal or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under common control with such person referred to in the preceding clauses (i) and (ii).
(c) Without exception, no business shall be conducted at any annual meeting except in accordance with the provisions set forth in this Section 2.4(i) and, if applicable, Section 2.4(ii). In addition, business proposed to be brought by a stockholder may not be brought before the annual meeting if such stockholder or a Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Business Solicitation Statement applicable to such business or if the Business Solicitation Statement applicable to such business contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that proposed business was not properly brought before the annual meeting and in accordance with the provisions of this Section 2.4(i), and, if the chairperson should so determine, he or she shall so declare at the annual meeting that any such defective proposal shall be disregarded.
(ii) Advance Notice of Director Nominations at Annual Meetings. Notwithstanding anything in these bylaws to the contrary, only persons who are nominated in accordance with the procedures set forth in this Section 2.4(ii) shall be eligible for election or re-election as directors at an annual meeting of stockholders. Nominations of persons for election to the board of directors of the corporation shall be made at an annual meeting of stockholders only (A) by or at the direction of the board of directors or (B) by a stockholder of the corporation who (1) was a stockholder of record at the time of the giving of the notice required by this Section 2.4(ii), on the record date for the determination of stockholders entitled to notice of the annual meeting and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has complied with the notice procedures set forth in this Section 2.4(ii). In addition to any other applicable requirements, for a nomination to be made by a stockholder, the stockholder must have given timely notice thereof in proper written form to the secretary of the corporation.
(a) To comply with clause (B) of Section 2.4(ii) above, a nomination to be made by a stockholder must set forth all information required under this Section 2.4(ii) and must be received by the secretary of the corporation at the principal executive offices of the corporation at the time set forth in, and in accordance with, the final three sentences of Section 2.4(i)(a) above; provided, however, that in the event that the number of directors to be elected to the board of directors is increased and there is no Public Announcement naming all of the nominees for director or specifying the size of the increased board made by the corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination pursuant to the foregoing provisions, a stockholders notice required by this Section 2.4(ii) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the secretary at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which such Public Announcement is first made by the corporation.
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(b) To be in proper written form, such stockholders notice to the secretary must set forth:
(1) as to each person (a nominee ) whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of the nominee, (B) the principal occupation or employment of the nominee, (C) the class and number of shares of the corporation that are held of record or are beneficially owned by the nominee and any derivative positions held or beneficially held by the nominee, (D) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease the voting power of the nominee, (E) a description of all arrangements or understandings between or among the stockholder, any nominee or any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, including a description of any compensatory, payment or other financial agreement, arrangement or understanding involving the nominee and of any compensation or other payment received by or on behalf of the nominee, in each case in connection with candidacy or service as a director of the corporation, (F) a written statement executed by the nominee acknowledging and representing that the nominee intends to serve a full term on the board of directors if elected and that, as a director of the corporation, the nominee will owe a fiduciary duty under Delaware law with respect to the corporation and its stockholders, and (G) any other information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation the nominees written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and
(2) as to such stockholder giving notice, (A) the information required to be provided pursuant to clauses (2) through (5) of Section 2.4(i)(b) above, and the supplement referenced in the second sentence of Section 2.4(i)(b) above (except that the references to business in such clauses shall instead refer to nominations of directors for purposes of this paragraph), and (B) a statement whether either such stockholder or Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of a number of the corporations voting shares reasonably believed by such stockholder or Stockholder Associated Person to be necessary to elect such nominee(s) (such information provided and statements made as required by clauses (A) and (B) above, a Nominee Solicitation Statement ).
(c) At the request of the board of directors, any person nominated by a stockholder for election as a director must furnish to the secretary of the corporation (1) that information required to be set forth in the stockholders notice of nomination of such person as a director as of a date subsequent to the date on which the notice of such persons nomination was given and (2) such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such nominee; in the absence of the furnishing of such information if requested, such stockholders nomination shall not be considered in proper form pursuant to this Section 2.4(ii).
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(d) Without exception, no person shall be eligible for election or re-election as a director of the corporation at an annual meeting of stockholders unless nominated in accordance with the provisions set forth in this Section 2.4(ii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or in any other notice to the corporation or if the Nominee Solicitation Statement applicable to such nominee or any other relevant notice contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that a proposed nomination was not made in accordance with the provisions prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the annual meeting, and the defective nomination shall be disregarded.
(iii) Advance Notice of Director Nominations for Special Meetings.
(a) For a special meeting of stockholders at which directors are to be elected pursuant to Section 2.3, nominations of persons for election to the board of directors shall be made only (1) by or at the direction of the board of directors or (2) by any stockholder of the corporation who (A) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(iii), on the record date for the determination of stockholders entitled to notice of the special meeting and on the record date for the determination of stockholders entitled to vote at the special meeting and (B) delivers a timely written notice of the nomination to the secretary of the corporation that includes the information set forth in Sections 2.4(ii)(b) and (ii)(c) above. To be timely, such notice must be received by the secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall any adjournment, rescheduling or postponement of a special meeting or the announcement thereof commence a new time period for the giving of a stockholders notice. A person shall not be eligible for election or re-election as a director at a special meeting unless the person is nominated (i) by or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forth in this Section 2.4(iii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or in any other notice to the corporation or if the Nominee Solicitation Statement applicable to such nominee or any other relevant notice contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading.
(b) The chairperson of the special meeting shall, if the facts warrant, determine and declare at the meeting that a nomination or business was not made in accordance with the procedures prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the meeting, and the defective nomination or proposal shall be disregarded.
(iv) Other Requirements and Rights. In addition to the foregoing provisions of this Section 2.4, a stockholder must also comply with all applicable requirements of state law and of the 1934 Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.4, including, with respect to business such stockholder intends to bring before the annual meeting that involves a proposal that such stockholder requests to be included in the corporations proxy statement, the requirements of Rule 14a-8 (or any successor provision) under the 1934 Act. Nothing in this Section 2.4 shall be deemed to affect any right of the corporation to omit a proposal from the corporations proxy statement pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act.
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2.5 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 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.
2.6 QUORUM
The holders of a majority of the voting power of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders, unless otherwise required by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange. Where a separate vote by a class or series or classes or series is required, a majority of the voting power 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 power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the original meeting.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws otherwise require, 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 corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the board of directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11 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.
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2.8 CONDUCT OF BUSINESS
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 discussion as seem to the chairperson in order. The chairperson of any meeting of stockholders shall have the power to adjourn the meeting to another place, if any, date or time. The chairperson of any meeting of stockholders shall be designated by the board of directors; in the absence of such designation, the chairperson of the board, if any, or the chief executive officer (in the absence of the chairperson of the board), or the president (in the absence of the chairperson of the board and the chief executive officer), or in their absence any other executive officer of the corporation, shall serve as chairperson of the stockholder meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 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.
Except as otherwise provided by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange, 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 the voting power of the shares of such class or series or classes or series present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Subject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof having a preference over the Common Stock as dividend or upon liquidation any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.
2.11 RECORD DATES
In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the board of directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the board of directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.
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If no record date is fixed by the board of directors, 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 of directors 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 2.11 at the adjourned meeting.
In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders 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.
A written proxy may be in the form of an electronic transmission which sets forth or is submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or in any other form permitted by law.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The corporation shall prepare, at least 10 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 corporation 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 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporations principal place of business. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. 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
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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.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The corporation may designate one (1) or more persons as alternate inspectors to replace any inspector who fails to act. Such inspectors shall take all actions as contemplated under Section 231 of the DGCL or any successor provision thereto.
The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are multiple inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
ARTICLE IIIDIRECTORS
3.1 POWERS
The business and affairs of the corporation shall be managed by or under the direction of the board of directors, except as may be otherwise provided in the DGCL or the certificate of incorporation.
3.2 NUMBER OF DIRECTORS
The board of directors 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 adopted by a majority of the Whole Board. No reduction of the authorized number of directors shall have the effect of removing any director before that directors term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such directors successor is elected and qualified or until such directors earlier death, resignation or removal. 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.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon notice given in writing or by electronic transmission to the chairperson of the board of directors (or, if none, to the chief executive officer of the corporation) or to the secretary of the corporation. 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
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incorporation or these bylaws, when one or more directors resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.
Unless otherwise provided in the certificate of incorporation or these bylaws or permitted in the specific case by resolution of the board of directors, and subject to the rights of holders of Preferred Stock, 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, and not by stockholders. If the directors are divided into classes as provided by the certificate of incorporation, a person so chosen to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors 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 of directors, or any committee designated by the board of directors or any subcommittee, may participate in a meeting of the board of directors, 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.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairperson of the board of directors, the chief executive officer, the president, the secretary or a majority of the authorized number of 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), |
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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 corporations 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 corporations principal executive office) nor the purpose of the meeting, unless required by statute.
3.8 QUORUM; VOTING
At all meetings of the board of directors, a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the board of directors, 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.
The affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. 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.
3.9 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 of directors, or of any committee or subcommittee thereof, may be taken without a meeting if all members of the board of directors 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 of directors 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 3.9 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.
3.10 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors.
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3.11 REMOVAL OF DIRECTORS
Unless otherwise provided in the certificate of incorporation, for so long as the directors are divided into classes, any director may be removed from office by the stockholders of the corporation only for cause.
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 IVCOMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the Whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of 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 of directors 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 of directors or in these bylaws, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers 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 corporation.
4.2 COMMITTEE MINUTES
Each committee and subcommittee shall keep regular minutes of its meetings and report the same to the board of directors, or the committee, when required.
4.3 MEETINGS AND ACTION 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 of directors 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 of directors 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 3.5 (place of meetings and meetings by telephone); |
(ii) | Section 3.6 (regular meetings); |
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(iii) | Section 3.7 (special meetings and notice); |
(iv) | Section 3.8 (quorum; voting); |
(v) | Section 3.9 (action 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 of directors and its members. However :
(i) the time of regular meetings of committees and subcommittees may be determined either by resolution of the board of directors or by resolution of the committee or subcommittee;
(ii) special meetings of committees and subcommittees may also be called by resolution of the board of directors 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 of directors, or, in the absence of any such action by the board of directors, 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.
4.4 SUBCOMMITTEES
Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the board of directors 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 VOFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the board of directors, a chairperson of the board of directors, a vice chairperson of the board of directors, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, 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.
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5.2 APPOINTMENT OF OFFICERS
The board of directors shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors or the chief executive officer or, in the absence of a chief executive officer, the president, may appoint such other officers as the business of the corporation may require. Each of such officers shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors or, except in the case of an officer chosen by the board of directors unless as otherwise provided by resolution of the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the corporation. 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 corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled as provided in Sections 5.2 and 5.3.
5.6 REPRESENTATION OF SECURITIES OF OTHER ENTITIES
The chairperson of the board of directors, the chief executive officer, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the chief executive officer, the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares or other securities of any other entity or entities standing in the name of this corporation, including the right to act by written consent. 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.
5.7 AUTHORITY AND DUTIES OF OFFICERS
All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the board of directors.
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ARTICLE VISTOCK
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Unless otherwise provided by resolution of the board of directors, every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of, the corporation by any two officers of the corporation 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 corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The corporation shall not have power to issue a certificate in bearer form.
The corporation 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 corporation 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 corporation 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 corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the 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 corporation shall issue to represent such class or series of stock; provided, however , 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 corporation shall issue to represent such class or series of stock, a statement that the corporation 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. 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 corporation 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.
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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 corporation and cancelled at the same time. The corporation 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 corporation may require the owner of the lost, stolen or destroyed certificate, or such owners legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
6.4 DIVIDENDS
The board of directors, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the corporations capital stock. Dividends may be paid in cash, in property, or in shares of the corporations capital stock, subject to the provisions of the certificate of incorporation. The board of directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.
6.5 TRANSFER OF STOCK
Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by 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.
6.6 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
6.7 REGISTERED STOCKHOLDERS
The corporation:
(i) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner; and
(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.
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ARTICLE VIIMANNER OF GIVING NOTICE AND WAIVER
7.1 NOTICE OF STOCKHOLDERS 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 corporations records. An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or other agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
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 corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:
(i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and
(ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Any notice given pursuant to the preceding paragraph shall be deemed given as provided under Section 232 of the DGCL. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation 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.
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 corporation 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 corporation. Any stockholder who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice. This Section 7.3 shall not apply to Sections 164, 296, 311, 312, or 324 of the DGCL.
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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 corporation 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, or the board of directors or a committee thereof, as the case may be, 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 VIIIINDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
Subject to the other provisions of this Article VIII, the corporation 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 corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation 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 corporation, 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 corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such persons conduct was unlawful.
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8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
Subject to the other provisions of this Article VIII, the corporation 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 corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation 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 corporation; 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 corporation 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.
8.3 SUCCESSFUL DEFENSE
To the extent that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 8.1 or Section 8.2, 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.
8.4 INDEMNIFICATION OF OTHERS
Subject to the other provisions of this Article VIII, the corporation shall have power to indemnify its employees and agents to the extent not prohibited by the DGCL or other applicable law. The board of directors shall have the power to delegate to any person or persons identified in subsections (1) through (4) of Section 145(d) of the DGCL the determination of whether employees or agents shall be indemnified.
8.5 ADVANCE PAYMENT OF EXPENSES
Expenses (including attorneys fees) actually and reasonably incurred by an officer or director of the corporation in defending any Proceeding shall be paid by the corporation 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 VIII or the DGCL; provided, that advancement of such expenses (including attorneys fees) actually and reasonably incurred by former directors and officers or other current or former employees and agents of the corporation or by persons currently or formerly serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise shall be subject to such terms and conditions, if any, as the corporation deems appropriate. The
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right to advancement (i) shall not apply to expenses for which indemnification is unavailable pursuant to these bylaws and (ii) shall apply to expenses incurred in connection with any Proceeding (or any part of any Proceeding) referenced in Section 8.6(ii) or 8.6(iii) only prior to a determination that the person is not entitled to be indemnified by the corporation.
8.6 LIMITATION ON INDEMNIFICATION
Subject to the requirements in Section 8.3 and the DGCL, the corporation shall not be obligated to indemnify any person pursuant to this Article VIII 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 1934 Act, 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 corporation 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 corporation, as required in each case under the 1934 Act (including any such reimbursements that arise from an accounting restatement of the corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act ), or the payment to the corporation 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);
(iv) initiated by such person, including any Proceeding (or any part of any Proceeding) initiated by such person against the corporation or its directors, officers, employees, agents or other indemnitees, unless (a) the board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the corporation under applicable law, (c) otherwise required to be made under Section 8.7 or (d) otherwise required by applicable law; or
(v) if prohibited by applicable law.
8.7 DETERMINATION; CLAIM
If a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within 60 days after receipt by the corporation of the 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. The corporation shall indemnify such person against any and all expenses that are actually and reasonably incurred by such person in connection with any action for indemnification or advancement of expenses from the corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. In any such suit, the corporation 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.
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8.8 NON-EXCLUSIVITY OF RIGHTS
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII 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 corporation 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.
8.9 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, 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 corporation would have the power to indemnify such person against such liability under the provisions of the DGCL.
8.10 SURVIVAL
The rights to indemnification and advancement of expenses conferred by this Article VIII 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.
8.11 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.
8.12 CERTAIN DEFINITIONS
For purposes of this Article VIII, references to the corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, 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 VIII 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 VIII, references to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer,
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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 corporation as referred to in this Article VIII.
ARTICLE IXGENERAL MATTERS
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
Except as otherwise provided by law, the certificate of incorporation or these bylaws, the board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
9.2 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.
9.3 SEAL
The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
9.4 CONSTRUCTION; DEFINITIONS
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.
ARTICLE XAMENDMENTS
These bylaws may be adopted, amended or repealed by the stockholders entitled to vote; provided, however , that the affirmative vote of the holders of at least two-thirds (2/3) of the total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders of the corporation to alter, amend or repeal, or adopt any provision of these bylaws. However, the corporation 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 of directors.
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ARTICLE XIEXCLUSIVE FORUM
Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporations stockholders, (iii) any action arising pursuant to any provision of the DGCL or the certificate of incorporation or these bylaws (as either may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten (10) days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court, or for which such court does not have subject matter jurisdiction.
Unless the corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933.
Any person or entity purchasing or otherwise acquiring any interest in any security of the corporation shall be deemed to have notice of and consented to the provisions of this Article XI.
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PS INCORPORATED UNDER THE CUSIP 72941B 10 6 LAWS OF THE STATE SEE REVERSE FOR CERTAIN DEFINITIONS OF DELAWARE This certifies that BY: AMERICAN COUNTERSIGNED is the record holder of STOCK (NEW AND FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK, $0.0001 PAR VALUE, OFYORK, PLURALSIGHT, INC. transferable on the books of the corporation in person or by duly authorized attorney upon surrender of this Certificate properly TRANSFER NY) & endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. REGISTERED: WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. TRUST Dated: AUTHORIZED AND LSIGH TRANSFERCOMPANY, RA T, I U POR N L R AT O E C. LLC P C PRESIDENT SECRETARY SIGNATURE REGISTRAR AGENT SEAL DECEMBER 4, 2017 H H D E E L AWAR
The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporations Secretary at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common UNIF GIFT MIN ACT Custodian TEN ENT as tenants by the entireties (Cust) (Minor) JT TEN as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act (State) in common COM PROP as community property UNIF TRF MIN ACT Custodian (until age) (Cust) (Minor) under Uniform Transfers to Minors Act (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) shares of the capital stock represented by within Certificate, and do hereby irrevocably constitute and appoint attorney-in-fact to transfer the said stock on the books of the within named Corporation with full power of the substitution in the premises. Dated X X Signature(s) Guaranteed: NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. By THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE. SIGNATURE GUARANTEES MUST NOT BE DATED.
Exhibit 5.1
|
650 Page Mill Road Palo Alto, CA 94304-1050
PHONE 650.493.9300 FAX 650.493.6811 www.wsgr.com |
May 7, 2018
Pluralsight, Inc.
182 North Union Avenue
Farmington, Utah 84025
Re: | Registration Statement on Form S-1 |
Ladies and Gentlemen:
This opinion is furnished to you in connection with the Registration Statement on Form S-1 (Registration No. 333-224301), as amended (the Registration Statement ), filed by Pluralsight, Inc. (the Company ) with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of up to 23,805,000 shares of the Companys Class A common stock, $0.0001 par value per share (the Shares ), to be issued and sold by the Company, including up to 3,105,000 Shares issuable upon exercise of an over-allotment option granted to the underwriters by the Company. We understand that the Shares are to be sold to the underwriters for resale to the public as described in the Registration Statement and pursuant to an underwriting agreement, substantially in the form filed as an exhibit to the Registration Statement, to be entered into by and among the Company and the underwriters (the Underwriting Agreement ).
We are acting as counsel for the Company in connection with the sale of the Shares by the Company. In such capacity, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials, and other instruments as we have deemed necessary for the purposes of rendering this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity with the originals of all documents submitted to us as copies, the authenticity of the originals of such documents, and the legal competence of all signatories to such documents.
We express no opinion herein as to the laws of any state or jurisdiction other than the General Corporation Law of the State of Delaware (including the statutory provisions and all applicable judicial decisions interpreting those laws) and the federal laws of the United States of America.
On the basis of the foregoing, we are of the opinion that upon the effectiveness of the Companys Amended and Restated Certificate of Incorporation, a form of which has been filed as Exhibit 3.2 to the Registration Statement, the Shares to be issued and sold by the Company have been duly authorized and, when such Shares are issued and paid for in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and nonassessable.
May 7, 2018
Page 2
We consent to the use of this opinion as an exhibit to the Registration Statement, and we consent to the reference of our name under the caption Legal Matters in the prospectus forming part of the Registration Statement.
Very truly yours, | ||
/s/ Wilson Sonsini Goodrich & Rosati | ||
WILSON SONSINI GOODRICH & ROSATI Professional Corporation |
Exhibit 10.1
PLURALSIGHT, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this Agreement ) is dated as of , and is between Pluralsight, Inc., a Delaware corporation (the Company ), and ( Indemnitee ).
RECITALS
A. Indemnitees service to the Company substantially benefits the Company.
B. Individuals are reluctant to serve as directors or officers of corporations or in certain other capacities unless they are provided with adequate protection through insurance or indemnification against the risks of claims and actions against them arising out of such service.
C. Indemnitee does not regard the protection currently provided by applicable law, the Companys governing documents and any insurance as adequate under the present circumstances, and Indemnitee may not be willing to serve as a director or officer without additional protection.
D. In order to induce Indemnitee to continue to provide services to the Company, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, Indemnitee as permitted by applicable law.
E. This Agreement is a supplement to and in furtherance of the indemnification provided in the Companys certificate of incorporation and bylaws, and any resolutions adopted pursuant thereto, and this Agreement shall not be deemed a substitute therefor, nor shall this Agreement be deemed to limit, diminish or abrogate any rights of Indemnitee thereunder.
The parties therefore agree as follows:
1. Definitions.
(a) A Change in Control shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Stock by Third Party. Any Person (as defined below) becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Companys then outstanding securities;
(ii) Change in Board Composition. During any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Companys board of directors, and any new directors (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 1(a)(i), 1(a)(iii) or 1(a)(iv)) whose election by the board of directors or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Companys board of directors;
(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;
(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets; and
(v) Other Events. Any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, whether or not the Company is then subject to such reporting requirement, except the completion of the Companys initial public offering shall not be considered a Change in Control.
For purposes of this Section 1(a), the following terms shall have the following meanings:
(1) Person shall have the meaning as set forth in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(2) Beneficial Owner shall have the meaning given to such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of (i) the stockholders of the Company approving a merger of the Company with another entity or (ii) the Companys board of directors approving a sale of securities by the Company to such Person.
(b) Corporate Status describes the status of a person who is or was a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise.
(c) DGCL means the General Corporation Law of the State of Delaware.
(d) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e) Enterprise means the Company and any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary.
(f) Expenses include all reasonable and actually incurred attorneys fees, retainers, court costs, transcript costs, fees and costs of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without
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limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond or other appeal bond or their equivalent, and (ii) for purposes of Section 12(d), Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitees rights under this Agreement or under any directors and officers liability insurance policies maintained by the Company. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(g) Independent Counsel means a law firm, or a partner or member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than as Independent Counsel with respect to matters concerning Indemnitee under this Agreement, or other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement.
(h) Proceeding means any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, including any appeal therefrom and including without limitation any such Proceeding pending as of the date of this Agreement, in which Indemnitee was, is or will be involved as a party, a potential party, a non-party witness or otherwise by reason of (i) the fact that Indemnitee is or was a director or officer of the Company, (ii) any action taken by Indemnitee or any action or inaction on Indemnitees part while acting as a director or officer of the Company, or (iii) the fact that he or she is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement.
(i) Reference to other enterprises shall include employee benefit plans; references to fines shall include any excise taxes assessed on a person with respect to any 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 he or she reasonably believed to be in the best interests 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 Agreement.
2. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 2 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 2, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
3. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection
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with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 3 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged by a court of competent jurisdiction to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court of Chancery or such other court shall deem proper.
4. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. To the extent that Indemnitee is a party to or a participant in and is successful (on the merits or otherwise) in defense of any Proceeding or any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection therewith. For purposes of this section, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
5. Indemnification for Expenses of a Witness. To the extent that Indemnitee is, by reason of his or her Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified to the extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection therewith.
6. Additional Indemnification.
(a) Notwithstanding any limitation in Sections 2, 3 or 4, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with the Proceeding or any claim, issue or matter therein.
(b) For purposes of Section 6(a), the meaning of the phrase to the fullest extent permitted by applicable law shall include, but not be limited to:
(i) the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and
(ii) the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.
7. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any Proceeding (or any part of any Proceeding):
(a) for which payment has actually been made to or on behalf of Indemnitee under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;
(b) 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 Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
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(c) for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the 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 Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
(d) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees, agents or other indemnitees, unless (i) the Companys board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, (iii) otherwise authorized in Section 12 or (iv) otherwise required by applicable law; or
(e) if prohibited by applicable law.
8. Advances of Expenses. The Company shall advance the Expenses incurred by Indemnitee in connection with any Proceeding prior to its final disposition, and such advancement shall be made as soon as reasonably practicable, but in any event no later than 90 days, after the receipt by the Company of a written statement or statements requesting such advances from time to time (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditure made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice). Advances shall be unsecured and interest free and made without regard to Indemnitees ability to repay such advances. Indemnitee hereby undertakes to repay any advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, and no other form of undertaking shall be required other than the execution of this Agreement. This Section 8 shall not apply to the extent advancement is prohibited by law and shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is not permitted under this Agreement.
9. Procedures for Notification and Defense of Claim.
(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses as soon as reasonably practicable following the receipt by Indemnitee of notice thereof. The written notification to the Company shall include, in reasonable detail, a description of the nature of the Proceeding and the facts underlying the Proceeding. The failure by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights, except to the extent that such failure or delay materially prejudices the Company.
(b) If, at the time of the receipt of a notice of a Proceeding pursuant to the terms hereof, the Company has directors and officers liability insurance in effect that may be applicable to the Proceeding, the Company shall give prompt notice of the commencement of the Proceeding to the insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all commercially-reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.
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(c) In the event the Company may be obligated to make any indemnity in connection with a Proceeding, the Company shall be entitled to assume the defense of such Proceeding with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, conditioned or delayed, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee for any fees or expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. Notwithstanding the Companys assumption of the defense of any such Proceeding, the Company shall be obligated to pay the fees and expenses of Indemnitees separate counsel to the extent (i) the employment of separate counsel by Indemnitee is authorized by the Company, (ii) counsel for the Company or Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense such that Indemnitee needs to be separately represented, (iii) the Company is not financially or legally able to perform its indemnification obligations, or (iv) the Company shall not have retained, or shall not continue to retain, counsel to defend such Proceeding. Regardless of any provision in this Agreement, Indemnitee shall have the right to employ counsel in any Proceeding at Indemnitees personal expense. The Company shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.
(d) Indemnitee shall give the Company such information and cooperation in connection with the Proceeding as may be reasonably appropriate.
(e) The Company shall not be liable to indemnify Indemnitee for any settlement of any Proceeding (or any part thereof) without the Companys prior written consent, which shall not be unreasonably withheld, conditioned or delayed.
(f) The Company shall not settle any Proceeding (or any part thereof) in a manner that imposes any penalty or liability on Indemnitee without Indemnitees prior written consent, which shall not be unreasonably withheld, conditioned or delayed.
10. Procedures upon Application for Indemnification.
(a) To obtain indemnification, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Proceeding. The Company shall, as soon as reasonably practicable after receipt of such a request for indemnification, advise the board of directors that Indemnitee has requested indemnification. Any delay in providing the request will not relieve the Company from its obligations under this Agreement, except to the extent such failure is prejudicial.
(b) Upon written request by Indemnitee for indemnification pursuant to Section 10(a), a determination with respect to Indemnitees entitlement thereto shall be made in the specific case (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Companys board of directors, a copy of which shall be delivered to Indemnitee or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Companys board of directors, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Companys board of directors, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Companys board of directors, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Companys board of directors, by the stockholders of the Company. If it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty days after such determination. Indemnitee shall cooperate with the person, persons or entity making the determination with respect to Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company, to the extent permitted by applicable law.
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(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(b), the Independent Counsel shall be selected as provided in this Section 10(c). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Companys board of directors, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Companys board of directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 10(a) hereof and (ii) the final disposition of the Proceeding, the parties have not agreed upon an Independent Counsel, either the Company or Indemnitee may petition the Delaware Court of Chancery for resolution of any objection which shall have been made by the Company or Indemnitee to the others selection of Independent Counsel and for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(b) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, the Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(d) The Company agrees to pay the reasonable fees and expenses of any Independent Counsel.
11. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption by clear and convincing evidence.
(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(c) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith to the extent Indemnitee relied in good faith on (i) the records or books of account of the Enterprise, including financial statements, (ii) information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise or its board of directors or counsel selected by any committee of the board of directors or (iv) information or records given or reports made to the Enterprise by an independent certified public accountant, an appraiser, investment banker or other expert selected with reasonable care by the Enterprise or its board of directors or any committee of the board of directors. The provisions of this Section 11(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met any applicable standard of conduct.
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(d) Neither the knowledge, actions nor failure to act of any other director, officer, agent or employee of the Enterprise shall be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
12. Remedies of Indemnitee.
(a) Subject to Section 12(e), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 or 12(d) of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10 of this Agreement within 90 days after the later of the receipt by the Company of the request for indemnification or the final disposition of the Proceeding, (iv) payment of indemnification pursuant to this Agreement is not made (A) within thirty days after a determination has been made that Indemnitee is entitled to indemnification or (B) with respect to indemnification pursuant to Sections 4, 5 and 12(d) of this Agreement, within thirty days after receipt by the Company of a written request therefor, or (v) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by the Delaware Court of Chancery of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration with respect to his or her entitlement to such indemnification or advancement of Expenses, to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a). The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration in accordance with this Agreement.
(b) Neither (i) the failure of the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders that Indemnitee has not met the applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. In the event that a determination shall have been made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall, to the fullest extent not prohibited by law, have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, by clear and convincing evidence.
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(c) To the fullest extent not prohibited by law, the Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. If a determination shall have been made pursuant to Section 10 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statements not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) To the extent not prohibited by law, the Company shall indemnify Indemnitee against all Expenses that are incurred by Indemnitee in connection with any action for indemnification or advancement of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company to the extent Indemnitee is successful in such action, and, if requested by Indemnitee, shall (as soon as reasonably practicable, but in any event no later than 90 days, after receipt by the Company of a written request therefor) advance such Expenses to Indemnitee, subject to the provisions of Section 8.
(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification shall be required to be made prior to the final disposition of the Proceeding.
13. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amounts incurred by Indemnitee, whether for Expenses, judgments, fines or amounts paid or to be paid in settlement, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the events and transactions giving rise to such Proceeding; and (ii) the relative fault of Indemnitee and the Company (and its other directors, officers, employees and agents) in connection with such events and transactions.
14. Non-exclusivity. The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Companys certificate of incorporation or bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Companys certificate of incorporation and bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change, subject to the restrictions expressly set forth herein or therein. Except as expressly set forth herein, no right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Except as expressly set forth herein, the assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
15. Primary Responsibility. The Company acknowledges that Indemnitee has certain rights to indemnification and advancement of expenses provided by [ insert name of fund ] [and certain affiliates thereof] (collectively, the Secondary Indemnitor[s] ). The Company agrees that, as between the Company and the Secondary Indemnitor[s], the Company is primarily responsible for amounts required to be indemnified or advanced under the Companys certificate of incorporation or bylaws or this Agreement and any obligation of the Secondary Indemnitor[s] to provide indemnification or advancement for the same amounts is secondary to those Company obligations. To the extent not in contravention of any insurance policy or policies providing liability or other insurance for the Company or any director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise, the Company waives any right of contribution or subrogation against the Secondary Indemnitor[s] with respect to the liabilities for which the Company is primarily responsible under this Section 15. In the event of any payment by the Secondary Indemnitor[s] of amounts otherwise required to be indemnified or advanced by the Company under the Companys certificate of incorporation or bylaws or this Agreement, the Secondary Indemnitor[s] shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee for indemnification or advancement of expenses under the Companys certificate of incorporation or bylaws or this Agreement or, to the extent such subrogation is unavailable and contribution is found to be the applicable remedy, shall have a right of contribution with respect to the amounts paid; provided, however, that the foregoing sentence will be deemed void if and to the extent that it would violate any applicable insurance policy. The Secondary Indemnitor[s] [are][is an] express third-party [beneficiaries][beneficiary] of the terms of this Section 15.
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16. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received payment for such amounts under any insurance policy, contract, agreement or otherwise.
17. Insurance. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, trustees, general partners, managing members, officers, employees, agents or fiduciaries of the Company or any other Enterprise, Indemnitee shall be covered by such policy or policies to the same extent as the most favorably-insured persons under such policy or policies in a comparable position.
18. Subrogation. In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
19. Services to the Company. Indemnitee agrees to serve as a director or officer of the Company or, at the request of the Company, as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of another Enterprise, for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation or is removed from such position. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that any employment with the Company (or any of its subsidiaries or any Enterprise) is at will, and Indemnitee may be discharged at any time for any reason, with or without cause, with or without notice, except as may be otherwise expressly provided in any executed, written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), any existing formal severance policies adopted by the Companys board of directors or, with respect to service as a director or officer of the Company, the Companys certificate of incorporation or bylaws or the DGCL. No such document shall be subject to any oral modification thereof.
20. Duration. This Agreement shall continue in effect for as long as Indemnitee may be subject to any Proceeding, even after Indemnitee has ceased to serve as a director or officer of the Company or as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of any other Enterprise, as applicable.
21. Successors. This Agreement shall be binding upon the Company and its successors and assigns, including any direct or indirect successor, by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Company, and shall inure to the benefit of Indemnitee and Indemnitees heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
22. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Companys inability, pursuant to court order or other applicable law, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any section of this Agreement containing any
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such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
23. Enforcement. The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.
24. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided , however , that this Agreement is a supplement to and in furtherance of the Companys certificate of incorporation and bylaws and applicable law.
25. Modification and Waiver. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by the parties hereto. No amendment, alteration or repeal of this Agreement shall adversely affect any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. No waiver of any of the provisions of this Agreement shall constitute or be deemed a waiver of any other provision of this Agreement nor shall any waiver constitute a continuing waiver.
26. 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:
(a) if to Indemnitee, to Indemnitees address, or electronic mail address as shown on the signature page of this Agreement or in the Companys records, as may be updated in accordance with the provisions hereof; or
(b) if to the Company, to the attention of the Chief Executive Officer or Chief Financial Officer of the Company at 182 North Union Avenue, Farmington, Utah 84025, or at such other current address as the Company shall have furnished to Indemnitee, with a copy (which shall not constitute notice) to Rezwan D. Pavri, Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California 94304.
Each such notice or other communication shall for all purposes of this Agreement 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 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.
27. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and
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unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court of Chancery, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court of Chancery for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, The Corporation Trust Company, Wilmington, Delaware as its agent in the State of Delaware as such partys agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court of Chancery, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court of Chancery has been brought in an improper or inconvenient forum.
28. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
29. Captions. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
( signature page follows )
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The parties are signing this Indemnification Agreement as of the date stated in the introductory sentence.
PLURALSIGHT, INC. |
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( Signature ) |
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( Print name ) |
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( Title ) |
[ INSERT INDEMNITEE NAME ] |
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( Signature ) |
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( Print name ) |
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( Street address ) |
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( City, State and ZIP ) |
Exhibit 10.2
FORM OF TAX RECEIVABLE AGREEMENT
by and among
PLURALSIGHT, INC.
PLURALSIGHT HOLDINGS, LLC
the several MEMBERS (as defined herein)
REPRESENTATIVE (as defined herein) and
OTHER MEMBERS OF PLURALSIGHT HOLDINGS, LLC FROM TIME TO TIME PARTY HERETO
Dated as of [ ] [ ], 2018
TABLE OF CONTENTS
Page | ||||
Article I. Definitions |
2 | |||
Section 1.1 Definitions |
2 | |||
Section 1.2 Rules of Construction |
11 | |||
Article II. Determination of Realized Tax Benefit |
13 | |||
Section 2.1 Basis Adjustments; the LLC 754 Election |
13 | |||
Section 2.2 Basis Schedules |
13 | |||
Section 2.3 Tax Benefit Schedules |
13 | |||
Section 2.4 Procedures; Amendments |
14 | |||
Article III. Tax Benefit Payments |
16 | |||
Section 3.1 Timing and Amount of Tax Benefit Payments |
16 | |||
Section 3.2 No Duplicative Payments |
19 | |||
Section 3.3 Pro-Ration of Payments as Between the Members |
19 | |||
Section 3.4 Optional Estimated Tax Benefit Payment Procedure |
20 | |||
Section 3.5 Changes; Reserves; Suspension of Payments |
20 | |||
Article IV. TERMINATION |
23 | |||
Section 4.1 Early Termination of Agreement; Breach of Agreement |
23 | |||
Section 4.2 Early Termination Notice |
25 | |||
Section 4.3 Payment Upon Early Termination |
26 | |||
Article V. Subordination and Late Payments |
27 | |||
Section 5.1 Subordination |
27 | |||
Section 5.2 Late Payments by the Corporation |
27 | |||
Article VI. Tax Matters; Consistency; Cooperation |
27 | |||
Section 6.1 Participation in the Corporations and the LLCs Tax Matters |
27 | |||
Section 6.2 Consistency |
28 | |||
Section 6.3 Cooperation |
28 | |||
Article VII. Miscellaneous |
28 | |||
Section 7.1 Notices |
28 | |||
Section 7.2 Counterparts |
29 | |||
Section 7.3 Entire Agreement; No Third Party Beneficiaries |
29 | |||
Section 7.4 Governing Law |
30 | |||
Section 7.5 Severability |
30 | |||
Section 7.6 Right of First Refusal; Assignments; Amendments; Successors; No Waiver |
30 | |||
Section 7.7 Titles and Subtitles |
32 |
i
TABLE OF CONTENTS
(continued)
Page | ||||
Section 7.8 Resolution of Disputes |
32 | |||
Section 7.9 Reconciliation |
33 | |||
Section 7.10 Withholding |
34 | |||
Section 7.11 Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets |
34 | |||
Section 7.12 Arms Length Transactions |
35 | |||
Section 7.13 Confidentiality |
35 | |||
Section 7.14 Change in Law |
36 | |||
Section 7.15 Interest Rate Limitation |
36 | |||
Section 7.16 Independent Nature of Rights and Obligations |
36 | |||
Section 7.17 LLC Agreement |
37 | |||
Section 7.18 Representative |
37 |
Exhibits
Exhibit A Form of Joinder Agreement
ii
TAX RECEIVABLE AGREEMENT
This TAX RECEIVABLE AGREEMENT (as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, this Agreement ), dated as of [ ] [ ], 2018, is hereby entered into by and among Pluralsight, Inc., a Delaware corporation (the Corporation ), Pluralsight Holdings, LLC, a Delaware limited liability company (the LLC ), each of the Members from time to time party hereto, and the Representative. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in Section 1.01.
RECITALS
WHEREAS, the LLC is treated as a partnership for U.S. federal income tax purposes;
WHEREAS, each of the members of the LLC other than the Corporation [and the Blockers (as defined in the LLC Agreement)] (such members who are parties hereto, and each other Person who becomes party hereto by satisfying the Joinder Requirement, the Members ) owns (or, in the case of such other Persons, will own) limited liability company interests in the LLC (the Units );
WHEREAS, on the date hereof, the Corporation will become the managing member of the LLC;
WHEREAS, on the date hereof and exclusive of the Over-Allotment Option, the Corporation issued [__] shares of its Class A common stock, par value $0.0001 per share (the Class A Common Stock ), to certain purchasers in an initial public offering of its Class A Common Stock (the IPO );
WHEREAS, on the date hereof, the Corporation used substantially all of the net proceeds from the IPO to purchase newly-issued Units directly from the LLC, which proceeds will be used, in part, to repay or prepay certain indebtedness of the LLC and its Subsidiaries and for general company purposes;
WHEREAS, on and after the date hereof, the Corporation may issue additional Class A Common Stock in connection with the IPO as a result of the exercise by the underwriters of their over-allotment option (the Over-Allotment Option ) and, if the Over-Allotment Option is in fact exercised in whole or in part, any additional net proceeds received by the Corporation will be used by the Corporation to acquire additional newly-issued Units directly from the LLC, which proceeds may be used to repay certain indebtedness of the LLC and its Subsidiaries and for general company purposes;
WHEREAS, on and after the date hereof, pursuant to the LLC Agreement, each Member has the right from time to time to require the LLC to redeem (a Redemption ) all or a portion of such Members Units for cash or, at the Corporations election, Class A Common Stock (in each case, contributed to the LLC by the Corporation); provided that, at the election of the Corporation in its sole discretion, the Corporation may effect a direct exchange (a Direct Exchange ) of such cash or shares of Class A Common Stock for such Units;
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WHEREAS, the LLC and any direct subsidiary or indirect subsidiary (owned through a chain of pass-through entities) of the LLC that is treated as a partnership for U.S. federal income tax purposes (together with the LLC and any direct or indirect subsidiary (owned through a chain of pass-through entities) of the LLC that is treated as a disregarded entity for U.S. federal income tax purposes, the the LLC Group ) will have in effect an election under Section 754 of the Code for the Taxable Year in which any Exchange occurs, which election should result in an adjustment to the Corporations share of the tax basis of the assets owned by the LLC Group as of the date of the Exchange, with a consequent result on the taxable income subsequently derived therefrom; and
WHEREAS, the parties to this Agreement desire to provide for certain payments and make certain arrangements with respect to any tax benefits to be derived by the Corporation as the result of Exchanges and the receipt of payments under this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions . As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both (i) the singular and plural and (ii) the active and passive forms of the terms defined).
Actual Interest Amount is defined in Section 3.1(b)(vii) of this Agreement.
Advisory Firm means PricewaterhouseCoopers LLP or any other accounting firm that is nationally recognized as being an expert in Covered Tax matters and is not an Affiliate of the Corporation.
Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.
Agreed Rate means LIBOR plus 100 basis points.
Agreement is defined in the preamble.
Amended Schedule is defined in Section 2.4(b) of this Agreement.
Assumed State and Local Tax Rate means the tax rate equal to the sum of the products of (x) the Corporations income tax apportionment rate(s) for each state and local jurisdiction in which the Corporation files income or franchise tax returns for the relevant Taxable Year and (y) the highest corporate income and franchise tax rate(s) for each such state and local jurisdiction in which the Corporation files income tax returns for each relevant Taxable Year.
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Attributable is defined in Section 3.1(b)(i) of this Agreement.
Audit Committee means the audit committee of the Board.
Basis Adjustment means the increase or decrease to the tax basis of, or the Corporations share of, the tax basis of the Reference Assets (i) under Section 734(b), 743(b) and 754 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, following an Exchange, the LLC remains in existence as an entity for tax purposes) and (ii) under Sections 732, 734(b) and 1012 of the Code and, in each case, the comparable sections of U.S. state and local tax law (in situations where, as a result of one or more Exchanges, the LLC becomes an entity that is disregarded as separate from its owner for tax purposes), in each case, as a result of any Exchange and any payments made under this Agreement. Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment resulting from an Exchange of one or more Units shall be determined without regard to any Pre-Exchange Transfer of such Units and as if any such Pre-Exchange Transfer had not occurred.
Basis Schedule is defined in Section 2.2 of this Agreement.
Beneficial Owner means, with respect to any security, a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, with respect to such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security.
Board means the Board of Directors of the Corporation.
Business Day means any day excluding Saturday, Sunday and any day that is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in New York are closed.
Change Notice is defined in Section 3.5(a) of this Agreement.
Change of Control means the occurrence of any of the following events:
(1) any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, or any successor provisions thereto (the Exchange Act ), but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and excluding the Permitted Transferees) becomes the beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock, Preferred Stock and/or any other class or classes of capital stock of the Corporation (if any) representing in the aggregate more than fifty percent (50%) of the voting power of all of the outstanding shares of capital stock of the Corporation entitled to vote;
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(2) the shareholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by the Corporation of all or substantially all of the Corporations assets (including a sale of all or substantially all of the assets of the LLC);
(3) there is consummated a merger or consolidation of the Corporation with any other corporation or entity, and, immediately after the consummation of such merger or consolidation, the voting securities of the Corporation immediately prior to such merger or consolidation do not continue to represent, or are not converted into, more than 50% of the combined voting power of the then outstanding voting securities of the Person resulting from such merger or consolidation or, if the surviving company is a Subsidiary, the ultimate parent thereof; or
(4) the Corporation ceases to be the sole managing member of the LLC.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Class A Common Stock, Class B Common Stock and Class C Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in and voting control over, and own substantially all of the shares of, an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions.
Class B Common Stock means shares of Class B common stock, par value $0.0001 per share, of the Corporation.
Class C Common Stock means shares of Class C common stock, par value $0.0001 per share, of the Corporation.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or other agreement.
Corporation is defined in the preamble to this Agreement.
Covered Person is defined in Section 7.17 of this Agreement.
Covered Tax Benefit is defined in Section 3.3(a) of this Agreement.
Covered Taxes means any and all U.S. federal, state, local and foreign Taxes, assessments or similar charges that are based on or measured with respect to net income or profits and any interest related thereto, including without limitation any franchise Taxes.
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Credit Agreements has the meaning set forth in the LLC Agreement.
Cumulative Net Realized Tax Benefit is defined in Section 3.1(b)(iii) of this Agreement.
Default Rate means LIBOR plus 600 basis points; provided however , that the Default Rate shall be the Agreed Rate during any period in which the Corporations failure to timely pay is the result of obligations or restrictions imposed in connection with the Senior Obligations or under applicable law, and the Corporation cannot obtain sufficient funds to make such payments by taking commercially reasonable actions.
Default Rate Interest is defined in Section 3.1(b)(ix) of this Agreement.
Determination shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of U.S. state tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for tax.
Direct Exchange is defined in the recitals to this agreement.
Dispute is defined in Section 7.8(a) of this Agreement.
Early Termination Effective Date means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.
Early Termination Notice is defined in Section 4.2 of this Agreement.
Early Termination Payment is defined in Section 4.3(b) of this Agreement.
Early Termination Rate means the lesser of (i) 6.00% per annum, compounded annually, and (ii) LIBOR plus 100 basis points.
Early Termination Reference Date is defined in Section 4.2 of this Agreement.
Early Termination Schedule is defined in Section 4.2 of this Agreement.
Estimated Tax Benefit Payment is defined in Section 3.4 of this Agreement.
Exchange means any Direct Exchange or Redemption.
Exchange Date means the date of any Exchange.
Exercise Period is defined in Section 7.6(a)(ii) of this Agreement.
Expert is defined in Section 7.9 of this Agreement.
Extension Rate Interest is defined in Section 3.1(b)(viii) of this Agreement.
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Final Payment Date means any date on which a payment is required to be made pursuant to this Agreement. For the avoidance of doubt, the Final Payment Date in respect of a Tax Benefit Payment is determined pursuant to Section 3.1(a) of this Agreement.
GAAP means generally accepted accounting principles in the United States, as in effect from time to time; provided, however , that if the Corporation notifies the Members that the Corporation requests an amendment to any provision hereof to eliminate the effect of any change in GAAP or in the application thereof occurring after the date of this Agreement (including through the adoption of International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto (the IFRS )), on the operation of such provision (or if the Members notify the Corporation that they 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 (including through the adoption of IFRS), 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.
Hypothetical Tax Liability means, with respect to any Taxable Year, the hypothetical liability of the Corporation that would arise in respect of Covered Taxes, using the same methods, elections, conventions and similar practices used on the actual relevant Tax Returns of the Corporation but (i) calculating depreciation, amortization, or other similar deductions, or otherwise calculating any items of income, gain, or loss, using the Corporations share of the Non-Adjusted Tax Basis as reflected on the Basis Schedule, including amendments thereto for the Taxable Year and (ii) excluding any deduction attributable to Imputed Interest, Actual Interest Amounts or Default Rate Interest for the Taxable Year; provided , that for purposes of determining the Hypothetical Tax Liability, the combined tax rate for U.S. state and local Covered Taxes (but not, for the avoidance of doubt, federal Covered Taxes) shall be the Assumed State and Local Tax Rate. For the avoidance of doubt, (i) the Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any tax item attributable to Imputed Interest, Actual Interest Amounts, Default Rate Interest or a Basis Adjustment (or portions thereof); and (ii) the calculation of the Hypothetical Tax Liability shall take into account the federal benefit, if any, received by the Corporation with respect to state and local jurisdiction income taxes (with such benefit taking into account the Corporations marginal U.S. federal income tax rate for the relevant Taxable Year, the Assumed State and Local Tax Rate, and the deductibility, if any, of state and local jurisdiction income taxes).
Imputed Interest is defined in Section 3.1(b)(vi) of this Agreement.
Independent Directors means the members of the Board who are independent under the standards set forth in Rule 10A-3 promulgated under the Exchange Act and the corresponding rules of the applicable exchange on which the Class A Common Stock is traded or quoted.
Initial Due Date means, for a Taxable Year, the due date (without extensions) for filing the U.S. federal income Tax Return of the Corporation for such Taxable Year.
IPO is defined in the recitals to this Agreement.
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IRS means the U.S. Internal Revenue Service.
Joinder means a joinder to this Agreement, in form and substance substantially similar to Exhibit A to this Agreement.
Joinder Requirement is defined in Section 7.6(b) of this Agreement.
LIBOR means during any period, the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which U.S. dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another source selected by the Corporation as an authorized information vendor for the purpose of displaying rates at which U.S. dollar deposits are offered by leading banks in the London interbank deposit market (a Alternate Source ), at approximately 11:00 a.m., London time, two (2) Business Days prior to the first day of such period as the London interbank offered rate for U.S. dollars having a borrowing date and a maturity comparable to such period (or if there shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any LIBOR Alternate Source, a comparable replacement rate determined by the Corporation at such time, which determination shall be conclusive absent manifest error); provided , that at no time shall LIBOR be less than 0%. If the Corporation has made the determination (such determination to be conclusive absent manifest error) that (i) LIBOR is no longer a widely recognized benchmark rate for newly originated loans in the U.S. loan market in U.S. dollars or (ii) the applicable supervisor or administrator (if any) of LIBOR has made a public statement identifying a specific date after which LIBOR shall no longer be used for determining interest rates for loans in the U.S. loan market in U.S. dollars, then the Corporation shall (as determined by the Corporation to be consistent with market practice generally), establish a replacement interest rate (the Replacement Rate ), in which case, the Replacement Rate shall, subject to the next two sentences, replace LIBOR for all purposes under this Agreement. In connection with the establishment and application of the Replacement Rate, this Agreement shall be amended solely with the consent of the Corporation and the LLC, as may be necessary or appropriate, in the reasonable judgment of the Corporation, to effect the provisions of this section. The Replacement Rate shall be applied in a manner consistent with market practice; provided that, in each case, to the extent such market practice is not administratively feasible for the Corporation, such Replacement Rate shall be applied as otherwise reasonably determined by the Corporation.
LLC is defined in the recitals to this Agreement.
LLC Agreement means that certain Amended and Restated Limited Liability Company Agreement of the LLC, dated as of the date hereof, as such agreement may be further amended, restated, supplemented and/or otherwise modified from time to time.
Market Value means the Common Unit Redemption Price, as defined in the LLC Agreement, determined as of an Early Termination Date.
Members is defined in the recitals to this Agreement.
Net Tax Benefit is defined in Section 3.1(b)(ii) of this Agreement.
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Non-Adjusted Tax Basis means, with respect to any Reference Asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustments had been made.
Objection Notice is defined in Section 2.4(a)(i) of this Agreement.
Offered Price is defined in Section 7.6(a)(i) of this Agreement.
Offered TRA Interests is defined in Section 7.6(a)(i) of this Agreement.
Over-Allotment Option is defined in the recitals to this Agreement.
Parties means the parties named on the signature pages to this agreement and each additional party that satisfies the Joinder Requirement, in each case with their respective successors and assigns.
Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.
Permitted Transfer shall have the meaning set forth in the LLC Agreement.
Permitted Transferee means any Person to whom a Permitted Transfer could be made pursuant to the LLC Agreement. For the avoidance of doubt, for purposes of this Agreement a Permitted Tranferee of a TRA Interest need not own or hold any Units such that a TRA Interest may be transferred to a Permitted Transferee pursuant to the terms of this Agreement even if there has been no Transfer of Units to such Person.
Pre-Exchange Transfer means any transfer of one or more Units (including upon the death of a Member) (i) that occurs after the IPO but prior to an Exchange of such Units and (ii) to which Section 743(b) of the Code applies.
Proposed Transferee is defined in Section 7.6(a)(i) of this Agreement.
Realized Tax Benefit is defined in Section 3.1(b)(iv) of this Agreement.
Realized Tax Detriment is defined in Section 3.1(b)(v) of this Agreement.
Reconciliation Dispute is defined in Section 7.9 of this Agreement.
Reconciliation Procedures is defined in Section 2.4(a) of this Agreement.
Redemption has the meaning in the recitals to this Agreement.
Reference Asset means any tangible or intangible asset of the LLC or any of its successors or assigns, and whether held directly by the LLC or indirectly by the LLC through any entity in which the LLC now holds or may subsequently hold an ownership interest (but only if such entity is treated as a partnership or disregarded entity for purposes of the applicable tax), at the time of an Exchange. A Reference Asset also includes any asset the tax basis of which is determined, in whole or in part, by reference to the tax basis of an asset that is described in the preceding sentence, including substituted basis property within the meaning of Section 7701(a)(42) of the Code.
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Representative is defined in Section 7.17 of this Agreement.
Right of First Refusal means the right of first refusal provided to the Corporation in Section 7.6(a) of this Agreement.
Right of First Refusal Closing is defined in Section 7.6(a)(iv) of this Agreement.
Schedule means any of the following: (i) a Basis Schedule, (ii) a Tax Benefit Schedule, or (iii) the Early Termination Schedule, and, in each case, any amendments thereto.
Seller is defined in Section 7.6(a) of this Agreement.
Senior Obligations is defined in Section 5.1 of this Agreement.
Subsidiary means, with respect to any Person and as of the date of any determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls, more than 50% of the voting power or other similar interests, or the sole general partner interest, or managing member or similar interest, of such Person.
Subsidiary Stock means any stock or other equity interest in any Subsidiary of the Corporation that is treated as a corporation for U.S. federal income tax purposes.
Tax or Taxes means (i) all forms of taxation or duties imposed, or required to be collected or withheld, including, without limitation, charges, together with any related interest, penalties or other additional amounts, (ii) liability for the payment of any amount of the type described in the preceding clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group, and (iii) liability for the payment of any amounts as a result of being party to any tax sharing agreement (other than this Agreement) or as a result of any express or implied obligation to indemnify any other person with respect to the payment of any amount described in the immediately preceding clauses (i) or (ii) (other than an obligation to indemnify under this Agreement).
Tax Benefit Payment is defined in Section 3.1(b) of this Agreement.
Tax Benefit Schedule is defined in Section 2.3(a) of this Agreement.
Tax Return means any return, declaration, report or similar statement filed or required to be filed with respect to taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated tax.
Taxable Year means a taxable year of the Corporation as defined in Section 441(b) of the Code or comparable section of U.S. state or local tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made), ending on or after the closing date of the IPO.
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Taxing Authority means any national, federal, state, county, municipal, or local government, or any subdivision, agency, commission or authority thereof, or any quasi-governmental body, or any other authority of any kind, exercising regulatory or other authority in relation to tax matters.
Termination Objection Notice is defined in Section 4.2 of this Agreement.
TRA Interests are defined in Section 7.6(a) of this Agreement.
Transfer is defined in Section 7.6(a) of this Agreement.
Transfer Notice is defined in Section 7.6(a)(i) of this Agreement.
Treasury Regulations means the final, temporary, and (to the extent they can be relied upon) proposed regulations under the Code, as promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
True-Up is defined in Section 3.4 of this Agreement.
U.S. means the United States of America.
Units is defined in the recitals to this Agreement.
Valuation Assumptions means, as of an Early Termination Effective Date, the assumptions that:
(1) in each Taxable Year ending on or after such Early Termination Effective Date, the Corporation will have taxable income sufficient to fully use the deductions arising from the Basis Adjustments and the Imputed Interest during such Taxable Year or future Taxable Years (including, for the avoidance of doubt, Basis Adjustments and Imputed Interest that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available;
(2) the U.S. federal income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Effective Date, except to the extent any change to such tax rates for such Taxable Year have already been enacted into law and the combined U.S. state and local income tax rates (but not, for the avoidance of doubt, federal income tax rates) for each such Taxable Year shall be the Assumed State and Local Tax Rate for the Taxable Year that includes the Early Termination Effective Date;
(3) all taxable income of the Corporation will be subject to the maximum applicable tax rates for each Covered Tax throughout the relevant period; provided , that the combined tax rate for U.S. state and local income taxes (but not, for the avoidance of doubt, federal income tax) shall be the Assumed State and Local Tax Rate, and, for the avoidance of doubt, the applicable calculations shall take into account the federal benefit received, if any, by the Corporation with respect to state and local jurisdiction income taxes (with such benefit taking into account the Corporations applicable marginal U.S. federal income tax rate, the Assumed State and Local Tax Rate, and the deductibility, if any, of state and local jurisdiction income taxes);
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(4) any loss carryovers or carrybacks generated by any Basis Adjustment or Imputed Interest (including such Basis Adjustment and Imputed Interest generated as a result of payments under this Agreement) and available as of the Early Termination Effective Date will be used by the Corporation on a pro rata basis from the date of the Early Termination Effective Date through the scheduled expiration date of such loss carryovers or carrybacks (or, if there is no such scheduled expiration date, the next five year period);
(5) any non-amortizable assets (other than Subsidiary Stock) will be disposed of on the earlier of the fifteenth anniversary of (i) the applicable Basis Adjustment and (ii) the Early Termination Effective Date, but in no event earlier than the Early Termination Effective Date;
(6) any Subsidiary Stock will be deemed never to be disposed of except if Subsidiary Stock is directly disposed of in the Change of Control;
(7) if, on the Early Termination Effective Date, any Member has Units that have not been Exchanged, then such Units shall be deemed to be Exchanged for the Market Value that would be received by such Member if such Units had been Exchanged on the Early Termination Effective Date, and such Member shall be deemed to receive the amount of cash such Member would have been entitled to pursuant to Section 4.3(a) had such Units actually been Exchanged on the Early Termination Effective Date;
(8) any proposed adjustment to a tax item of a Party that has given rise to a Change Notice, and any reserve or contingent liability associated with a tax position that has given rise to a Reserve Notice, shall be deemed to have been favorably resolved such that the proposed adjustment or reserve or contingent liability associated with such tax position shall not be taken into account in determining the amount of any Tax Benefit Payment due to a Member; and
(9) any payment obligations pursuant to this Agreement will be satisfied on the date that any Tax Return to which such payment obligation relates is required to be filed excluding any extensions.
Section 1.2 Rules of Construction . Unless otherwise specified herein:
(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.
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(b) For purposes of interpretation of this Agreement:
(i) The words herein, hereto, hereof and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision thereof.
(ii) References in this Agreement to a Schedule, Article, Section, clause or sub-clause refer to the appropriate Schedule to, or Article, Section, clause or subclause in, this Agreement.
(iii) References in this Agreement to dollars or $ refer to the lawful currency of the United States of America.
(iv) The term including is by way of example and not limitation.
(v) The term documents includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.
(c) In the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding; and the word through means to and including.
(d) Section headings herein are included for convenience of reference only and shall not affect the interpretation of this Agreement.
(e) Unless otherwise expressly provided herein, (a) references to organization documents (including the LLC Agreement), agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are permitted hereby; and (b) references to any law (including the Code and the Treasury Regulations) shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such law.
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ARTICLE II.
DETERMINATION OF REALIZED TAX BENEFIT
Section 2.1 Basis Adjustments; the LLC 754 Election .
(a) Basis Adjustments . The Parties acknowledge and agree that (A) each Direct Exchange shall give rise to Basis Adjustments and (B) each Redemption shall be treated as a direct purchase of Units by the Corporation from the applicable Member pursuant to Section 707(a)(2)(B) of the Code that shall give rise to Basis Adjustments. In connection with the Direct Exchange or Redemption, the Parties acknowledge and agree that pursuant to applicable law the Corporations share of the basis in the Reference Assets shall be increased or decreased, as the case may be, by the difference between (A) the sum of (x) the fair market value of Class A Common Stock or the cash transferred to a Member pursuant to an Exchange as payment for the Units, (y) the amount of payments made pursuant to this Agreement with respect to such Exchange and (z) the amount of liabilities allocated to the Units acquired pursuant to the Exchange, over (B) the Corporations share of the basis of the Reference Assets immediately after the Exchange attributable to the Units exchanged, determined as if each member of the LLC Group remains in existence as an entity for tax purposes and no member of the LLC Group made the election provided by Section 754 of the Code.
For the avoidance of doubt, payments made under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent that such payments are treated as Imputed Interest or are Actual Interest Amounts or Default Rate Interest.
(b) Section 754 Election . In its capacity as the sole managing member of the LLC, the Corporation will ensure that, on and after the date hereof and continuing throughout the term of this Agreement, the LLC and each of its direct and indirect Subsidiaries that is treated as a partnership for U.S. federal income tax purposes will have in effect an election under Section 754 of the Code (and under any similar provisions of applicable U.S. state or local law).
Section 2.2 Basis Schedules . Within ninety (90) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for each relevant Taxable Year, the Corporation shall deliver to the Representative a schedule (the Basis Schedule ) that shows, in reasonable detail as necessary in order to understand the calculations performed under this Agreement: (a) the Basis Adjustments with respect to the Reference Assets as a result of the relevant Exchanges effected in such Taxable Year, (b) the Non-Adjusted Tax Basis with respect to the Reference Assets and (c) the period (or periods) over which each Basis Adjustment and Reference Assets are amortizable and/or depreciable. The Basis Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a) and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b).
Section 2.3 Tax Benefit Schedules .
(a) Tax Benefit Schedule . Within ninety (90) calendar days after the filing of the U.S. federal income Tax Return of the Corporation for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, the Corporation shall provide to the Representative a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit, if any, the Realized Tax Detriment, if any, and the Tax Benefit Payment, if any, for such Taxable Year (a Tax Benefit Schedule ). The Tax Benefit Schedule will become final and binding on the Parties pursuant to the procedures set forth in Section 2.4(a), and may be amended by the Parties pursuant to the procedures set forth in Section 2.4(b).
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(b) Applicable Principles . Subject to the provisions of this Agreement, the Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability of the Corporation for Covered Taxes for such Taxable Year attributable to the Basis Adjustments, Imputed Interest, Actual Interest Amounts, and Default Rate Interest as determined using a with and without methodology described in Section 2.4(a) (for the avoidance of doubt, taking into account the first three sentences of Section 7.11(b)). Carryovers or carrybacks of any Tax item attributable to any Basis Adjustment, Imputed Interest, Actual Interest Amounts, and Default Rate Interest shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state or local tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to a Basis Adjustment, Imputed Interest, Actual Interest Amounts, and Default Rate Interest (a TRA Portion ) and another portion that is not (a Non-TRA Portion ), such portions shall be considered to be used in accordance with the with and without methodology so that: (i) the amount of any Non-TRA Portion is deemed utilized first, followed by the amount of any TRA Portion (with the TRA Portion being applied on a proportionate basis consistent with the provisions of Section 3.3(a)); and (ii) in the case of a carryback of a Non-TRA Portion, such carryback shall not affect the original with and without calculation made in the prior Taxable Year. The Parties agree that (i) all Tax Benefit Payments (other than Imputed Interest, Actual Interest Amounts and Default Rate Interest) attributable to an Exchange will to the extent permitted by applicable law (A) be treated as subsequent upward purchase price adjustments that give rise to further Basis Adjustments for the Corporation and (B) have the effect of creating additional Basis Adjustments for the Corporation in the year of payment, and (ii) as a result, such additional Basis Adjustments will be incorporated into the current Taxable Year continuing until any incremental current Taxable Year benefits equal an immaterial amount.
Section 2.4 Procedures; Amendments .
(a) Procedures . Each time the Corporation delivers an applicable Schedule to the Representative under this Agreement, including any Amended Schedule delivered pursuant to Section 2.4(b), but excluding any Early Termination Schedule or amended Early Termination Schedule delivered pursuant to the procedures set forth in Section 4.2, the Corporation shall also: (x) deliver supporting schedules and work papers, as determined by the Corporation or as reasonably requested by the Representative, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Schedule; (y) consult with the Advisory Firm (to the extent necessary in the Corporations determination) with respect to such Schedule; and (z) allow the Representative and his or her advisors to have reasonable access at no cost to the appropriate representatives, as determined by the Corporation or as reasonably requested by the Representative, at the Corporation and the Advisory Firm in connection with a review of such Schedule. Without
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limiting the generality of the preceding sentence, the Corporation shall ensure that any Tax Benefit Schedule that is delivered to the Representative along with any supporting schedules and work papers, provides a reasonably detailed presentation of the calculation of the actual liability of the Corporation for Covered Taxes (the with calculation) and the Hypothetical Tax Liability of the Corporation (the without calculation), and identifies any material assumptions or operating procedures or principles that were used for purposes of such calculations. An applicable Schedule or amendment thereto shall become final and binding on the Parties thirty (30) calendar days from the date on which the Representative first received the applicable Schedule or amendment thereto unless:
(i) the Representative, within thirty (30) calendar days after receiving the applicable Schedule or amendment thereto, provides the Corporation with written notice of a material objection to such Schedule that is made in good faith and that sets forth in reasonable detail the Representatives, as applicable, material objection (an Objection Notice ) or
(ii) the Representative, provides a written waiver of its right to deliver an Objection Notice within the time period described in clause (i) above, in which case such Schedule or amendment thereto becomes binding on the date the waiver from the Representative, is received by the Corporation.
In the event that the Representative, timely delivers an Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Objection Notice, the Corporation and / or the Representative, as applicable, shall employ the reconciliation procedures as described in Section 7.9 of this Agreement (the Reconciliation Procedures ).
(b) Amended Schedule . The applicable Schedule for any Taxable Year may be amended from time to time by the Corporation: (i) in connection with a Determination affecting such Schedule; (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was originally provided to the Representative; (iii) to comply with an Experts determination under the Reconciliation Procedures applicable to this Agreement; (iv) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other Tax item to such Taxable Year; (v) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year; or (vi) to adjust a Basis Schedule to take into account any Tax Benefit Payments made pursuant to this Agreement (any such Schedule, an Amended Schedule ). The Corporation shall provide an Amended Schedule to the Representative within 60 calendar days of the occurrence of an event referenced in clauses (i) through (vi) of the preceding sentence.
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ARTICLE III.
TAX BENEFIT PAYMENTS
Section 3.1 Timing and Amount of Tax Benefit Payments .
(a) Timing of Payments . Except as provided in Sections 3.4 and 3.5, and subject to Sections 3.2 and 3.3, within five (5) Business Days following the date on which each Tax Benefit Schedule that is required to be delivered by the Corporation to the Representative pursuant to Section 2.3(a) of this Agreement becomes final in accordance with Section 2.4(a) of this Agreement, the Corporation shall pay to each relevant Member the Tax Benefit Payment as determined pursuant to Section 3.1(b). Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by such Members or as otherwise agreed by the Corporation and such Members. For the avoidance of doubt, the Members shall not be required under any circumstances to return any portion of any Tax Benefit Payment previously paid by the Corporation to the Members (including any portion of any Estimated Tax Benefit Payment or any Early Termination Payment).
(b) Amount of Payments . For purposes of this Agreement, a Tax Benefit Payment with respect to any Member means an amount, not less than zero, equal to the sum of: (i) the portion of the Net Tax Benefit attributable to such Member (including Imputed Interest calculated in respect of such amount); and (ii) the Actual Interest Amount with respect to the Net Tax Benefit described in (i).
(i) Attributable . The Cumulative Net Realized Tax Benefit is Attributable to a Member to the extent that it is derived from any Basis Adjustment, Imputed Interest, or Actual Interest Amount that is attributable to an Exchange undertaken by or with respect to such Member.
(ii) Net Tax Benefit . The Net Tax Benefit attributable to a Member for a Taxable Year equals the amount of the excess, if any, of (x) 85% of the Cumulative Net Realized Tax Benefit Attributable to a Member as of the end of such Taxable Year over (y) the aggregate amount of all Tax Benefit Payments previously made to such Member under this Section 3.1. For the avoidance of doubt, if the Cumulative Net Realized Tax Benefit Attributable to a Member as of the end of any Taxable Year is less than the aggregate amount of all Tax Benefit Payments previously made to such Member, the Member shall not be required to return any portion of any Tax Benefit Payment previously made by the Corporation to such Member.
(iii) Cumulative Net Realized Tax Benefit . The Cumulative Net Realized Tax Benefit for a Taxable Year equals the cumulative amount of Realized Tax Benefits for all Taxable Years of the Corporation, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination.
(iv) Realized Tax Benefit . The Realized Tax Benefit for a Taxable Year equals the excess, if any, of the Hypothetical Tax Liability over the actual liability of the Corporation for Covered Taxes; provided , that for purposes of determining the Hypothetical Tax Liability and actual liability of the Corporation for Covered Taxes, the Corporation shall use the Assumed State and Local Tax Rate for purposes of determining such liabilities for all state and local Covered Taxes. For the avoidance of doubt, the calculation of the Hypothetical Tax Liability and the actual liability of the Corporation for Covered Taxes shall take into account the federal
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benefit, if any, received by the Corporation with respect to state and local jurisdiction income taxes (with such benefit taking into account the Corporations marginal U.S. federal income tax rate for the relevant Taxable Year, the Assumed State and Local Tax Rate, and the deductibility, if any, of state and local jurisdiction income taxes). If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
(v) Realized Tax Detriment . The Realized Tax Detriment for a Taxable Year equals the excess, if any, of the actual liability of the Corporation for Covered Taxes over the Hypothetical Tax Liability for such Taxable Year; provided , that for purposes of determining the Hypothetical Tax Liability and actual liability of the Corporation for Covered Taxes, the Corporation shall use the Assumed State and Local Tax Rate for purposes of determining such liabilities for all state and local Covered Taxes. For the avoidance of doubt, the calculation of the Hypothetical Tax Liability and the actual liability of the Corporation for Covered Taxes shall take into account the federal benefit, if any, received by the Corporation with respect to state and local jurisdiction income taxes (with such benefit taking into account the Corporations marginal U.S. federal income tax rate for the relevant Taxable Year, the Assumed State and Local Tax Rate, and the deductibility, if any, of state and local jurisdiction income taxes). If all or a portion of the actual liability for such Covered Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.
(vi) Imputed Interest . The parties acknowledge that the principles of Sections 1272, 1274, or 483 of the Code, as applicable, and the principles of any similar provision of U.S. state and local law, will, as applicable, apply to cause a portion of any Net Tax Benefit payable by the Corporation to a Member under this Agreement to be treated as imputed interest ( Imputed Interest ). For the avoidance of doubt, the deduction for the amount of Imputed Interest as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.
(vii) Actual Interest Amount . The Actual Interest Amount calculated in respect of the Net Tax Benefit for a Taxable Year will equal the amount of any Extension Rate Interest. For the avoidance of doubt, any deduction for any Actual Interest Amount as determined with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.
(viii) Extension Rate Interest . Subject to Section 3.4, the amount of Extension Rate Interest calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest) for a Taxable Year will equal interest calculated at the Agreed Rate from the Initial Due Date until the date on which the Corporation makes a timely Tax Benefit Payment to the Member on or before the Final Payment Date as determined pursuant to Section 3.1(a).
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(ix) Default Rate Interest . In the event that the Corporation does not make timely payment of all or any portion of a Tax Benefit Payment to a Member on or before the Final Payment Date as determined pursuant to Section 3.1(a), the amount of Default Rate Interest calculated in respect of the Net Tax Benefit (including previously accrued Imputed Interest and Extension Rate Interest) for a Taxable Year will equal interest calculated at the Default Rate from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes such Tax Benefit Payment to such Member. For the avoidance of doubt, any deduction for any Default Rate Interest with respect to any Net Tax Benefit payable by the Corporation to a Member shall be excluded in determining the Hypothetical Tax Liability of the Corporation for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.
(x) The Corporation and the Members hereby acknowledge and agree that, as of the date of this Agreement and as of the date of any future Exchange that may be subject to this Agreement, the aggregate value of the Tax Benefit Payments cannot be reasonably ascertained for U.S. federal income or other applicable tax purposes. Notwithstanding anything to the contrary in this Agreement, unless a Member notifies the Corporation otherwise on or prior to the date of the Exchange, or specifies a different stated maximum selling price, including, in each case, in connection with its Exchange notice, the stated maximum selling price (within the meaning of Treasury Regulation 15A.453-1(c)(2)) with respect to any Exchange by such Member shall not exceed 150% of the amount of the initial consideration received in connection with such Exchange (which initial consideration, for the avoidance of doubt, shall include the amount of any cash and the fair market value of any Class A Common Stock received in such Exchange and shall exclude the fair market value of any Tax Benefit Payments) and the amount of the initial consideration received in connection with such Exchange and the aggregate Tax Benefit Payments to such Member in respect of such Exchange (other than amounts accounted for as interest under the Code) shall not exceed such stated maximum selling price.
(c) Interest . The provisions of Section 3.1(b) are intended to operate so that interest will effectively accrue in respect of the Net Tax Benefit for any Taxable Year as follows:
(i) first, at the applicable rate used to determine the amount of Imputed Interest under the Code (from the relevant Exchange Date until the Initial Due Date and, if required under applicable law, through the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a));
(ii) second, at the Agreed Rate in respect of any Extension Rate Interest (from the Initial Due Date until the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a)); and
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(iii) third, at the Default Rate in respect of any Default Rate Interest (from the Final Payment Date for a Tax Benefit Payment as determined pursuant to Section 3.1(a) until the date on which the Corporation makes the relevant Tax Benefit Payment to a Member).
Section 3.2 No Duplicative Payments . It is intended that the provisions of this Agreement will not result in the duplicative payment of any amount (including interest) that may be required under this Agreement, and the provisions of this Agreement shall be consistently interpreted and applied in accordance with that intent. For purposes of this Agreement, and also for the avoidance of doubt, no Tax Benefit Payment shall be required to be calculated or made in respect of any estimated tax payments, including, without limitation, any estimated U.S. federal income tax payments.
Section 3.3 Pro-Ration of Payments as Between the Members .
(a) Insufficient Taxable Income . Notwithstanding anything in Section 3.1(b) to the contrary, if the aggregate potential depreciation, amortization or other similar deductions in respect of the Basis Adjustments, Imputed Interest, Actual Interest Amounts, and Default Rate Interest for purposes of determining the Corporations liability for Covered Taxes (the Covered Tax Benefit) is limited in a particular Taxable Year because the Corporation does not have sufficient actual taxable income, then the available Covered Tax Benefit for the Corporation shall be allocated among the Members in proportion to the respective Tax Benefit Payment that would have been payable if the Corporation had in fact had sufficient taxable income so that there had been no such limitation. As an illustration of the intended operation of this Section 3.3(a), if the Corporation would have had $160 of aggregate potential Covered Tax Benefits (as a result of, for illustrative purposes, having $640 of taxable income) in a particular Taxable Year (with $40 of such Covered Tax Benefits being attributable to Member 1 and $120 of such Covered Tax Benefits being attributable to Member 2), such that Member 1 would have potentially been entitled to a Tax Benefit Payment of $34 (i.e. 85% of $40) and Member 2 would have been entitled to a Tax Benefit Payment of $102, and if instead the Corporation only had $320 of actual taxable income in such Taxable Year (corresponding to $80 of aggregate Covered Tax Benefits), then $20 of the aggregate $80 Covered Tax Benefit for the Corporation for such Taxable Year would be allocated to Member 1 and $60 of the aggregate $80 Covered Tax benefit for the Corporation would be allocated to Member 2, such that Member 1 would receive a Tax Benefit Payment of $17 and Member 2 would receive a Tax Benefit Payment of $51.
(b) Late Payments . If for any reason the Corporation is not able to timely and fully satisfy its payment obligations under this Agreement in respect of a particular Taxable Year, then Default Rate Interest will begin to accrue pursuant to Section 5.2 and the Corporation and other Parties agree that (i) the Corporation shall pay the Tax Benefit Payments due in respect of such Taxable Year to each Member pro rata in proportion to the amount of such Tax Benefit Payments, without favoring one obligation over the other, and (ii) no Tax Benefit Payment shall be made in respect of any Taxable Year until all Tax Benefit Payments to all Members in respect of all prior Taxable Years have been made in full.
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Section 3.4 Optional Estimated Tax Benefit Payment Procedure . As long as the Corporation is current in respect of its payment obligations owed to each Member pursuant to this Agreement and there are no delinquent Tax Benefit Payments outstanding in respect of prior Taxable Years for any Member, the Corporation may, at its option, in its sole discretion, make one or more estimated payments to the Members in respect of any anticipated amounts to be owed with respect to a Taxable Year to the Members pursuant to Section 3.1 of this Agreement at any time on or after the Initial Due Date with respect to such Taxable Year (any such estimated payments referred to as an Estimated Tax Benefit Payment ); provided that any Estimated Tax Benefit Payment made to a Member pursuant to this is matched by a proportionately equal Estimated Tax Benefit Payment to all other Members then entitled to a Tax Benefit Payment. Any Estimated Tax Benefit Payment made under this Section 3.4 shall be paid by the Corporation to the Members and applied against the final amount of any Tax Benefit Payment to be made pursuant to Section 3.1. The payment of an Estimated Tax Benefit Payment by the Corporation to the Members pursuant to this Section 3.4 shall also terminate the obligation of the Corporation to make payment of any Extension Rate Interest that might have otherwise accrued with respect to the proportionate amount of the Tax Benefit Payment that is being paid in advance of the applicable Tax Benefit Schedule being finalized pursuant to Section 2.4. Upon the making of any Estimated Tax Benefit Payment pursuant to this Section 3.4, the amount of such Estimated Tax Benefit Payment shall first be applied to any estimated Extension Rate Interest, then to Imputed Interest, and then applied to the remaining residual amount of the Tax Benefit Payment to be made pursuant to Section 3.1. In determining the final amount of any Tax Benefit Payment to be made pursuant to Section 3.1, and for purposes of finalizing the Tax Benefit Schedule pursuant to Section 2.4, the amount of any Estimated Tax Benefit Payments that may have been made with respect to the Taxable Year shall be increased, if the finally determined Tax Benefit Payment for a Taxable Year exceeds the Estimated Tax Benefit Payments made for such Taxable Year, with such increase being paid by the Corporation to the Members along with an appropriate amount of Extension Rate Interest in respect of the amount of such increase (a True-Up ). If the Estimated Tax Benefit Payment for a Taxable Year exceeds the finally determined Tax Benefit Payment for such Taxable Year, such excess, shall be applied to reduce the amount of any subsequent future Tax Benefit Payments (including Estimated Tax Benefit Payments, if any) to be paid by the Corporation to such Member. As of the date on which any Estimated Tax Benefit Payments are made, and as of the date on which any True-Up is made, all such payments shall be made in the same manner and subject to the same terms and conditions as otherwise contemplated by Section 3.1 and all other applicable terms of this Agreement. For the avoidance of doubt, as is the case with Tax Benefit Payments made by the Corporation to the Members pursuant to Section 3.1, the amount of any Estimated Tax Benefit Payments made pursuant to this Section 3.4 that are attributable to an Exchange shall also be treated, in part, as subsequent upward purchase price adjustments that give rise to Basis Adjustments in the Taxable Year of payment to the extent permitted by applicable law and as of the date on which such payments are made (to the extent of the estimated Net Tax Benefit associated with such Estimated Tax Benefit Payment, less any Imputed Interest, and exclusive of any Extension Rate Interest).
Section 3.5 Changes; Reserves; Suspension of Payments .
(a) Receipt of Change Notice . If any Party, or any Affiliate or Subsidiary of any Party, receives a 30-day letter, a final audit report, a statutory notice of deficiency, or similar written notice from any Taxing Authority that proposes an adjustment to a tax item of a Party that would reduce the Tax Benefit Payments that may be payable by the Corporation to the Members (a Change Notice ), prompt written notification and a copy of the relevant Change Notice shall be delivered by the Party, or its Affiliate or Subsidiary, that received such Change Notice to the Corporation and the Representative.
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(b) Receipt of Reserve Notice . Prior to the delivery of any Tax Benefit Schedule or other Schedule by the Corporation to the Representative, management of the Corporation shall consult with the auditors for the Corporation and, if necessary, the Advisory Firm or other legal or accounting advisors to the Corporation regarding the substantive tax issues and related conclusions that underlie the calculations related to the determination of the Tax Benefit Payments required under this Agreement. If, following such consultation, the management for the Corporation shall reasonably determine that a tax reserve or contingent liability needs to be established by the Corporation for financial accounting purposes (as determined in accordance with GAAP) in relation to any past or future tax position that affects the amount of any past or future Tax Benefit Payments that have been made or that may be made under this Agreement, then the Representative shall be notified of such determination (a Reserve Notice ).
(c) Suspension of Payments . From and after the date on which a Change Notice is received, to the extent provided in the following sentence, Tax Benefit Payments required to be made under this Agreement shall be paid by the Corporation to a national bank mutually agreeable to the Parties to act as escrow agent to hold such funds in escrow pursuant to an escrow agreement until a Determination in respect of the applicable Change Notice is received. For purposes of the preceding sentence and for purposes of the determination of the amount to be placed in escrow pending a Determination, the Corporation shall suspend all future Tax Benefit Payments required under this Agreement until the amount of such suspended future Tax Benefit Payments equals the aggregate amount of Tax Benefit Payments that the Corporation reasonably determines would not be payable if such Change Notice results in an adverse Determination. For the avoidance of doubt, such suspended amounts described in the immediately preceding sentence to be placed in escrow shall include (i) any Actual Interest Amount that has accrued on the underlying Net Tax Benefit from the Initial Due Date through the date such Tax Benefit Payment is placed in escrow (provided that to the extent the amount was not placed in escrow on or before the Final Payment Date, such amount placed in escrow shall also include any Default Rate Interest that accrued from the Final Payment Date until such amount is placed in escrow) and (ii) any additional amounts required to be placed in escrow pursuant to this Section 3.5(c) over time. From and after the date on which a Reserve Notice is issued, to the extent that the tax position that gives rise to a tax reserve or contingent liability would have the effect of reducing the Tax Benefit Payments required to be made under this Agreement, the Tax Benefit Payments required to be made under this Agreement shall, to the extent determined reasonably necessary by the Audit Committee, be paid by the Corporation to a national bank mutually agreeable to the Parties to act as escrow agent to hold such funds in escrow pursuant to an escrow agreement until the relevant reserve is released or the relevant contingent liability is eliminated or it is otherwise determined that the tax position is not reasonably expected to have the effect of reducing the Tax Benefit Payments. For purposes of the preceding sentence and for purposes of the Audit Committees determination of the amount to be placed in escrow pending the release of the reserve or the elimination of the contingent liability, the Corporation shall be entitled to suspend all future Tax Benefit Payments required under this Agreement until the amount of such suspended future Tax Benefit Payments equals the aggregate amount of Tax Benefit Payments that
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the Corporation reasonably determines would not be payable if the tax position giving rise to the reserve is sustained. For the avoidance of doubt, such suspended amounts described in the immediately preceding sentence to be placed in escrow shall include (i) any Actual Interest Amount that has accrued on the underlying Net Tax Benefit from the Initial Due Date through the date such Tax Benefit Payment is placed in escrow (provided that to the extent the amount was not placed in escrow on or before the Final Payment Date, such amount placed in escrow shall also include any Default Rate Interest that from Final Payment Date until such amount is placed in escrow) and (ii) any additional amounts required to be placed in escrow pursuant to this Section 3.5(c) over time. Any amounts to be placed in escrow pursuant to this Section 3.5(c) shall be held in an interest-bearing escrow account. The date on which the Corporation pays any such Tax Benefit Payments to the escrow agent shall not be considered the date on which such Tax Benefit Payments are paid to the Members. To the extent any Tax Benefit Payments placed in escrow pursuant to this Section 3.5(c) are ultimately released to a Member pursuant to Section 3.5(d), the Corporation shall pay to the Member (either directly or from the escrow), and the Member will be entitled to receive, in addition to the Tax Benefit Payment released from escrow, the greater of (i) the interest income accrued on such Tax Benefit Amount in the escrow net of expenses and taxes as set forth in Section 3.5(d) and (ii) an amount equal to the Actual Interest Amount that accrued on such Tax Benefit Payment since the date such amounts were placed in Escrow. In connection with the immediately preceding sentence, if, at the end of each calendar quarter, the interest earned on the amounts in escrow, net of (1) expenses incurred by the Corporation or the LLC in administering the escrow and (2) any taxes imposed on the corporation or the LLC with respect to any income earned on the investment on such escrowed funds, is less than the Actual Interest Amount that has accrued on the Tax Benefit Payments placed in escrow since the date such amounts were placed in escrow, the Corporation shall deposit additional amounts in escrow so that the amount in escrow (net of expenses and taxes described in Section 3.5(c)) is no less than the amount of the Tax Benefit Payment initially placed in escrow plus the Actual Interest Amount thereon. The effect on the Members of a suspension of payments made pursuant to this Agreement under this Section 3.5(c) shall be borne by the Members in the same manner as that set forth in Section 3.3. In addition, to the extent the Corporation enters into or succeeds or takes subject to one or more other tax receivable agreements or similar agreements in which the Corporation is obligated to pay a third party for the use of tax benefits attributable to Basis Adjustments subsequent to this Agreement and such other agreement does not have a substantially similar provision as this Section 3.5(c), this Section 3.5(c) and Section 3.5(d) shall be of no further force or effect and all amounts in escrow shall be released to the Parties (after the funding by the Corporation of any additional deposits that may be required pursuant to the second preceding sentence) as if there was a Determination that resulted in no adjustment of any Tax Benefit Payment and all reserves have been released and contingent liabilities eliminated, as applicable.
(d) Release of Escrowed Funds . As of the date on which a reserve is released or contingent liability is eliminated (in the case of a Reserve Notice), and provided that no Change Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Reserve Notice, the relevant escrowed funds (along with any additional amounts required to be paid directly by the Corporation or released from escrow to the Members pursuant to Section 3.5(c)) shall be distributed to the relevant Members. The portion of any interest earned on the escrowed funds
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equivalent to (1) the out-of-pocket expenses incurred by the Corporation or the LLC in administrating the escrow and (2) any taxes imposed on the Corporation or the LLC with respect to any income earned on the investment of such funds shall be distributed to the Corporation or the LLC, as applicable. If a Determination is received (in the case of a Change Notice), and if such Determination results in no adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change Notice, then the relevant escrowed funds (along with any additional amounts required to be paid directly by the Corporation or released from escrow to the Members pursuant to Section 3.5(c)) shall be distributed to the relevant Members. If a Determination is received (in the case of a Change Notice), and if such Determination results in an adjustment in any Tax Benefit Payments under this Agreement, and provided that no Reserve Notice has previously been issued and is still outstanding in relation to the same tax position that was the subject of the Change Notice, then the relevant escrowed funds (along with any additional amounts required to be paid directly by the Corporation or released from escrow to the Members pursuant to Section 3.5(c)) shall be distributed among the Parties as follows: (i) first, to the Corporation or the LLC in an amount equal to (1) the out-of-pocket expenses incurred by the Corporation or the LLC in administering the escrow and in contesting the Determination and (2) any taxes imposed on the Corporation or the LLC with respect to any income earned on the investment of such funds; and (ii) second, to the relevant Parties (which, for the avoidance of doubt and depending on the nature of the adjustments, may include the Corporation or the relevant Members, or some combination thereof) in accordance with the relevant Amended Schedule prepared pursuant to Section 2.4 of this Agreement and as required pursuant to Section 3.5(c).
(e) Early Termination . Notwithstanding any other provision of this Agreement, in the event of an Early Termination Notice prior to release of the escrow pursuant to Section 3.5(d), the escrowed funds shall be released to the Corporation, and any Early Termination Payment payable by the Corporation to the Members pursuant to Section 4.3 shall be computed without regard to any proposed adjustment to a tax item of a Party that has given rise to a Change Notice or any tax position that has given rise to a Reserve Notice.
ARTICLE IV.
TERMINATION
Section 4.1 Early Termination of Agreement; Breach of Agreement .
(a) Corporations Early Termination Right . With the written approval of a majority of the Independent Directors, the Corporation may completely terminate this Agreement, as and to the extent provided herein, with respect to all amounts payable to the Members pursuant to this Agreement by paying to the Members the Early Termination Payment; provided that Early Termination Payments may be made pursuant to this Section 4.1(a) only if made to all Members that are entitled to such a payment simultaneously, and provided further , that the Corporation may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid. Upon the Corporations payment of the Early Termination Payment, the Corporation shall not have any further payment obligations under this Agreement, other than with
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respect to any: (i) prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of the Early Termination Notice; and (ii) current Tax Benefit Payment due for the Taxable Year ending on or including the date of the Early Termination Notice (except to the extent that the amount described in clause (ii) is included in the calculation of the Early Termination Payment). For the avoidance of doubt, if an Exchange subsequently occurs with respect to Units for which the Corporation has exercised its termination rights under this Section 4.1(a), the Corporation shall have no obligations under this Agreement with respect to such Exchange.
(b) Acceleration Upon Change of Control . In the event of a Change of Control, all obligations hereunder shall be accelerated and such obligations shall be calculated pursuant to this Article IV as if an Early Termination Notice had been delivered on the closing date of the Change of Control and utilizing the Valuation Assumptions by substituting the phrase the closing date of a Change of Control in each place where the phrase Early Termination Effective Date appears. Such obligations shall include, but not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the closing date of the Change of Control, (2) any Tax Benefit Payments agreed to by the Corporation and the Members as due and payable but unpaid as of the Early Termination Notice and (3) any Tax Benefit Payments due for any Taxable Year ending prior to, with or including the closing date of a Change of Control (except to the extent that any amounts described in clauses (2) or (3) are included in the Early Termination Payment). For the avoidance of doubt, Sections 4.2 and 4.3 shall apply to a Change of Control, mutadis mutandi.
(c) Acceleration Upon Breach of Agreement . In the event that the Corporation materially breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder, or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and become immediately due and payable upon notice of acceleration from a Member ( provided that in the case of any proceeding under the Bankruptcy Code or other insolvency statute, such acceleration shall be automatic without any such notice), and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such notice of acceleration (or, in the case of any proceeding under the Bankruptcy Code or other insolvency statute, on the date of such breach) and shall include, but not be limited to: (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of such acceleration; (ii) any prior Tax Benefit Payments that are due and payable under this Agreement but that still remain unpaid as of the date of such acceleration; and (iii) any current Tax Benefit Payment due for the Taxable Year ending with or including the date of such acceleration (except to the extent included in the Early Termination Payment). Notwithstanding the foregoing, in the event that the Corporation breaches this Agreement and such breach is not a material breach of a material obligation, a Member shall still be entitled to enforce all of its rights otherwise available under this Agreement, excluding, for the avoidance of doubt, seeking an acceleration of amounts payable under this Agreement. For purposes of this Section 4.1(c), and subject to the following sentence, the Parties agree that the failure to make any payment due pursuant to this Agreement within ninety (90) calendar days of the relevant Final Payment Date shall be deemed to be a material breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a material breach of a material obligation under this Agreement
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to make a payment due pursuant to this Agreement within ninety (90) calendar days of the relevant Final Payment Date. For the avoidance of doubt, a suspension of payments pursuant to Section 3.5 will not be considered to be a failure to make a payment due pursuant to this Agreement, provided that the Corporation complies with the provisions of Section 3.5(c) that require the Corporation to pay the Tax Benefit Payments to an escrow. Notwithstanding anything in this Agreement to the contrary, it shall not be a material breach of a material obligation of this Agreement if the Corporation fails to make any Tax Benefit Payment within ninety (90) calendar days of the relevant Final Payment Date to the extent that the Corporation has insufficient funds or cannot make such payment as a result of obligations imposed in connection with the Senior Obligations (including any Credit Agreements) or under applicable law, and cannot obtain sufficient funds despite using commercially reasonable efforts to obtain funds to make such payment (including by causing Subsidiaries to distribute or lend funds for such payment and access any sources of available credit to fund such payment); provided that the interest provisions of Section 5.2 shall apply to such late payment; and further provided that such payment obligation shall nonetheless accrue for the benefit of the Members and the Corporation shall make such payment at the first opportunity that it has sufficient funds and is otherwise able to make such payment.
(d) Limitation . Payments under this Section 4.1 are subject to Section 5.1.
Section 4.2 Early Termination Notice . If the Corporation chooses to exercise its right of early termination under Section 4.1 above, the Corporation shall deliver to the Representative a notice of the Corporations decision to exercise such right (an Early Termination Notice ) and a schedule (the Early Termination Schedule ) showing in reasonable detail the calculation of the Early Termination Payment. The Corporation shall also (x) deliver to the Representative supporting schedules and work papers, as determined by the Corporation or as reasonably requested by the Representative, that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Early Termination Schedule; (y) consult with the Advisory Firm (to the extent necessary in the Corporations determination) with respect to such Early Termination Schedule; and (z) allow and the Representative and their advisors to have reasonable access at no cost to the appropriate representatives, as determined by the Corporation or as reasonably requested by the Representative, at the Corporation and the Advisory Firm in connection with a review of such Early Termination Schedule. The Early Termination Schedule shall become final and binding on each Party thirty (30) calendar days from the first date on which the Representative received such Early Termination Schedule unless:
(i) the Representative within thirty (30) calendar days after receiving the Early Termination Schedule, provides the Corporation with (A) notice of a material objection to such Early Termination Schedule made in good faith and setting forth in reasonable detail the Representatives, as applicable, material objection (a Termination Objection Notice ) and (B) a letter from an Advisory Firm (that is different from the Advisory Firm that was consulted by the Corporation with respect to the Early Termination Schedule) in support of such Termination Objection Notice; or
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(ii) the Representative provides a written waiver of such right of a Termination Objection Notice within the period described in clause (i) above, in which case such Early Termination Schedule becomes binding on the date the waiver from the Representative is received by the Corporation.
In the event that the Representative timely delivers a Termination Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Termination Objection Notice within thirty (30) calendar days after receipt by the Corporation of the Termination Objection Notice, the Corporation or the Representative, as applicable, shall employ the Reconciliation Procedures. For the avoidance of doubt, and notwithstanding anything to the contrary herein, the expense of preparing and obtaining the letter from an Advisory Firm referenced in clause (i) above shall be borne solely by the Representative, as applicable, and the Corporation shall have no liability with respect to such letter or any of the expenses associated with its preparation and delivery, provided, however, that all Members shall reimburse the Representative for such expenses in an amount that is pro rata with respect to their rights to Early Termination Payments. The date on which the Early Termination Schedule becomes final in accordance with this Section 4.2 shall be the Early Termination Reference Date .
Section 4.3 Payment Upon Early Termination .
(a) Timing of Payment . Within ten (10) calendar days after the Early Termination Reference Date, the Corporation shall pay to each Member an amount equal to the Early Termination Payment for such Member. Such Early Termination Payment shall be made by the Corporation by wire transfer of immediately available funds to a bank account or accounts designated by the Members or as otherwise agreed by the Corporation and the Members.
(b) Amount of Payment . The Early Termination Payment payable to a Member pursuant to Section 4.3(a) shall equal the present value, discounted at the Early Termination Rate as determined as of the Early Termination Reference Date, of all Tax Benefit Payments that would be required to be paid by the Corporation to such Member, whether payable with respect to Units that were Exchanged prior to the Early Termination Effective Date or on or after the Early Termination Effective Date, beginning from the Early Termination Effective Date and using the Valuation Assumptions. For the avoidance of doubt, notwithstanding any other provision in this Agreement, neither (i) any proposed adjustment to a tax item of a Party that has given rise to a Change Notice, nor (ii) any reserve or contingent liability associated with a tax position that has given rise to a Reserve Notice, shall be taken into account in determining the amount of any Early Termination Payment, which shall be computed as if the adjustment or tax item giving rise to the Change Notice or Reserve Notice has been resolved in a manner that does not result in a reduction of any Tax Benefit Payment payable under this Agreement.
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ARTICLE V.
SUBORDINATION AND LATE PAYMENTS
Section 5.1 Subordination . Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by the Corporation to the Members under this Agreement shall rank subordinate and junior in right of payment to any principal, interest, or other amounts due and payable in respect of any obligations owed in respect of secured or unsecured indebtedness for borrowed money of the Corporation and its Subsidiaries, which shall include, for the avoidance of doubt, obligations in respect of any Credit Agreement ( Senior Obligations ) and shall rank pari passu in right of payment with all current or future unsecured obligations of the Corporation that are not Senior Obligations; provided, however, that to the extent the Corporation enters into or succeeds or takes subject to one or more other tax receivable agreements or similar agreement in which the Corporation is obligated to pay a third party for the use of tax benefits attributable to Basis Adjustments subsequent to this Agreement and the Covered Tax Benefit would be limited in a particular Taxable Year because the Corporation does not have sufficient actual taxable income after accounting for any Basis Adjustments (or corresponding term in such other agreement) or interest deductions that are the subject matter of such other agreement, then the Tax Benefit Payment (and the components thereof, including the Hypothetical Tax Liability, Cumulative Net Realized Tax Benefit) shall be calculated without regard to such other agreement and without giving effect to any Basis Adjustments (or corresponding term in such other agreement) or interest deductions that are the subject matter of such other agreement. To the extent that any payment under this Agreement is not permitted to be made at the time payment is due as a result of this Section 5.1 and the terms of any agreement governing any Senior Obligations (in each case, whether money is currently borrowed under such agreement or available to be borrowed under such agreement), such payment obligation nevertheless shall accrue for the benefit of the Members and the Corporation shall make such payments at the first opportunity that such payments are permitted to be made in accordance with the terms of the Senior Obligations.
Section 5.2 Late Payments by the Corporation . Except as otherwise provided in this Agreement, the amount of all or any portion of any Tax Benefit Payment or Early Termination Payment not made to the Members when due under the terms of this Agreement, whether as a result of Section 5.1 and the terms of the Senior Obligations or otherwise, shall be payable together with any interest thereon, computed at the Default Rate and commencing from the Final Payment Date on which such Tax Benefit Payment or Early Termination Payment was first due and payable to the date of actual payment.
ARTICLE VI.
TAX MATTERS; CONSISTENCY; COOPERATION
Section 6.1 Participation in the Corporation s and the LLC s Tax Matters . Except as otherwise provided herein, the Corporation shall have full responsibility for, and sole discretion over, all tax matters concerning the Corporation and the LLC, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to taxes. The Corporation shall notify the Representative of, and keep him or her reasonably informed
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with respect to, the portion of any tax audit of the Corporation or the LLC, or any of the LLCs Subsidiaries, the outcome of which is reasonably expected to materially affect the Tax Benefit Payments payable to any Members under this Agreement, and the Representative, shall have the right to provide information and input at its own expense relating to but, for the avoidance of doubt, may not control, any such portion of any such Tax audit. To the extent there is a conflict between this Agreement and the LLC Agreement as it relates to tax matters concerning Covered Taxes and the Corporation and the LLC, including preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to taxes, this Agreement shall control; provided, however , that to the extent there is a conflict between this Agreement and Sections 5.05 and 9.02 of the LLC Agreement, Sections 5.05 and 9.02 of the LLC Agreement shall control.
Section 6.2 Consistency . Except as otherwise required by law, all calculations and determinations made hereunder, including, without limitation, any Basis Adjustments, the Schedules and the determination of any Realized Tax Benefits or Realized Tax Detriments, shall be made in accordance with the elections, methodologies or positions taken by the Corporation and the LLC on their respective Tax Returns. Each Member shall prepare its Tax Returns in a manner that is consistent with the terms of this Agreement, and any related calculations or determinations that are made hereunder, including, without limitation, the terms of Section 2.1 of this Agreement and the Schedules provided to the Members under this Agreement. In the event that an Advisory Firm is replaced with another Advisory Firm, such replacement Advisory Firm shall perform its services under this Agreement using procedures and methodologies consistent with the previous Advisory Firm, unless otherwise required by law or unless the Corporation and all of the Members agree to the use of other procedures and methodologies.
(a) Each Member shall (i) furnish to the Corporation in a timely manner such information, documents and other materials as the Corporation may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (ii) make itself available to the Corporation and its representatives to provide explanations of documents and materials and such other information as the Corporation or its representatives may reasonably request in connection with any of the matters described in clause (i) above, and (iii) reasonably cooperate in connection with any such matter.
(b) The Corporation shall reimburse the Members for any reasonable and documented out-of-pocket costs and expenses incurred pursuant to Section 6.3(a).
ARTICLE VII.
MISCELLANEOUS
Section 7.1 Notices . All notices, requests, consents and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by courier service, by fax, by electronic mail (delivery receipt requested) or by certified or registered mail (postage prepaid, return receipt requested) to the respective Parties at the
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following addresses (or at such other address for a Party as shall be as specified in a notice given in accordance with this Section 7.1). All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the Party to receive such notice:
If to the Corporation, to:
Pluralsight, Inc.
182 North Union Avenue
Farmington, Utah 84025
Attn: Chief Financial Officer
with a copy (which shall not constitute notice to the Corporation) to:
Wilson Sonsini Goodrich & Rosati P.C.
650 Page Mill Road
Palo Alto, California 94304
Attn: Allison Spinner
If to the Representative (on behalf of the Members):
[Name]
Pluralsight, Inc.
[Address]
Any Party may change its address, fax number or e-mail address by giving each of the other Parties written notice thereof in the manner set forth above.
Section 7.2 Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
Section 7.3 Entire Agreement; No Third Party Beneficiaries . This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each Party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
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Section 7.4 Governing Law . This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.
Section 7.5 Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
Section 7.6 Right of First Refusal; Assignments; Amendments; Successors; No Waiver .
(a) Right of First Refusal . Before a Member (such Member, a Seller ) may assign, sell, pledge, or otherwise alienate or transfer (collectively, Transfer ) any interest in this Agreement, including the right to receive any Tax Benefit Payments under this Agreement (collectively, TRA Interests ), to any Person (other than a Permitted Transferee), in addition to any other requirements set forth in this Agreement (including as set forth in Section 7.6(b)), Seller must comply with the following:
(i) Notice of Proposed Transfer . Prior to Seller Transferring any of its TRA Interests to any Person (other than a Permitted Transferee), Seller shall deliver to the Corporation a written notice (the Transfer Notice ) stating: (A) Sellers bona fide intention to Transfer such TRA Interests; (B) the name, address and phone number of each proposed purchaser or other transferee (each, a Proposed Transferee ); (C) a description of Sellers TRA Interests (or portion thereof) proposed to be Transferred to each Proposed Transferee (the Offered TRA Interests ); and (D) the bona fide cash price or, in reasonable detail, other consideration for which Seller proposes to Transfer the Offered TRA Interests (the Offered Price ).
(ii) Exercise by the Corporation . For a period of 30 days (the Exercise Period ) after the date on which the Transfer Notice is, pursuant to Section 7.1, deemed to have been delivered to the Corporation, the Corporation shall have the right to purchase all or any portion of the Offered TRA Interests on the terms and conditions set forth in this Section 7.6(a). In order to exercise its right hereunder, the Corporation must deliver written notice to elect to purchase to Seller within the Exercise Period. If no such written notice is given within the Exercise Period, the Corporation shall be deemed to have elected not to purchase the Offered TRA Interests.
(iii) Purchase Price . The purchase price for the Offered TRA Interests to be purchased by the Corporation exercising its Right of First Refusal under this Agreement will be the Offered Price, and will be payable as set forth in Section 7.6(a)(iv). If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration will be determined by the Board of Directors of the Corporation in good faith, which determination will be binding upon the Corporation and the Seller, absent fraud or manifest error.
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(iv) Closing; Payment . Subject to compliance with applicable state and federal securities laws, the Corporation and Seller shall effect the purchase and sale of all or any portion of the Offered TRA Interests, including the payment of the purchase price, within ten days after the expiration of the Exercise Period or as promptly as otherwise practicable thereafter (the Right of First Refusal Closing ). Payment of the purchase price will be made by wire transfer to a bank account designated by Seller in writing to the Corporation at least 3 days prior to the Right of First Refusal Closing. At such Right of First Refusal Closing, Seller shall deliver to the Corporation, among other things, such documents and instruments of conveyance as may be necessary in the reasonable opinion of counsel to the Corporation to effect the Transfer of such Offered TRA Interests.
(v) Transfer by Seller . If any of the Offered TRA Interests remain available after the exercise, if any, of the Corporations Right of First Refusal, then the Seller shall be free to transfer, subject to the general conditions to transfer set forth in Section 7.6(b), any such remaining Offered TRA Interests to the Proposed Transferee at the Offered Price set forth in the Transfer Notice; provided, however , that if the Offered TRA Interests are not so transferred during the 90-day period following the delivery of the Transfer Notice, then the Seller may not Transfer any of such remaining Offered TRA Interests without complying again in full with the provisions of this Agreement.
(b) Assignment . No Member may Transfer any TRA Interests to any Person (other than a Permitted Transferee) without the prior written consent of the Corporation (such consent not to be unreasonably withheld, conditioned or delayed); provided , however, that such Member may Transfer a TRA Interest if the Member shall have complied with Section 7.6(a) of this Agreement; and provided, further that such Person (including any Permitted Transferee) shall execute and deliver a Joinder agreeing to succeed to the applicable portion of such Members interest in this Agreement and to become a Party for all purposes of this Agreement (the Joinder Requirement ). For the avoidance of doubt, if a Member transfers Units in accordance with the terms of the LLC Agreement but does not assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, such Member shall continue to be entitled to receive the Tax Benefit Payments arising in respect of a subsequent Exchange of such Units (and any such transferred Units shall be separately identified, so as to facilitate the determination of Tax Benefit Payments hereunder). The Corporation may not assign any of its rights or obligations under this Agreement to any Person (other than any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation) without the prior written consent of each of the Members (and any purported assignment without such consent shall be null and void).
(c) Amendments . No provision of this Agreement may be amended unless such amendment is approved in writing by each of a majority of the Independent Directors and the Representative, in which case such amendment shall be permitted. No provision of this Agreement may be waived unless such waiver is in writing and signed by the Party against whom the waiver is to be effective.
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(d) Successors . Except as provided in Section 7.6(b), all of the terms and provisions of this Agreement shall be binding upon, and shall inure to the benefit of and be enforceable by, the Parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporation shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.
(e) Waiver . No failure by any Party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition.
Section 7.7 Titles and Subtitles . The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
Section 7.8 Resolution of Disputes .
(a) Except for Reconciliation Disputes subject to Section 7.9, any and all disputes which cannot be settled amicably, including any ancillary claims of any Party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) (each a Dispute ) shall be finally resolved by arbitration in accordance with the International Institute for Conflict Prevention and Resolution Rules for Administered Arbitration (the Rules ) by three arbitrators, of which the Corporation shall appoint one arbitrator and the Members party to such Dispute shall appoint one arbitrator in accordance with the screened appointment procedure provided in Rule 5.4. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of the arbitration shall be Farmington, Utah.
(b) Notwithstanding the provisions of paragraph (a), any Party may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling another Party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), each Party (i) expressly consents to the application of paragraph (c) of this Section 7.8 to any such action or proceeding, and (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate. For the avoidance of doubt, this Section 7.8 shall not apply to Reconciliation Disputes to be settled in accordance with the procedures set forth in Section 7.9.
(c) Each Party irrevocably consents to service of process by means of notice in the manner provided for in Section 7.1. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law.
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(d) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HERETO HEREBY IRREVOCABLY 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 THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
(e) In the event the parties are unable to agree whether a dispute between them is a Reconciliation Dispute subject to the dispute resolution procedure set forth in Section 7.9 or a Dispute subject to the dispute resolution procedure set forth in this Section 7.8, such disagreement shall be decided and resolved in accordance with the procedure set forth in this Section 7.8.
Section 7.9 Reconciliation . In the event that the Corporation and any Member are unable to resolve a disagreement with respect to a Schedule (other than an Early Termination Schedule) prepared in accordance with the procedures set forth in Section 2.4, or with respect to an Early Termination Schedule prepared in accordance with the procedures set forth in Section 4.2, within the relevant time period designated in this Agreement (a Reconciliation Dispute ), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert ) in the particular area of disagreement mutually acceptable to both Parties. The Expert shall be a partner or principal in a nationally recognized accounting firm, and unless the Corporation and such Member agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Corporation or such Member or other actual or potential conflict of interest. If the Parties are unable to agree on an Expert within fifteen (15) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the selection of an Expert shall be treated as a Dispute subject to Section 7.8 and an arbitration panel shall pick an Expert from a nationally recognized accounting firm that does not have any material relationship with the Corporation or such Member or other actual or potential conflict of interest. The Expert shall resolve any matter relating to the Basis Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within thirty (30) calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by the Corporation, subject to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by the Corporation except as provided in the next sentence. The Corporation and the Members shall bear their own costs and expenses of such proceeding, unless (i) the Expert adopts the Members position, in which case the Corporation shall reimburse the Member for any reasonable and documented out-of-pocket costs and expenses in such proceeding
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(including for the avoidance of doubt any costs and expenses incurred by the Member relating to the engagement of the Expert or amending any applicable Tax Return), or (ii) the Expert adopts the Corporations position, in which case the Member shall reimburse the Corporation for any reasonable and documented out-of-pocket costs and expenses in such proceeding (including for the avoidance of doubt costs and expenses incurred by the Corporation relating to the engagement of the Expert or amending any applicable Tax Return). The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on the Corporation and the Members and may be entered and enforced in any court having competent jurisdiction.
Section 7.10 Withholding . The Corporation, the LLC and their affiliates and representatives shall be entitled to deduct and withhold from any payment that is payable to any Member pursuant to this Agreement such amounts may be required to be deducted and withheld with respect to the making of such payment under the Code or any provision of U.S. state, local or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the recipient of the payments in respect of which such deduction and withholding was made. To the extent that any payment pursuant to this Agreement is not reduced by such deductions or withholdings, such recipient shall indemnify the applicable withholding agent for any amounts imposed by any taxing authority together with any costs and expenses related thereto. Each Member shall promptly provide the Corporation, LLC or other applicable withholding agent with any applicable tax forms and certifications (including IRS Form W-9 or the applicable version of IRS Form W-8) reasonably requested, in connection with determining whether any such deductions and withholdings are required under the Code or any provision of U.S. state, local or foreign tax law.
Section 7.11 Admission of the Corporation into a Consolidated Group; Transfers of Corporate Assets .
(a) If the Corporation is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income Tax Return pursuant to Section 1501 or other applicable Sections of the Code governing affiliated or consolidated groups, or any corresponding provisions of U.S. state or local law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole and (ii) Tax Benefit Payments, Early Termination Payments, and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.
(b) If the Corporation, its successor in interest or any member of a group described in Section 7.11(a) transfers one or more assets to a corporation (or a Person classified as a corporation for U.S. income tax purposes) with which the Corporation or its successor in interest does not file a consolidated Tax Return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment or Early Termination Payment due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such transfer. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset as determined by the Advisory Firm or a valuation expert selected by the Corporation. For purposes of this Section 7.11, a transfer of a partnership interest shall be treated as a transfer of the transferring partners share of each of the assets and liabilities of that partnership. Notwithstanding anything to the contrary set forth herein, if the Corporation, its successor in interest or any member of a group described in Section 7.11(a), transfers its assets pursuant to a transaction that qualifies as a reorganization (within the meaning of Section 368(a) of the Code) in which such
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entity does not survive or pursuant to any other transaction to which Section 381(a) of the Code applies (other than any such reorganization or any such other transaction, in each case, pursuant to which such entity transfers assets to a corporation with which the Corporation or its successor in interest does not file a consolidated Tax Return pursuant to Section 1501 of the Code), the transfer will not cause such entity to be treated as having transferred any assets to a corporation (or a Person classified as a corporation for U.S. income tax purposes) pursuant to this Section 7.11(b). Notwithstanding the foregoing, to the extent the Corporation or any of its subsidiaries determines to (a) cause the LLC to be taxed as a corporation for U.S. federal income tax purposes or (b) otherwise causes the LLC or any of its subsidiaries to contribute substantially all of the assets directly or indirectly held by the LLC that are not already held by an entity taxed as a corporation to an entity taxed as a corporation for U.S. federal income tax purposes (each of (a) and (b), a (Corporate Conversion)), the Corporation shall provide the Members with advance notice of such determination to allow them to make a Redemption request in accordance with the LLC Agreement prior to the effectiveness of such Corporate Conversion.
Section 7.12 Arm s Length Transactions . Each of the Corporation and LLC shall not, and each shall cause their respective Subsidiaries not to, (i) enter into transactions or agreements with Affiliates that are not on arms length terms to the extent such transactions or agreements would reasonably be expected to materially adversely impact the amount or timing of any payments under this Agreement or (ii) engage in any transaction or enter into any agreement the principal purpose of which is to reduce the amount or timing of any payments under this Agreement.
Section 7.13 Confidentiality . Each Member and its assignees acknowledges and agrees that the information of the Corporation is confidential and, except in the course of performing any duties as necessary for the Corporation and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, such Person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of the Corporation and its Affiliates and successors, learned by any Member heretofore or hereafter. This Section 7.13 shall not apply to (i) any information that has been made publicly available by the Corporation or any of its Affiliates, becomes public knowledge (except as a result of an act of any Member in violation of this Agreement) or is generally known to the business community, (ii) the disclosure of information to the extent necessary for a Member to prosecute or defend claims arising under or relating to this Agreement, and (iii) the disclosure of information to the extent necessary for a Member to prepare and file its Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any Taxing Authority with respect to such Tax Returns. If a Member or an assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.13, the Corporation shall have the right and remedy to have the provisions of this Section 7.13 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Corporation or any of its Subsidiaries and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.
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Section 7.14 Change in Law . Notwithstanding anything herein to the contrary, if, as a result of or, in connection with an actual or proposed change in law, a Member reasonably believes that the existence of this Agreement could cause income (other than income arising from receipt of a payment under this Agreement) recognized by such Member (or direct or indirect equity holders in such Member) in connection with any Exchange to be treated as ordinary income rather than capital gain (or otherwise taxed at ordinary income rates) for U.S. federal income tax purposes or would have other material adverse tax consequences to such Member or any direct or indirect owner of such Member, then at the written election of such Member in its sole discretion (in an instrument signed by such Member and delivered to the Corporation) and to the extent specified therein by such Member, this Agreement shall cease to have further effect and shall not apply to an Exchange with respect to such Member occurring after a date specified by such Member, or may be amended by in a manner reasonably determined by such Member, provided that such amendment shall not result in an increase in any payments owed by the Corporation under this Agreement at any time as compared to the amounts and times of payments that would have been due in the absence of such amendment.
Section 7.15 Interest Rate Limitation . Notwithstanding anything to the contrary contained herein, the interest paid or agreed to be paid hereunder with respect to amounts due to any Member hereunder shall not exceed the maximum rate of non-usurious interest permitted by applicable law (the Maximum Rate ). If any Member shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the Tax Benefit Payment, Estimated Tax Benefit Payment or Early Termination Payment, as applicable (but in each case exclusive of any component thereof comprising interest) or, if it exceeds such unpaid non-interest amount, refunded to the Corporation. In determining whether the interest contracted for, charged, or received by any Member exceeds the Maximum Rate, such Member 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 payment obligations owed by the Corporation to such Member hereunder. Notwithstanding the foregoing, it is the intention of the Parties to conform strictly to any applicable usury laws.
Section 7.16 Independent Nature of Rights and Obligations . The rights and obligations of each Member hereunder are several and not joint with the rights and obligations of any other Person. A Member shall not be responsible in any way for the performance of the obligations of any other Person hereunder, nor shall a Member have the right to enforce the rights or obligations of any other Person hereunder (other than the Corporation). The obligations of a Member hereunder are solely for the benefit of, and shall be enforceable solely by, the Corporation. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Member pursuant hereto or thereto, shall be deemed to constitute the Members acting as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Members are in any way acting in concert or as a group with respect to such rights or obligations or the transactions contemplated hereby, and the Corporation acknowledges that the Members are not acting in concert or as a group and will not assert any such claim with respect to such rights or obligations or the transactions contemplated hereby.
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Section 7.17 LLC Agreement . This Agreement shall be treated as part of the LLC Agreement as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the Treasury Regulations.
Section 7.18 Representative . By executing this Agreement, each of the Members shall be deemed to have irrevocably constituted and appointed [INSIGHT ENTITY] (in the capacity described in this Section 7.18 and each successor as provided below, the Representative ) as his, her or its agent and attorney in fact with full power of substitution to act from and after the date hereof and to do any and all things and execute any and all documents on behalf of such Members which may be necessary, convenient or appropriate to facilitate any matters under this Agreement, including but not limited to: (i) execution of the documents and certificates required pursuant to this Agreement; (ii) except to the extent specifically provided in this Agreement receipt and forwarding of notices and communications pursuant to this Agreement; (iv) administration of the provisions of this Agreement; (v) any and all consents, waivers, amendments or modifications deemed by the Representative, in its sole and absolute discretion, to be necessary or appropriate under this Agreement and the execution or delivery of any documents that may be necessary or appropriate in connection therewith; (vi) amending this Agreement or any of the instruments to be delivered to the Corporation pursuant to this Agreement; (vii) taking actions Representative is expressly authorized to take pursuant to the other provisions of this Agreement; (viii) negotiating and compromising, on behalf of such Members, any dispute that may arise under, and exercising or refraining from exercising any remedies available under, this Agreement or any other agreement contemplated hereby and executing, on behalf of such Members, any settlement agreement, release or other document with respect to such dispute or remedy; and (ix) engaging attorneys, accountants, agents or consultants on behalf of such Members in connection with this Agreement or any other agreement contemplated hereby and paying any fees related thereto. The Representative may resign upon [[__] days] written notice to the Corporation. If the Representative is unable or unwilling to so serve, then the Members, as applicable, holding a majority of the common units owned by such Members outstanding on the date hereof, shall elect a new Representative. All reasonable, documented out-of-pocket costs and expenses incurred by the Representative in its capacity as such shall be promptly reimbursed by the Corporation upon invoice and reasonable support therefor by the Representative. To the fullest extent permitted by law, none of the Representative, any of its Affiliates, or any of the Representatives or Affiliates directors, officers, employees or other agents (each a Covered Person ) shall be liable, responsible or accountable in damages or otherwise to any Member, the LLC or the Corporation for damages arising from any action taken or omitted to be taken by the Representative or any other Person with respect to the LLC or the Corporation, except in the case of any action or omission which constitutes, with respect to such Person, willful misconduct or fraud. Each of the Covered Persons may consult with legal counsel, accountants, and other experts selected by it, and any act or omission suffered or taken by it on behalf of the LLC or the Corporation or in furtherance of the interests of the LLC or the Corporation in good faith in reliance upon and in accordance with the advice of such counsel, accountants, or other experts shall create a rebuttable presumption of the good faith and due care of such Covered Person with respect to such act or omission; provided that such counsel, accountants, or other experts were selected with reasonable care. Each of the Covered Persons may rely in good faith upon, and shall have no liability to the LLC, the Corporation or the Members for acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties.
[ Signature Page Follows This Page ]
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IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Agreement as of the date first written above.
CORPORATION: | ||
PLURALSIGHT, INC. |
By: |
Name: | ||
Title: |
THE LLC: | ||
PLURALSIGHT HOLDINGS LLC |
By: |
Name: | ||
Title: | ||
MEMBERS: | ||
[______] |
By: |
Name: | ||
Title: | ||
By: | ||
Name: | ||
Title: | ||
By: |
Name: | ||
Title: | ||
[S IGNATURE P AGE TO T AX R ECEIVABLE A GREEMENT ]
REPRESENTATIVE: | ||||
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||||
Name: |
[S IGNATURE P AGE TO T AX R ECEIVABLE A GREEMENT ]
Exhibit A
FORM OF JOINDER AGREEMENT
This JOINDER AGREEMENT, dated as of __________, 20__ (this Joinder ), is delivered pursuant to that certain Tax Receivable Agreement, dated as of [__________] (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Tax Receivable Agreement ) by and among Pluralsight, Inc., a Delaware corporation (the Corporation ), Pluralsight Holdings, LLC, a Delaware limited liability company ( the LLC ), and each of the Members from time to time party thereto. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Tax Receivable Agreement.
1. | Joinder to the Tax Receivable Agreement . Upon the execution of this Joinder by the undersigned and delivery hereof to the Corporation, the undersigned hereby is and hereafter will be a Member under the Tax Receivable Agreement and a Party thereto, with all the rights, privileges and responsibilities of a Member thereunder. The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the Tax Receivable Agreement as if it had been a signatory thereto as of the date thereof. |
2. | Incorporation by Reference . All terms and conditions of the Tax Receivable Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full. |
3. | Address . All notices under the Tax Receivable Agreement to the undersigned shall be direct to: |
[Name]
[Address]
[City, State, Zip Code]
Attn:
Facsimile:
E-mail:
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written.
[NAME OF NEW PARTY] | ||
By: | ||
Name: | ||
Title: |
Acknowledged and agreed
as of the date first set forth above:
PLURALSIGHT, INC. |
By: |
Name: | ||
Title: |
Exhibit 10.5
PLURALSIGHT, INC.
2018 EQUITY INCENTIVE PLAN
1. Purposes of the Plan . The purposes of this Plan are:
| to attract and retain the best available personnel for positions of substantial responsibility, |
| to provide additional incentive to Employees, Directors and Consultants, and |
| to promote the success of the Companys business. |
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares.
2. Definitions . As used herein, the following definitions will apply:
(a) Administrator means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.
(b) Affiliate means any entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
(c) Applicable Laws means the legal and regulatory requirements relating to the administration of equity-based awards and the related issuance of Shares thereunder, including but not limited to U.S. federal and state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any non-U.S. country or jurisdiction where Awards are, or will be, granted under the Plan.
(d) Award means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares.
(e) Award Agreement means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
(f) Board means the Board of Directors of the Company.
(g) Change in Control means the occurrence of any of the following events:
(i) A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group ( Person ), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, (A) the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control, and (B) if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Companys voting stock immediately prior to the change in ownership, the direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event will not be considered a Change in Control under this subsection (i). For this purpose, indirect beneficial ownership will include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii) A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12)-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii) A change in the ownership of a substantial portion of the Companys assets which occurs on the date that any Person acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Companys assets: (A) a transfer to an entity that is controlled by the Companys stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Companys stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
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Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Section 409A.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Companys incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction.
(h) Code means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder will include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(i) Committee means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or a duly authorized committee of the Board, in accordance with Section 4 hereof.
(j) Common Stock means the Class A common stock of the Company.
(k) Company means Pluralsight, Inc., a Delaware corporation, or any successor thereto.
(l) Consultant means any natural person, including an advisor, engaged by the Company or a Parent, Affiliate, or Subsidiary to render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the Companys securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act, and provided, further, that a Consultant will include only those persons to whom the issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
(m) Director means a member of the Board.
(n) Disability means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(o) Employee means any person, including Officers and Directors, employed by the Company or any Parent, Affiliate, or Subsidiary of the Company. Neither service as a Director nor payment of a directors fee by the Company will be sufficient to constitute employment by the Company.
(p) Exchange Act means the Securities Exchange Act of 1934, as amended.
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(q) Exchange Program means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is increased or reduced. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.
(r) Fair Market Value means, as of any date, the value of Common Stock determined as follows:
(i) For purposes of any Awards granted on the Registration Date, the Fair Market Value will be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Companys Common Stock.
(ii) For purposes of any Awards granted on any other date, the Fair Market Value will be the closing sales price for Common Stock as quoted on any established stock exchange or national market system (including without limitation the New York Stock Exchange, NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market) on which the Common Stock is listed on the date of determination (or the closing bid, if no sales were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable. If the determination date for the Fair Market Value occurs on a non-trading day (i.e., a weekend or holiday), the Fair Market Value will be such price on the immediately preceding trading day, unless otherwise determined by the Administrator. In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator.
The determination of fair market value for purposes of tax withholding may be made in the Administrators discretion subject to Applicable Laws and is not required to be consistent with the determination of Fair Market Value for other purposes.
(s) Fiscal Year means the fiscal year of the Company.
(t) Incentive Stock Option means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(u) Inside Director means a Director who is an Employee.
(v) Nonstatutory Stock Option means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(w) Officer means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(x) Option means a stock option granted pursuant to the Plan.
(y) Outside Director means a Director who is not an Employee.
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(z) Parent means a parent corporation, whether now or hereafter existing, as defined in Section 424(e) of the Code.
(aa) Participant means the holder of an outstanding Award.
(bb) Performance Share means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 10.
(cc) Performance Unit means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10.
(dd) Period of Restriction means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(ee) Plan means this 2018 Equity Incentive Plan.
(ff) Registration Date means the effective date of the first registration statement that is filed by the Company and declared effective pursuant to Section 12(b) of the Exchange Act, with respect to any class of the Companys securities.
(gg) Restricted Stock means Shares issued pursuant to a Restricted Stock award under Section 7 of the Plan, or issued pursuant to the early exercise of an Option.
(hh) Restricted Stock Unit means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(ii) Rule 16b-3 means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.
(jj) Section 16(b) means Section 16(b) of the Exchange Act.
(kk) Section 409A means Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
(ll) Securities Act means the Securities Act of 1933, as amended.
(mm) Service Provider means an Employee, Director or Consultant.
(nn) Share means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.
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(oo) Stock Appreciation Right means an Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a Stock Appreciation Right.
(pp) Subsidiary means a subsidiary corporation, whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan .
(a) Stock Subject to the Plan . Subject to the provisions of Section 14 of the Plan and the automatic increase set forth in Section 3(b) of the Plan, the maximum aggregate number of Shares that may be issued under the Plan is 22,149,995 Shares, plus any Shares subject to restricted stock units, or similar awards granted under the Pluralsight Holdings, LLC 2017 Equity Incentive Plan (the 2017 Plan) that, on or after the Registration Date, expire or otherwise terminate without having been exercised in full, are tendered to or withheld by the Company for payment of tax withholding obligations, or are forfeited to or repurchased by the Company due to failure to vest, with the maximum number of Shares to be added to the Plan from the 2017 Plan equal to 4,600,000. The Shares may be authorized, but unissued, or reacquired Common Stock.
(b) Automatic Share Reserve Increase . Subject to the provisions of Section 14 of the Plan, the number of Shares available for issuance under the Plan will be increased on the first day of each Fiscal Year beginning with the 2019 Fiscal Year, in an amount equal to the least of (i) 14,900,000 Shares, (ii) 5% of the outstanding shares of all classes of the Companys common stock on the last day of the immediately preceding Fiscal Year or (iii) such number of Shares determined by the Board.
(c) Lapsed Awards . If an Award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an Exchange Program, or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to or repurchased by the Company due to failure to vest, the unpurchased Shares (or for Awards other than Options or Stock Appreciation Rights the forfeited or repurchased Shares), which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). With respect to Stock Appreciation Rights, only Shares actually issued (i.e., the net Shares issued) pursuant to a Stock Appreciation Right will cease to be available under the Plan; all remaining Shares under Stock Appreciation Rights will remain available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if Shares issued pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will become available for future grant under the Plan. Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 14, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Sections 3(b) and 3(c).
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(d) Share Reserve . The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.
4. Administration of the Plan .
(a) Procedure .
(i) Multiple Administrative Bodies . Different Committees with respect to different groups of Service Providers may administer the Plan.
(ii) Rule 16b-3 . To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(iii) Other Administration . Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator . Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine;
(vi) to institute and determine the terms and conditions of an Exchange Program;
(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
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(viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable non-U.S. laws or for qualifying for favorable tax treatment under applicable non-U.S. laws;
(ix) to modify or amend each Award (subject to Section 19 of the Plan), including but not limited to the discretionary authority to extend the post-termination exercisability period of Awards and to extend the maximum term of an Option (subject to Section 6(b) of the Plan regarding Incentive Stock Options);
(x) to allow Participants to satisfy tax withholding obligations in such manner as prescribed in Section 15 of the Plan;
(xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
(xii) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award; and
(xiii) to make all other determinations deemed necessary or advisable for administering the Plan.
(c) Effect of Administrators Decision . The Administrators decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.
5. Eligibility . Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units may be granted to Service Providers. Incentive Stock Options may be granted only to Employees of the Company (or any Parent or Subsidiary).
6. Stock Options .
(a) Limitations . Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate fair market value of the shares with respect to which incentive stock options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such options will be treated as nonstatutory stock options. For purposes of this Section 6(a), incentive stock options will be taken into account in the order in which they were granted. The fair market value of the shares will be determined as of the time the option with respect to such shares is granted.
(b) Term of Option . The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.
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(c) Option Exercise Price and Consideration .
(i) Exercise Price . The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, subject to the following:
(1) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(3) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.
(ii) Waiting Period and Exercise Dates . At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.
(iii) Form of Consideration . The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note, to the extent permitted by Applicable Laws, (4) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (5) consideration received by the Company under a broker-assisted (or other) cashless exercise program (whether through a broker or otherwise) implemented by the Company in connection with the Plan; (6) by net exercise; (7) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (8) any combination of the foregoing methods of payment.
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(d) Exercise of Option .
(i) Procedure for Exercise; Rights as a Stockholder . Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) a notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.
Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii) Termination of Relationship as a Service Provider . If a Participant ceases to be a Service Provider, other than upon the Participants termination as the result of the Participants death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participants termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iii) Disability of Participant . If a Participant ceases to be a Service Provider as a result of the Participants Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participants termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
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(iv) Death of Participant . If a Participant dies while a Service Provider, the Option may be exercised following the Participants death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participants designated beneficiary, provided such beneficiary has been designated prior to Participants death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participants estate or by the person(s) to whom the Option is transferred pursuant to the Participants will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participants death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(v) Tolling Expiration . A Participants Award Agreement may also provide that:
(1) if the exercise of the Option following the termination of Participants status as a Service Provider (other than upon the Participants death or Disability) would result in liability under Section 16(b), then the Option will terminate on the earlier of (A) the expiration of the term of the Option set forth in the Award Agreement, or (B) the tenth (10 th ) day after the last date on which such exercise would result in liability under Section 16(b); or
(2) if the exercise of the Option following the termination of the Participants status as a Service Provider (other than upon the Participants death or Disability) would be prohibited at any time solely because the issuance of Shares would violate the registration requirements under the Securities Act, then the Option will terminate on the earlier of (A) the expiration of the term of the Option or (B) the expiration of a period of thirty (30)-day period after the termination of the Participants status as a Service Provider during which the exercise of the Option would not be in violation of such registration requirements.
7. Restricted Stock .
(a) Grant of Restricted Stock . Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.
(b) Restricted Stock Agreement . Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on such Shares have lapsed.
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(c) Transferability . Except as provided in this Section 7 or the Award Agreement, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.
(d) Other Restrictions . The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.
(e) Removal of Restrictions . Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
(f) Voting Rights . During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(g) Dividends and Other Distributions . During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Administrator provides otherwise. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(h) Return of Restricted Stock to Company . On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.
8. Restricted Stock Units .
(a) Grant . Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator determines that it will grant Restricted Stock Units under the Plan, it will advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units.
(b) Vesting Criteria and Other Terms . The Administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis determined by the Administrator in its discretion.
(c) Earning Restricted Stock Units . Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as determined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
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(d) Form and Timing of Payment . Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined by the Administrator and set forth in the Award Agreement. The Administrator, in its sole discretion, may only settle earned Restricted Stock Units in cash, Shares, or a combination of both.
(e) Cancellation . On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.
9. Stock Appreciation Rights .
(a) Grant of Stock Appreciation Rights . Subject to the terms and conditions of the Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.
(b) Number of Shares . The Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted to any Service Provider.
(c) Exercise Price and Other Terms . The per share exercise price for the Shares to be issued pursuant to exercise of a Stock Appreciation Right will be determined by the Administrator and will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan.
(d) Stock Appreciation Right Agreement . Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(e) Expiration of Stock Appreciation Rights . A Stock Appreciation Right granted under the Plan will expire ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement, as determined by the Administrator, in its sole discretion. Notwithstanding the foregoing, the rules of Section 6(d) relating to exercise also will apply to Stock Appreciation Rights.
(f) Payment of Stock Appreciation Right Amount . Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times
(ii) The number of Shares with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent value, or in some combination thereof.
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10. Performance Units and Performance Shares .
(a) Grant of Performance Units/Shares . Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.
(b) Value of Performance Units/Shares . Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
(c) Performance Objectives and Other Terms . The Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives or other vesting provisions must be met will be called the Performance Period. Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
(d) Earning of Performance Units/Shares . After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.
(e) Form and Timing of Payment of Performance Units/Shares . Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(f) Cancellation of Performance Units/Shares . On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.
11. Outside Director Limitations . No Outside Director may be paid, issued or granted, in any Fiscal Year, cash compensation and equity awards (including any Awards issued under this Plan) with an aggregate value greater than $600,000 (with the value of each equity award based on its grant date fair value (determined in accordance with U.S. generally accepted accounting principles)). Any cash compensation paid or Awards granted to an individual for his or her services as an Employee, or for his or her services as a Consultant (other than as an Outside Director), will not count for purposes of the limitation under this Section 11.
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12. Leaves of Absence/Transfer Between Locations . Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Affiliate or Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
13. Transferability of Awards . Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
14. Adjustments; Dissolution or Liquidation; Merger or Change in Control .
(a) Adjustments . In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Award, and the numerical Share limits in Section 3 of the Plan.
(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.
(c) Change in Control . In the event of a merger of the Company with or into another corporation or other entity or a Change in Control, each outstanding Award will be treated as the Administrator determines subject to the restriction in the following paragraph, including, without limitation, that each Award be assumed or an equivalent option or right substituted by the successor corporation or a Parent, Affiliate, or Subsidiary of the successor corporation. The Administrator will not be required to treat all Awards or Participants similarly in the transaction.
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In the event that the successor corporation does not assume or substitute for the Award, the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, unless specifically provided otherwise under the applicable Award Agreement, a Company policy applicable to the Participant, or other written agreement between the Participant and the Company, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.
For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Unit or Performance Share, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.
Notwithstanding anything in this Section 14(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participants consent; provided, however, a modification to such performance goals only to reflect the successor corporations post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
(d) Outside Director Awards . With respect to Awards granted to an Outside Director, in the event of a Change in Control in which such Awards are assumed or substituted for, if on the date of or following such assumption or substitution the Participants status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant (unless such resignation is at the request of the acquirer), then the Participant will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares underlying such Award, including those Shares which would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, unless specifically provided otherwise under the applicable Award Agreement, a Company policy applicable to the Participant, or other written agreement between the Participant and the Company, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met.
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15. Tax .
(a) Withholding Requirements . Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or such earlier time as any tax withholding obligations are due, the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy U.S. federal, state, or local taxes, non-U.S. taxes, or other taxes (including the Participants FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
(b) Withholding Arrangements . The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a fair market value not in excess of the maximum statutory amount required to be withheld, or (iii) delivering to the Company already-owned Shares having a fair market value not in excess of the maximum statutory amount required to be withheld. The fair market value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.
(c) Compliance With Section 409A . Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award Agreement under the Plan is intended to meet the requirements of Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A. In no event will the Company (or any Parent, Affiliate, or Subsidiary of the Company, as applicable) reimburse a Participant for any taxes imposed or other costs incurred as a result of Section 409A.
16. No Effect on Employment or Service . Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participants relationship as a Service Provider, nor will they interfere in any way with the Participants right or the right of the Company (or any Parent, Affiliate, or Subsidiary of the Company) to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
17. Date of Grant . The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.
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18. Term of Plan . Subject to Section 23 of the Plan, the Plan will become effective upon the later to occur of (i) its adoption by the Board or (ii) the business day immediately prior to the Registration Date. It will continue in effect for a term of ten (10) years from the date adopted by the Board, unless terminated earlier under Section 19 of the Plan.
19. Amendment and Termination of the Plan .
(a) Amendment and Termination . The Administrator may at any time amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval . The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination . No amendment, alteration, suspension or termination of the Plan will materially impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrators ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
20. Conditions Upon Issuance of Shares .
(a) Legal Compliance . Shares will not be issued pursuant to an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations . As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
(c) Failure to Accept Award. If a Participant has not accepted an Award or has not taken all administrative and other steps (e.g., setting up an account with a broker designated by the Company) necessary for the Company to issue Shares upon the vesting, exercise, or settlement of the Award prior to the first date the Shares subject to such Award are scheduled to vest, then the Award will be cancelled on such date and the Shares subject to such Award immediately will revert to the Plan for no additional consideration unless otherwise provided by the Administrator.
21. Inability to Obtain Authority . The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the Shares under any U.S. federal or state law, any non-U.S. law, or the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule compliance is deemed by the Companys counsel to be necessary or advisable for the issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority, registration, qualification or rule compliance will not have been obtained.
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22. Forfeiture Events .
(a) All Awards granted under the Plan will be subject to recoupment under any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Companys securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other Applicable Laws. In addition, the Administrator may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Administrator determines necessary or appropriate, including but not limited to a reacquisition right regarding previously acquired Shares or other cash or property. Unless this Section 22 is specifically mentioned and waived in an Award Agreement or other document, no recovery of compensation under a clawback policy or otherwise will be an event that triggers or contributes to any right of a Participant to resign for good reason or constructive termination (or similar term) under any agreement with the Company or a member of the Company Group.
(b) The Administrator may specify in an Award Agreement that the Participants rights, payments, and benefits with respect to an Award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but will not be limited to, termination of such Participants status as a Service Provider for cause or any specified action or inaction by a Participant, whether before or after the date Participant is no longer a Service Provider, that would constitute cause for termination of such Participants status as a Service Provider.
(c) If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under securities laws, any Participant who (1) knowingly or through gross negligence engaged in the misconduct or who knowingly or through gross negligence failed to prevent the misconduct or (2) is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, must reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the 12-month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement.
23. Stockholder Approval . The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
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PLURALSIGHT, INC.
2018 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
NOTICE OF RESTRICTED STOCK UNIT GRANT
Unless otherwise defined herein, the terms defined in the Pluralsight, Inc. 2018 Equity Incentive Plan (the Plan) will have the same defined meanings in this Restricted Stock Unit Agreement, which includes the Notice of Restricted Stock Unit Grant (the Notice of Grant), Terms and Conditions of Restricted Stock Unit Grant attached hereto as Exhibit A , and all appendices and exhibits attached thereto (all together, the Award Agreement).
Participant:
Address:
The undersigned Participant has been granted the right to receive an Award of Restricted Stock Units, subject to the terms and conditions of the Plan and this Award Agreement, as follows:
Grant Number: |
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Date of Grant: |
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Vesting Commencement Date: |
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Number of Restricted Stock Units: |
Vesting Schedule :
Subject to any acceleration provisions contained in the Plan or set forth below, the Restricted Stock Units will vest in accordance with the following schedule:
Twenty-five percent (25%) of the Restricted Stock Units will vest on the one (1)-year anniversary of the Vesting Commencement Date, and one sixteenth (1/16 th ) of the Restricted Stock Units will vest on each Quarterly Vesting Date (as defined below) thereafter, subject to Participant continuing to be a Service Provider through each such date.
[A Quarterly Vesting Date is the second (2 nd ) Wednesday in each of March, June, September, and December.] [Confirm]
In the event Participant ceases to be a Service Provider for any or no reason before Participant vests in the Restricted Stock Units, the Restricted Stock Units and Participants right to acquire any Shares hereunder will immediately terminate.
By Participants signature and the signature of the representative of Pluralsight, Inc. (the Company) below, Participant and the Company agree that this Award of Restricted Stock Units is granted under and governed by the terms and conditions of the Plan and this Award Agreement, including the Terms and Conditions of Restricted Stock Unit Grant, attached hereto as
Exhibit A , all of which are made a part of this document. Participant acknowledges receipt of a copy of the Plan. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement, and fully understands all provisions of the Plan and this Award Agreement. Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and the Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
PARTICIPANT:
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PLURALSIGHT, INC.
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Signature | Signature | |||
Print Name | Print Name | |||
Title |
Address : |
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EXHIBIT A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT GRANT
1. Grant of Restricted Stock Units . The Company hereby grants to the individual (the Participant) named in the Notice of Grant of Restricted Stock Units of this Award Agreement (the Notice of Grant) under the Plan an Award of Restricted Stock Units, subject to all of the terms and conditions in this Award Agreement and the Plan, which is incorporated herein by reference. Subject to Section 19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Award Agreement, the terms and conditions of the Plan shall prevail.
2. Companys Obligation to Pay . Each Restricted Stock Unit represents the right to receive a Share on the date it vests. Unless and until the Restricted Stock Units will have vested in the manner set forth in Section 3 or 4, Participant will have no right to payment of any such Restricted Stock Units. Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Unit will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.
3. Vesting Schedule . Except as provided in Section 4, and subject to Section 5, the Restricted Stock Units awarded by this Award Agreement will vest in accordance with the vesting schedule set forth in the Notice of Grant, subject to Participant continuing to be a Service Provider through each applicable vesting date.
4. Payment after Vesting .
(a) General Rule . Subject to Section 8, any Restricted Stock Units that vest will be paid to Participant (or in the event of Participants death, to his or her properly designated beneficiary or estate) in whole Shares. Subject to the provisions of Section 4(b), such vested Restricted Stock Units shall be paid in whole Shares as soon as practicable after vesting, but in each such case within sixty (60) days following the vesting date. In no event will Participant be permitted, directly or indirectly, to specify the taxable year of payment of any Restricted Stock Units payable under this Award Agreement. In all cases, payment of such Shares shall be made in a manner consistent with the Fourth Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC, an affiliate of the Company, as amended from time to time (the LLC Agreement).
(b) Acceleration .
(i) Discretionary Acceleration . The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Restricted Stock Units at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If Participant is a U.S. taxpayer, the payment of Shares vesting pursuant to this Section 4(b) shall in all cases be paid at a time or in a manner that is exempt from, or complies with, Section 409A. The prior sentence may be superseded in a future agreement or amendment to this Award Agreement only by direct and specific reference to such sentence.
(ii) Notwithstanding anything in the Plan or this Award Agreement or any other agreement (whether entered into before, on or after the Date of Grant), if the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units is accelerated in connection with Participants termination as a Service Provider (provided that such termination is a separation from service within the meaning of Section 409A, as determined by the Company), other than due to Participants death, and if (x) Participant is a U.S. taxpayer and a specified employee within the meaning of Section 409A at the time of such termination as a Service Provider and (y) the payment of such accelerated Restricted Stock Units will result in the imposition of additional tax under Section 409A if paid to Participant on or within the six (6) month period following Participants termination as a Service Provider, then the payment of such accelerated Restricted Stock Units will not be made until the date six (6) months and one (1) day following the date of Participants termination as a Service Provider, unless Participant dies following his or her termination as a Service Provider, in which case, the Restricted Stock Units will be paid in Shares to Participants estate as soon as practicable following his or her death.
(c) Section 409A . It is the intent of this Award Agreement that it and all payments and benefits to U.S. taxpayers hereunder be exempt from, or comply with, the requirements of Section 409A so that none of the Restricted Stock Units provided under this Award Agreement or Shares issuable thereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to be so exempt or so comply. Each payment payable under this Award Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). However, in no event will the Company reimburse Participant, or be otherwise responsible for, any taxes or costs that may be imposed on Participant as a result of Section 409A. For purposes of this Award Agreement, Section 409A means Section 409A of the Code, and any final Treasury Regulations and Internal Revenue Service guidance thereunder, as each may be amended from time to time.
5. Forfeiture Upon Termination as a Service Provider . Notwithstanding any contrary provision of this Award Agreement, if Participant ceases to be a Service Provider for any or no reason, the then-unvested Restricted Stock Units awarded by this Award Agreement will thereupon be forfeited at no cost to the Company and Participant will have no further rights thereunder.
6. Tax Consequences . Participant has reviewed with his or her own tax advisors the U.S. federal, state, local and non-U.S. tax consequences of this investment and the transactions contemplated by this Award Agreement. With respect to such matters, Participant relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Participant understands that Participant (and not the Company) shall be responsible for Participants own tax liability that may arise as a result of this investment or the transactions contemplated by this Award Agreement.
7. Death of Participant . Any distribution or delivery to be made to Participant under this Award Agreement will, if Participant is then deceased, be made to Participants designated beneficiary, or if no beneficiary survives Participant, the administrator or executor of Participants estate. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.
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8. Tax Obligations
(a) Responsibility for Taxes . Participant acknowledges that, regardless of any action taken by the Company or, if different, Participants employer (the Employer) or Parent, Affiliate, or Subsidiary to which Participant is providing services (together, the Company, Employer and/or Parent, Affiliate, or Subsidiary to which the Participant is providing services, the Service Recipient), the ultimate liability for any tax and/or social insurance liability obligations and requirements in connection with the Restricted Stock Units, including, without limitation, (i) all federal, state, and local taxes (including the Participants Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the Employer or other payment of tax-related items related to Participants participation in the Plan and legally applicable to Participant, (ii) the Participants and, to the extent required by the Company (or Service Recipient), the Companys (or Service Recipients) fringe benefit tax liability, if any, associated with the grant, vesting, or settlement of the Restricted Stock Units or sale of Shares, and (iii) any other Company (or Service Recipient) taxes the responsibility for which the Participant has, or has agreed to bear, with respect to the Restricted Stock Units (or settlement thereof or issuance of Shares thereunder) (collectively, the Tax Obligations), is and remains Participants responsibility and may exceed the amount actually withheld by the Company or the Service Recipient. Participant further acknowledges that the Company and/or the Service Recipient (A) make no representations or undertakings regarding the treatment of any Tax Obligations in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends or other distributions, and (B) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate Participants liability for Tax Obligations or achieve any particular tax result. Further, if Participant is subject to Tax Obligations in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Service Recipient (or former employer, as applicable) may be required to withhold or account for Tax Obligations in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the applicable taxable event, Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares.
(b) Tax Withholding . When Shares are issued as payment for vested Restricted Stock Units, Participant generally will recognize immediate U.S. taxable income if Participant is a U.S. taxpayer. If Participant is a non-U.S. taxpayer, Participant will be subject to applicable taxes in his or her jurisdiction. Pursuant to such procedures as the Administrator may specify from time to time, the Company and/or Service Recipient shall withhold the amount required to be withheld for the payment of Tax Obligations. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such Tax Obligations, in whole or in part (without limitation), if permissible by applicable local law, by (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a fair market value equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligations from Participants wages or
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other cash compensation paid to Participant by the Company and/or the Service Recipient, (iv) delivering to the Company already vested and owned Shares having a fair market value equal to such Tax Obligations, or (v) selling a sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences). Until determined otherwise by the Company, the method set forth in clause (v) will be the method by which such Tax Obligations are satisfied . Further, if Participant is subject to tax in more than one jurisdiction between the Date of Grant and a date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges and agrees that the Company and/or the Service Recipient (and/or former employer, as applicable) may be required to withhold or account for tax in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of such Tax Obligations hereunder at the time any applicable Restricted Stock Units otherwise are scheduled to vest pursuant to Sections 3 or 4, Participant will permanently forfeit such Restricted Stock Units and any right to receive Shares thereunder and such Restricted Stock Units will be returned to the Company at no cost to the Company. Participant acknowledges and agrees that the Company may refuse to deliver the Shares if such Tax Obligations are not delivered at the time they are due.
9. Rights as Stockholder . Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation, and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
10. No Guarantee of Continued Service . PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE RESTRICTED STOCK UNITS PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER, WHICH UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW IS AT THE WILL OF THE COMPANY (OR THE SERVICE RECIPIENT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS RESTRICTED STOCK UNIT AWARD OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANTS RIGHT OR THE RIGHT OF THE COMPANY (OR THE SERVICE RECIPIENT) TO TERMINATE PARTICIPANTS RELATIONSHIP AS A SERVICE PROVIDER, SUBJECT TO APPLICABLE LAW, WHICH TERMINATION, UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW, MAY BE AT ANY TIME, WITH OR WITHOUT CAUSE.
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11. Grant is Not Transferable . Except to the limited extent provided in Section 7, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.
12. Nature of Grant . In accepting the grant, Participant acknowledges, understands, and agrees that:
(a) the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted in the past;
(b) all decisions with respect to future Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;
(c) Participant is voluntarily participating in the Plan;
(d) the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not intended to replace any pension rights or compensation;
(e) the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(f) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted;
(g) for purposes of the Restricted Stock Units, Participants status as a Service Provider will be considered terminated as of the date Participant is no longer actively providing services to the Company or any Parent, Affiliate, or Subsidiary (regardless of the reason for such termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any), and unless otherwise expressly provided in this Award Agreement (including by reference in the Notice of Grant to other arrangements or contracts) or determined by the Administrator, Participants right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period (e.g., Participants period of service would not include any contractual notice period or any period of garden leave or similar period mandated under employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any, unless Participant is providing bona fide services during such time); the Administrator shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of the Restricted Stock Units grant (including whether Participant may still be considered to be providing services while on a leave of absence and consistent with local law);
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(h) unless otherwise provided in the Plan or by the Company in its discretion, the Restricted Stock Units and the benefits evidenced by this Award Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(i) the following provisions apply only if Participant is providing services outside the United States:
(i) the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not part of normal or expected compensation or salary for any purpose;
(ii) Participant acknowledges and agrees that none of the Company, the Employer or any Parent, Affiliate, or Subsidiary shall be liable for any foreign exchange rate fluctuation between Participants local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to Participant pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement; and
(iii) no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units resulting from the termination of Participants status as a Service Provider (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any), and in consideration of the grant of the Restricted Stock Units to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, any Parent, Affiliate, or Subsidiary or the Service Recipient, waives his or her ability, if any, to bring any such claim, and releases the Company, any Parent, Affiliate, or Subsidiary and the Service Recipient from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim.
13. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participants participation in the Plan, or Participants acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
14. Data Privacy . Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participants personal data as described in this Award Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, or other Service Recipient the Company and any Parent, Affiliate, or Subsidiary for the exclusive purpose of implementing, administering and managing Participants participation in the Plan.
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Participant understands that the Company and the Service Recipient may hold certain personal information about Participant, including, but not limited to, Participants name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participants favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to a stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration, and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients country of operation (e.g., the United States) may have different data privacy laws and protections than Participants country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company, any stock plan service provider selected by the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participants participation in the Plan. Participant understands if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her status as a Service Provider and career with the Service Recipient will not be adversely affected; the only adverse consequence of refusing or withdrawing Participants consent is that the Company would not be able to grant Participant Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participants ability to participate in the Plan. For more information on the consequences of Participants refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
15. Address for Notices . Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company at Pluralsight, Inc., 182 North Union Avenue, Farmington, Utah 84025, or at such other address as the Company may hereafter designate in writing.
16. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to the Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means or request Participants consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
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17. No Waiver . Either partys failure to enforce any provision or provisions of this Award Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Award Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either partys right to assert all other legal remedies available to it under the circumstances.
18. Successors and Assigns . The Company may assign any of its rights under this Award Agreement to single or multiple assignees, and this Award Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Award Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns. The rights and obligations of Participant under this Award Agreement may only be assigned with the prior written consent of the Company.
19. Additional Conditions to Issuance of Stock . If at any time the Company will determine, in its discretion, that the listing, registration, qualification or rule compliance of the Shares upon any securities exchange or under any state, federal or non-U.S. law, the tax code and related regulations or under the rulings or regulations of the United States Securities and Exchange Commission or any other governmental regulatory body or the clearance, consent or approval of the United States Securities and Exchange Commission or any other governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to Participant (or his or her estate) hereunder, such issuance will not occur unless and until such listing, registration, qualification, rule compliance, clearance, consent or approval will have been completed, effected or obtained free of any conditions not acceptable to the Company. Subject to the terms of the Award Agreement and the Plan, the Company shall not be required to issue any certificate or certificates for Shares hereunder prior to the lapse of such reasonable period of time following the date of vesting of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.
20. Language . If Participant has received this Award Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
21. Interpretation . The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. Neither the Administrator nor any person acting on behalf of the Administrator will be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or this Award Agreement.
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22. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.
23. Amendment, Suspension or Termination of the Plan . By accepting this Award, Participant expressly warrants that he or she has received an Award of Restricted Stock Units under the Plan, and has received, read, and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
24. Modifications to the Award Agreement . This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Award Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A in connection to this Award of Restricted Stock Units.
25. Governing Law; Venue; Severability . This Award Agreement and the Restricted Stock Units are governed by the internal substantive laws, but not the choice of law rules, of Delaware. For purposes of litigating any dispute that arises under these Restricted Stock Units or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Delaware and his or her agreement that any such litigation will be conducted in the Delaware Court of Chancery or the federal courts for the United States for the District of Delaware and no other courts, regardless of where he or she is performing services. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Award Agreement shall continue in full force and effect.
26. Entire Agreement . The Plan is incorporated herein by reference. The Plan and this Award Agreement (including the documents referenced herein and the appendices and exhibits referenced herein) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participants interest except by means of a writing signed by the Company and Participant.
27. Country Addendum . Notwithstanding any provisions in this Award Agreement, the Restricted Stock Unit grant shall be subject to any special terms and conditions set forth in the appendix (if any) to this Award Agreement for Participants country. Moreover, if Participant relocates to one of the countries included in the Country Addendum (if any), the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Award Agreement.
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PLURALSIGHT, INC.
2018 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
COUNTRY ADDENDUM
TERMS AND CONDITIONS
This Country Addendum includes additional terms and conditions that govern the Award of Restricted Stock Units granted to Participant under the Plan if Participant works in one of the countries listed below. If Participant is a citizen or resident of a country (or is considered as such for local law purposes) other than the one in which he or she is currently working or if Participant relocates to another country after receiving the Award of Restricted Stock Units, the Company will, in its discretion, determine the extent to which the terms and conditions contained herein will be applicable to Participant.
Certain capitalized terms used but not defined in this Country Addendum shall have the meanings set forth in the Plan, and/or the Restricted Stock Unit Agreement to which this Country Addendum is attached.
NOTIFICATIONS
This Country Addendum also includes notifications relating to exchange control and other issues of which Participant should be aware with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the countries listed in this Country Addendum, as of _________ (except as otherwise noted below). Such laws are often complex and change frequently. As a result, the Company strongly recommends that Participant not rely on the notifications herein as the only source of information relating to the consequences of his or her participation in the Plan because the information may be outdated when Participant vests in the Restricted Stock Units and acquires Shares, or when Participant subsequently sell Shares acquired under the Plan.
In addition, the notifications are general in nature and may not apply to Participants particular situation, and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant is advised to seek appropriate professional advice as to how the relevant laws in Participants country may apply to Participants situation.
Finally, if Participant is a citizen or resident of a country other than the one in which Participant is currently working (or is considered as such for local law purposes) or if Participant moves to another country after receiving the Award of Restricted Stock Units, the information contained herein may not be applicable to Participant.
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PLURALSIGHT, INC.
2018 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
NOTICE OF STOCK OPTION GRANT
Unless otherwise defined herein, the terms defined in the Pluralsight, Inc. 2018 Equity Incentive Plan (the Plan) will have the same defined meanings in this Stock Option Agreement, which includes the Notice of Stock Option Grant (the Notice of Grant), the Terms and Conditions of Stock Option Grant attached hereto as Exhibit A , and all appendices and exhibits attached thereto (all together, the Option Agreement).
Participant:
Address:
The undersigned Participant has been granted an Option to purchase Common Stock of Pluralsight, Inc. (the Company), subject to the terms and conditions of the Plan and this Option Agreement, as follows:
Grant Number: | ||||||
Date of Grant: | ||||||
Vesting Commencement Date: | ||||||
Number of Shares Granted: | ||||||
Exercise Price per Share: | $ | |||||
Total Exercise Price: |
$ |
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Type of Option: | ___ Incentive Stock Option | |||||
___ Nonstatutory Stock Option | ||||||
Term/Expiration Date: |
Vesting Schedule :
Subject to accelerated vesting as set forth below or in the Plan, this Option will be exercisable, in whole or in part, in accordance with the following schedule:
[Twenty-five percent (25%) of the Shares subject to the Option shall vest on the one (1) year anniversary of the Vesting Commencement Date, and one forty-eighth (1/48 th ) of the Shares subject to the Option shall vest each month thereafter on the same day of the month as the Vesting Commencement Date (and if there is no corresponding day, on the last day of the month), subject to Participant continuing to be a Service Provider through each such date.]
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Termination Period :
This Option will be exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participants death or Disability, in which case this Option will be exercisable for twelve (12) months after Participant ceases to be a Service Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 14 of the Plan.
By Participants signature and the signature of the representative of the Company below, Participant and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement, including the Terms and Conditions of Stock Option Grant, attached hereto as Exhibit A , all of which are made a part of this document. Participant acknowledges receipt of a copy of the Plan. Participant has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement, and fully understands all provisions of the Plan and this Option Agreement. Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and the Option Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
PARTICIPANT | PLURALSIGHT, INC. | |||
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Signature | Signature | |||
Print Name | Print Name | |||
Title | ||||
Address : | ||||
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EXHIBIT A
TERMS AND CONDITIONS OF STOCK OPTION GRANT
1. Grant of Option . The Company hereby grants to the individual (the Participant) named in the Notice of Stock Option Grant of this Option Agreement (the Notice of Grant) an option (the Option) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the Exercise Price), subject to all of the terms and conditions in this Option Agreement and the Plan, which is incorporated herein by reference. Subject to Section 19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan will prevail.
(a) For U.S. taxpayers, the Option will be a Nonstatutory Stock Option (NSO), unless otherwise designated as an Incentive Stock Option (ISO) and the Option so qualfies. If designated in the Notice of Grant as an ISO, this Option is intended to qualify as an ISO under Section 422 of the Internal Revenue Code of 1986, as amended (the Code). However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it will be treated as an NSO. Further, if for any reason this Option (or portion thereof) will not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a NSO granted under the Plan. In no event will the Administrator, the Company or any Parent, Affiliate, or Subsidiary or any of their respective employees or directors have any liability to Participant (or any other person) due to the failure of the Option to qualify for any reason as an ISO.
(b) For non-U.S. taxpayers, the Option will be designated as an NSO.
2. Vesting Schedule . Except as provided in Section 3, the Option awarded by this Option Agreement will vest in accordance with the vesting provisions set forth in the Notice of Grant. Shares scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Option Agreement, unless Participant will have been continuously a Service Provider from the Date of Grant until the date such vesting occurs.
3. Administrator Discretion . The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Option at any time, subject to the terms of the Plan. If so accelerated, such Option will be considered as having vested as of the date specified by the Administrator.
4. Exercise of Option .
(a) Right to Exercise . This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. In all cases, exercise of this Option shall be made in a manner consistent with the Fourth Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC, an affiliate of the Company, as amended from time to time (the LLC Agreement).
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(b) Method of Exercise . This Option is exercisable by delivery of an exercise notice (the Exercise Notice) in the form attached as Exhibit A or in a manner and pursuant to such procedures as the Administrator may determine, which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the Exercised Shares), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice will be completed by Participant and delivered to the Company. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares together and of any Tax Obligations (as defined in Section 6(a)). This Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.
5. Method of Payment . Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) if Participant is a U.S. employee, surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares and that are owned free and clear of any liens, claims, encumbrances, or security interests, provided that accepting such Shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to the Company.
6. Tax Obligations .
(a) Participant acknowledges that, regardless of any action taken by the Company or, if different, Participants employer (the Employer) or Parent, Affiliate, or Subsidiary to which Participant is providing services (together, the Company, Employer and/or Parent, Affiliate, or Subsidiary to which the Participant is providing services, the Service Recipient), the ultimate liability for any tax and/or social insurance liability obligations and requirements in connection with the Option, including, without limitation, (i) all federal, state, and local taxes (including the Participants Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the Service Recipient or other payment of tax-related items related to Participants participation in the Plan and legally applicable to Participant, (ii) the Participants and, to the extent required by the Company (or Service Recipient), the Companys (or Service Recipients) fringe benefit tax liability, if any, associated with the grant, vesting, or exercise of the Option or sale of Shares, and (iii) any other Company (or Service Recipient) taxes the responsibility for which the Participant has, or has agreed to bear, with respect to the Option (or exercise thereof or
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issuance of Shares thereunder) (collectively, the Tax Obligations), is and remains Participants responsibility and may exceed the amount actually withheld by the Company or the Service Recipient. Participant further acknowledges that the Company and/or the Service Recipient (A) make no representations or undertakings regarding the treatment of any Tax Obligations in connection with any aspect of the Option, including, but not limited to, the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends or other distributions, and (B) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Option to reduce or eliminate Participants liability for Tax Obligations or achieve any particular tax result. Further, if Participant is subject to Tax Obligations in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Service Recipient (or former employer, as applicable) may be required to withhold or account for Tax Obligations in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the applicable taxable event, Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares.
(b) Tax Withholding . When the Option is exercised, Participant generally will recognize immediate U.S. taxable income if Participant is a U.S. taxpayer. If Participant is a non-U.S. taxpayer, Participant will be subject to applicable taxes in his or her jurisdiction. Pursuant to such procedures as the Administrator may specify from time to time, the Company and/or Service Recipient shall withhold the amount required to be withheld for the payment of Tax Obligations. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such Tax Obligations, in whole or in part (without limitation), if permissible by applicable local law, by (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a fair market value equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligations from Participants wages or other cash compensation paid to Participant by the Company and/or the Service Recipient, (iv) delivering to the Company already vested and owned Shares having a fair market value equal to such Tax Obligations, or (v) selling a sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences). Until determined otherwise by the Company, the method set forth in clause (v) will be the method by which such Tax Obligations are satisfied . Further, if Participant is subject to tax in more than one jurisdiction between the Date of Grant and a date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges and agrees that the Company and/or the Service Recipient (and/or former employer, as applicable) may be required to withhold or account for tax in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the Option exercise, Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Shares if such amounts are not delivered at the time of exercise.
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(c) Notice of Disqualifying Disposition of ISO Shares . If the Option granted to Participant herein is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant will immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant.
(d) Code Section 409A . Under Code Section 409A, a stock right (such as the Option) that vests after December 31, 2004 (or that vested on or prior to such date but which was materially modified after October 3, 2004) that was granted with a per share exercise price that is determined by the Internal Revenue Service (the IRS) to be less than the fair market value of an underlying share on the date of grant (a discount option) may be considered deferred compensation. A stock right that is a discount option may result in (i) income recognition by the recipient of the stock right prior to the exercise of the stock right, (ii) an additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The discount option may also result in additional state income, penalty and interest tax to the recipient of the stock right. Participant acknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the fair market value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option was granted with a per Share exercise price that was less than the fair market value of a Share on the date of grant, Participant shall be solely responsible for Participants costs related to such a determination.
7. Rights as Stockholder . Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation, and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
8. No Guarantee of Continued Service . PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER, WHICH UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW IS AT THE WILL OF THE COMPANY (OR THE SERVICE RECIPIENT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANTS RIGHT OR THE RIGHT OF THE COMPANY (OR THE SERVICE RECIPIENT) TO TERMINATE PARTICIPANTS RELATIONSHIP AS A SERVICE PROVIDER, SUBJECT TO APPLICABLE LAW, WHICH TERMINATION, UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW, MAY BE AT ANY TIME, WITH OR WITHOUT CAUSE.
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9. Nature of Grant . In accepting the Option, Participant acknowledges, understands and agrees that:
(a) the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted in the past;
(b) all decisions with respect to future option or other grants, if any, will be at the sole discretion of the Company;
(c) Participant is voluntarily participating in the Plan;
(d) the Option and any Shares acquired under the Plan are not intended to replace any pension rights or compensation;
(e) the Option and Shares acquired under the Plan and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(f) the future value of the Shares underlying the Option is unknown, indeterminable, and cannot be predicted with certainty;
(g) if the underlying Shares do not increase in value, the Option will have no value;
(h) if Participant exercises the Option and acquires Shares, the value of such Shares may increase or decrease in value, even below the Exercise Price;
(i) for purposes of the Option, Participants engagement as a Service Provider will be considered terminated as of the date Participant is no longer actively providing services to the Company or any Parent, Affiliate, or Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any), and unless otherwise expressly provided in this Option Agreement (including by reference in the Notice of Grant to other arrangements or contracts) or determined by the Administrator, (i) Participants right to vest in the Option under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g ., Participants period of service would not include any contractual notice period or any period of garden leave or similar period mandated under employment laws in the jurisdiction where Participant is a Service Provider or Participants employment or service agreement, if any, unless Participant is providing bona fide services during such time); and (ii) the period (if any) during which Participant may exercise the Option after such termination of Participants engagement as a Service Provider will commence on the date Participant ceases to actively provide services and will not be extended by any notice period mandated under
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employment laws in the jurisdiction where Participant is employed or terms of Participants engagement agreement, if any; the Administrator shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of his or her Option grant (including whether Participant may still be considered to be providing services while on a leave of absence and consistent with local law);
(j) unless otherwise provided in the Plan or by the Company in its discretion, the Option and the benefits evidenced by this Option Agreement do not create any entitlement to have the Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(k) the following provisions apply only if Participant is providing services outside the United States:
the Option and the Shares subject to the Option are not part of normal or expected compensation or salary for any purpose;
Participant acknowledges and agrees that none of the Company, the Service Recipient, or any Parent, Affiliate, or Subsidiary shall be liable for any foreign exchange rate fluctuation between Participants local currency and the United States Dollar that may affect the value of the Option or of any amounts due to Participant pursuant to the exercise of the Option or the subsequent sale of any Shares acquired upon exercise; and
no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from the termination of Participants engagement as a Service Provider (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participants employment or service agreement, if any), and in consideration of the grant of the Option to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, any Parent, any Affiliate, any Subsidiary or the Service Recipient, waives his or her ability, if any, to bring any such claim, and releases the Company, any Parent, Affiliate, or Subsidiary and the Service Recipient from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim.
10. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participants participation in the Plan, or Participants acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
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11. Data Privacy . Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participants personal data as described in this Option Agreement and any other Option grant materials by and among, as applicable, the Employer or other Service Recipient, the Company and any Parent, Affiliate, or Subsidiary for the exclusive purpose of implementing, administering and managing Participants participation in the Plan.
Participant understands that the Company and the Employer may hold certain personal information about Participant, including, but not limited to, Participants name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Options or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participants favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to a stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration, and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients country of operation (e.g., the United States) may have different data privacy laws and protections than Participants country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Participants participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participants participation in the Plan. Participant understands that if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her engagement as a Service Provider and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing Participants consent is that the Company would not be able to grant Participant Options or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participants ability to participate in the Plan. For more information on the consequences of Participants refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
12. Address for Notices . Any notice to be given to the Company under the terms of this Option Agreement will be addressed to the Company at Pluralsight, Inc., 182 North Union Avenue, Farmington, Utah 84025, or at such other address as the Company may hereafter designate in writing.
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13. Non-Transferability of Option . This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Participant only by Participant.
14. Successors and Assigns . The Company may assign any of its rights under this Option Agreement to single or multiple assignees, and this Option Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Option Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns. The rights and obligations of Participant under this Option Agreement may only be assigned with the prior written consent of the Company.
15. Additional Conditions to Issuance of Stock . If at any time the Company will determine, in its discretion, that the listing, registration, qualification or rule compliance of the Shares upon any securities exchange or under any state, federal or non-U.S. law, the tax code and related regulations or under the rulings or regulations of the United States Securities and Exchange Commission or any other governmental regulatory body or the clearance, consent or approval of the United States Securities and Exchange Commission or any other governmental regulatory authority is necessary or desirable as a condition to the purchase by, or issuance of Shares, to Participant (or his or her estate) hereunder, such purchase or issuance will not occur unless and until such listing, registration, qualification, rule compliance, clearance, consent or approval will have been completed, effected or obtained free of any conditions not acceptable to the Company. Subject to the terms of the Option Agreement and the Plan, the Company shall not be required to issue any certificate or certificates for Shares hereunder prior to the lapse of such reasonable period of time following the date of exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience.
16. Language . If Participant has received this Option Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
17. Interpretation . The Administrator will have the power to interpret the Plan and this Option Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Shares subject to the Option have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. Neither the Administrator nor any person acting on behalf of the Administrator will be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or this Option Agreement.
18. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to the Option awarded under the Plan or future options that may be awarded under the Plan by electronic means or request Participants consent to participate in
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the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
19. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Option Agreement.
20. Agreement Severable . In the event that any provision in this Option Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Option Agreement.
21. Amendment, Suspension or Termination of the Plan . By accepting this Option, Participant expressly warrants that he or she has received an Option under the Plan, and has received, read, and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
22. Governing Law and Venue . This Option Agreement and the Option are governed by the internal substantive laws, but not the choice of law rules, of Delaware. For purposes of litigating any dispute that arises under this Option or this Option Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Delaware and his or her agreement that any such litigation will be conducted in the Delaware Court of Chancery or the federal courts for the United States for the District of Delaware and no other courts, regardless of where he or she is performing services. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Option Agreement shall continue in full force and effect. but not the choice of law rules, of Delaware. For purposes of litigating any dispute that arises under this Option or this Option Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Delaware and his or her agreement that any such litigation will be conducted in the Delaware Court of Chancery or the federal courts for the United States for the District of Delaware and no other courts, regardless of where he or she is performing services. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Award Agreement shall continue in full force and effect.
23. Country Addendum . Notwithstanding any provisions in this Option Agreement, this Option shall be subject to any special terms and conditions set forth in the appendix (if any) to this Option Agreement for Participants country (the Country Addendum). Moreover, if Participant relocates to one of the countries included in the Country Addendum (if any), the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Option Agreement.
24. Modifications to the Agreement . This Option Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Option Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Option Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.
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Notwithstanding anything to the contrary in the Plan or this Option Agreement, the Company reserves the right to revise this Option Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Code Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code in connection with the Option.
25. No Waiver . Either partys failure to enforce any provision or provisions of this Option Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Option Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either partys right to assert all other legal remedies available to it under the circumstances.
26. Tax Consequences . Participant has reviewed with its own tax advisors the U.S. federal, state, local and non-U.S. tax consequences of this investment and the transactions contemplated by this Option Agreement. With respect to such matters, Participant relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Participant understands that Participant (and not the Company) shall be responsible for Participants own tax liability that may arise as a result of this investment or the transactions contemplated by this Option Agreement.
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PLURALSIGHT, INC.
2018 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
COUNTRY ADDENDUM
TERMS AND CONDITIONS
This Country Addendum includes additional terms and conditions that govern the Option granted to Participant under the Plan if Participant works in one of the countries listed below. If Participant is a citizen or resident of a country (or is considered as such for local law purposes) other than the one in which he or she is currently working or if Participant relocates to another country after receiving the Option, the Company will, in its discretion, determine the extent to which the terms and conditions contained herein will be applicable to Participant.
Certain capitalized terms used but not defined in this Country Addendum shall have the meanings set forth in the Plan, and/or the Stock Option Agreement to which this Country Addendum is attached.
NOTIFICATIONS
This Country Addendum also includes notifications relating to exchange control and other issues of which Participant should be aware with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the countries listed in this Country Addendum, as of . Such laws are often complex and change frequently. As a result, the Company strongly recommends that Participant not rely on the notifications herein as the only source of information relating to the consequences of his or her participation in the Plan because the information may be outdated when Participant exercises the Option or sells Shares acquired under the Plan.
In addition, the notifications are general in nature and may not apply to Participants particular situation, and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant is advised to seek appropriate professional advice as to how the relevant laws in Participants country may apply to Participants situation.
Finally, if Participant is a citizen or resident of a country other than the one in which Participant is currently working (or is considered as such for local law purposes) or if Participant moves to another country after the Option is granted, the information contained herein may not be applicable to Participant.
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EXHIBIT B
PLURALSIGHT, INC.
2018 EQUITY INCENTIVE PLAN
EXERCISE NOTICE
Pluralsight, Inc.
[182 North Union Avenue,
Farmington, Utah 84025]
Attention: Stock Administration
1. Exercise of Option . Effective as of today, , , the undersigned (Purchaser) hereby elects to purchase shares (the Shares) of the Common Stock of Pluralsight, Inc. (the Company) under and pursuant to the 2018 Equity Incentive Plan (the Plan) and the Stock Option Agreement, dated and including the Notice of Grant, the Terms and Conditions of Stock Option Grant, and exhibits attached thereto (the Option Agreement). The purchase price for the Shares will be $ , as required by the Option Agreement.
2. Delivery of Payment . Purchaser herewith delivers to the Company the full purchase price of the Shares and any Tax Obligations (as defined in Section 6(a) of the Option Agreement) to be paid in connection with the exercise of the Option.
3. Representations of Purchaser . Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
4. Rights as Stockholder . Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to the Option, notwithstanding the exercise of the Option. The Shares so acquired will be issued to Purchaser as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 14 of the Plan.
5. Tax Consultation . Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchasers purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.
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6. Entire Agreement; Governing Law . The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchasers interest except by means of a writing signed by the Company and Purchaser. This Option Agreement is governed by the internal substantive laws, but not the choice of law rules, of [Utah].
Submitted by: | Accepted by: | |||
PURCHASER | PLURALSIGHT, INC. | |||
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Signature | Signature | |||
Print Name | Print Name | |||
Address: | ||||
Title | ||||
Date Received |
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Exhibit 10.6
PLURALSIGHT, INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose . The purpose of the Plan is to provide employees of the Company and its Designated Companies with an opportunity to purchase Common Stock through accumulated Contributions. The Company intends for the Plan to have two components: a Code Section 423 Component ( 423 Component ) and a non-Code Section 423 Component ( Non-423 Component ). The Companys intention is to have the 423 Component of the Plan qualify as an employee stock purchase plan under Section 423 of the Code to the extent possible. The provisions of the 423 Component, accordingly, will be construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423 of the Code. In addition, this Plan authorizes the grant of an option to purchase shares of Common Stock under the Non-423 Component that does not qualify as an employee stock purchase plan under Section 423 of the Code; such an option will be granted pursuant to rules, procedures or sub-plans adopted by the Administrator designed to achieve tax, non-U.S. exchange or securities laws or other objectives for Eligible Employees and the Company. Except as otherwise provided, the Non-423 Component will operate and be administered in the same manner as the 423 Component. The Company intends to issue options under the Non-423 Component unless and until it may issue options under the 423 Component that are eligible to satisfy the requirements of Section 423 of the Code.
2. Definitions .
(a) Administrator means the Board or any Committee designated by the Board to administer the Plan pursuant to Section 14.
(b) Affiliate means any entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
(c) Applicable Laws means the requirements relating to the administration of equity-based awards and the related issuance of shares of Common Stock under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable securities and exchange control laws of any non-U.S. country or jurisdiction where options are, or will be, granted under the Plan.
(d) Board means the Board of Directors of the Company.
(e) Change in Control means the occurrence of any of the following events:
(i) A change in the ownership of the Company, which occurs on the date that any one person, or more than one person acting as a group ( Person ), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control; or
(ii) A change in the effective control of the Company, which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this clause (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii) A change in the ownership of a substantial portion of the Companys assets, which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection, the following will not constitute a change in the ownership of a substantial portion of the Companys assets: (A) a transfer to an entity that is controlled by the Companys stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Companys stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this definition, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final U.S. Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Companys incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Companys securities immediately before such transaction.
(f) Code means the U.S. Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or U.S. Treasury Regulation thereunder will include such section or regulation, any valid regulation or other official applicable guidance promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
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(g) Committee means a committee of the Board appointed in accordance with Section 14 hereof.
(h) Common Stock means the Class A common stock of the Company.
(i) Company means Pluralsight, Inc., a Delaware corporation, or any successor thereto.
(j) Compensation means an Eligible Employees gross salary earnings (including payment for overtime and shift premiums), incentive compensation, bonuses and other similar compensation, not including equity compensation income. The Administrator, in its discretion, may, on a uniform and nondiscriminatory basis, establish a different definition of Compensation for a subsequent Offering Period.
(k) Contributions means the payroll deductions and/or other additional payments that the Company may permit to be made by a Participant to fund the exercise of options granted pursuant to the Plan.
(l) Designated Company means any Subsidiary or Affiliate that has been designated by the Administrator in its sole discretion as eligible to participate in the Plan. For purposes of the 423 Component, only the Company and its Subsidiaries may be Designated Companies, provided that a Subsidiary that is a Designated Company under the 423 Component may not simultaneously be a Designated Company under the Non-423 Component.
(m) Director means a member of the Board.
(n) Eligible Employee means any individual who is a common law employee (and, with respect to the Non-423 Component, is not classified by the Company as an intern or temporary employee) providing services to the Company or a Designated Company and is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year by the Employer, or any lesser number of hours per week and/or number of months in any calendar year established by the Administrator (if required under applicable local law) for purposes of any separate Offering or for Eligible Employees participating in the Non-423 Component. For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence that the Employer approves or is legally protected under applicable local laws. Where the period of leave exceeds three (3) months and the individuals right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated three (3) months and one (1) day following the commencement of such leave. The Administrator, in its discretion, from time to time may, prior to an Enrollment Date for all options to be granted on such Enrollment Date in an Offering, determine (for each Offering under the 423 Component, on a uniform and nondiscriminatory basis or as otherwise permitted by Treasury Regulation Section 1.423-2) that the definition of Eligible Employee will or will not include an individual if he or she: (i) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (ii) customarily works not more than twenty (20) hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (iii) customarily
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works not more than five (5) months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (iv) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (v) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or is an officer or subject to the disclosure requirements of Section 16(a) of the Exchange Act, provided the exclusion is applied with respect to each Offering under the 423 Component in an identical manner to all highly compensated individuals of the Employer whose employees are participating in that Offering. Such exclusions may be applied with respect to an Offering under a 423 Component in a manner complying with U.S. Treasury Regulation Section 1.423-2(e)(2)(ii). Such exclusions may be applied with respect to an Offering under the Non- 423 Component without regard to the limitations of Treasury Regulation Section 1.423-2.
(o) Employer means the employer of an Eligible Employee.
(p) Enrollment Date means the first Trading Day of each Offering Period.
(q) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder.
(r) Exercise Date means the first Trading Day on or after May 31 and November 30 of each Purchase Period. Notwithstanding the foregoing, the first Exercise Date under the Plan will be November 30, 2018.
(s) Fair Market Value means, as of any date and unless the Administrator determines otherwise, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market of the Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock as quoted on such exchange or system on the date of determination (or the closing bid, if no sales were reported);
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value will be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or if no bids and asks were reported on that date, as applicable, on the last Trading Day such bids and asks were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator; or
(iv) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value will be the initial price to the public as set forth in the final prospectus included within the first registration statement on Form S-1 filed with the Securities and Exchange Commission and declared effective pursuant to Section 11(g) of the Exchange Act with respect to the initial public offering of the Common Stock (the Registration Statement ).
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Notwithstanding the foregoing, if the determination date for the Fair Market Value occurs on a weekend or holiday, the Fair Market Value will be the price as determined in accordance with subsections (i) through (iii) above (as applicable) on the next business day, unless otherwise determined by the Administrator.
(t) Fiscal Year means the fiscal year of the Company.
(u) New Exercise Date means a new Exercise Date if the Administrator shortens any Offering Period then in progress.
(v) Offering means an offer under the Plan of an option that may be exercised during an Offering Period as further described in Section 4. For purposes of the Plan, the Administrator may designate separate Offerings under the Plan (the terms of which need not be identical) in which Eligible Employees of one or more Employers will participate, even if the dates of the applicable Offering Periods of each such Offering are identical and the provisions of the Plan will separately apply to each Offering. If an Offering under the 423 Component is made, to the extent permitted by U.S. Treasury Regulation Section 1.423-2(a)(1), the terms of each Offering need not be identical provided that the terms of the Plan and an Offering together satisfy U.S. Treasury Regulation Section 1.423-2(a)(2) and (a)(3).
(w) Offering Periods means the periods of approximately twenty-four (24) months during which an option granted pursuant to the Plan may be exercised, (i) commencing on the first Trading Day on or after May 31 and November 30 of each year and terminating on the first Trading Day on or after May 31 and November 30, approximately twenty-four (24) months later; provided, however, that the first Offering Period under the Plan will commence with the first Trading Day on or after the Registration Date and will end on the first Trading Day on or after May 31, 2020, and provided, further, that the second Offering Period under the Plan will commence on the first Trading Day on or after November 30, 2018. The duration and timing of Offering Periods may be changed pursuant to Sections 4 and 19.
(x) Parent means a parent corporation, whether now or hereafter existing, as defined in Section 424(e) of the Code.
(y) Participant means an Eligible Employee that participates in the Plan.
(z) Plan means this Pluralsight, Inc. 2018 Employee Stock Purchase Plan.
(aa) Purchase Period means the approximately six (6) month period commencing after one Exercise Date and ending with the next Exercise Date. Unless the Administrator provides otherwise, the Purchase Period will have the same duration and coincide with the length of the Offering Period.
(bb) Purchase Price means an amount equal to eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be determined for subsequent Offering Periods by the Administrator subject to compliance with Section 423 of the Code (or any successor rule or provision or any other Applicable Law, regulation or stock exchange rule) or pursuant to Section 19.
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(cc) Registration Date means the effective date of the Registration Statement.
(dd) Subsidiary means a subsidiary corporation, whether now or hereafter existing, as defined in Section 424(f) of the Code.
(ee) Trading Day means a day on which the national stock exchange upon which the Common Stock is listed is open for trading.
(ff) U.S. Treasury Regulations means the Treasury regulations of the Code. Reference to a specific Treasury Regulation or Section of the Code shall include such Treasury Regulation or Section, any valid regulation promulgated under such Section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such Section or regulation.
3. Eligibility .
(a) First Offering Period . Any individual who is an Eligible Employee immediately prior to the first Offering Period will be automatically enrolled in the first Offering Period.
(b) Subsequent Offering Periods . Any Eligible Employee on a given Enrollment Date after the first Offering Period will be eligible to participate in the Plan, subject to the requirements of Section 5.
(c) Non-U.S. Employees . Eligible Employees who are citizens or residents of a non-U.S. jurisdiction (without regard to whether they also are citizens or residents of the United States or resident aliens (within the meaning of Section 7701(b)(1)(A) of the Code)) may be excluded from participation in the Plan or an Offering if the participation of such Eligible Employees is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or an Offering to violate Section 423 of the Code. In the case of the Non-423 Component, an Eligible Employee may be excluded from participation in the Plan or an Offering at the discretion of the Administrator.
(d) 423 Component Limitations . Any provisions of the Plan to the contrary notwithstanding, with respect to any Offering under the 423 Component, no Eligible Employee will be granted an option under the Plan (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate that exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value of the stock at the time such option is granted) for each calendar year in which such option is outstanding at any time, as determined in accordance with Section 423 of the Code and the regulations thereunder.
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4. Offering Periods . The Plan will be implemented by consecutive and overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after May 31 and November 30 each year, or on such other date as the Administrator will determine; provided, however, that the first Offering Period under the Plan will commence with the first Trading Day on or after the Registration Date and end on the first Trading Day on or after May 31, 2020. The Administrator will have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future Offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter; provided, however, that no Offering Period may last more than twenty-seven (27) months.
5. Participation .
(a) First Offering Period . An Eligible Employee will be entitled to continue to participate in the first Offering Period pursuant to Section 3(a) only if such individual submits a subscription agreement authorizing Contributions in a form determined by the Administrator (which may be similar to the form attached hereto as Exhibit A ) to the Companys designated plan administrator (i) no earlier than the effective date of the Form S-8 registration statement with respect to the issuance of Common Stock under this Plan and (ii) no later than ten (10) business days following the effective date of such S-8 registration statement or such other period of time as the Administrator may determine (the Enrollment Window ). An Eligible Employees failure to submit the subscription agreement during the Enrollment Window will result in the automatic termination of such individuals participation in the first Offering Period.
(b) Subsequent Offering Periods . An Eligible Employee may participate in the Plan pursuant to Section 3(b) by (i) submitting to the Companys stock administration office (or its designee), on or before a date determined by the Administrator prior to an applicable Enrollment Date, a properly completed subscription agreement authorizing Contributions in the form provided by the Administrator for such purpose, or (ii) following an electronic or other enrollment procedure determined by the Administrator.
6. Contributions .
(a) At the time a Participant enrolls in the Plan pursuant to Section 5, he or she will elect to have a fixed amount of Contributions (in the form of payroll deductions or otherwise, to the extent permitted by the Administrator) made during each Purchase Period during the Offering Period (such fixed amount, the Elected Contribution Amount), provided that the Elected Contribution Amount will not exceed seventy-five percent (75%) of the Compensation which a Participant receives during a Purchase Period, and provided further that the Elected Contribution Amount will not exceed $12,500 (increased to $25,000 for purposes of the first Purchase Period under the Plan). Except to the extent otherwise permitted by the Administrator, Contributions will be deducted in equal installments from a Participants payroll during each Purchase Period up to the Elected Contribution Amount (for illustrative purposes, a payroll deduction occurring on an Exercise Date will be applied to a Participants account under the Purchase Period ending on such Exercise Date). The Administrator, in its sole discretion, may permit all Participants in a specified Offering to contribute amounts to the Plan through payment by cash, check, wire transfer or other means set forth in the subscription agreement or approved in writing by the Administrator prior to each Exercise Date of each Purchase Period. A Participants subscription agreement will remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
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(b) In the event Contributions are made in the form of payroll deductions, such payroll deductions for a Participant will commence on the first pay day following the Enrollment Date and will end on the last pay day prior to the Exercise Date of such Offering Period to which such authorization is applicable, unless sooner terminated by the Participant as provided in Section 10 hereof; provided, however, that for the first Offering Period, payroll deductions will commence on the first pay day on or following the end of the Enrollment Window.
(c) All Contributions made for a Participant will be credited to his or her account under the Plan and Contributions will be made in whole dollar amounts only.
(d) A Participant may discontinue his or her participation in the Plan as provided in Section 10. Except as may be permitted by the Administrator, as determined in its sole discretion, a Participant may reduce, but may not increase, the Participants Elected Contribution Amount up to 2 times during an Offering Period by providing written notice to the Company (which may be similar to the form attached hereto as Exhibit B ). If a Participant elects to reduce his or her Elected Contribution Amount during an Offering Period, all payroll deductions occurring after such election will be reduced on an equal basis to reflect the new Elected Contribution Amount, and if such election results in a Participants Contributions exceeding his or her new Elected Contribution Amount during a Purchase Period, no further payroll deductions will occur during such Purchase Period.
(e) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(c), a Participants Elected Contribution Amount may be decreased to zero dollars ($0) at any time during a Purchase Period. To the extent necessary, and subject to Section 423(b)(8) of the Code and Section 3(b) hereof, Contributions will recommence pursuant to the Elected Contribution Amount originally elected by the Participant effective as of the beginning of the first Purchase Period scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 10.
(f) Notwithstanding any provisions or limits to the contrary in the Plan, the Administrator may allow Eligible Employees to participate in the Plan via cash contributions or other methods instead of payroll deductions if (i) payroll deductions are not permitted under applicable local law, (ii) the Administrator determines that cash contributions are permissible under Section 423 of the Code or (iii) for Participants participating in the Non-423 Component.
(g) At the time the option is exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan is disposed of (or any other time that a taxable event related to the Plan occurs), the Participant must make adequate provision for the Companys or Employers federal, state, local or any other tax liability payable to any authority including taxes imposed by jurisdictions outside of the U.S., national insurance, social security or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock (or any other time that a taxable event related to the Plan
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occurs). At any time, the Company or the Employer may, but will not be obligated to, withhold from the Participants compensation the amount necessary for the Company or the Employer to meet applicable withholding obligations, including any withholding required to make available to the Company or the Employer any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Eligible Employee. In addition, the Company or the Employer may, but will not be obligated to, withhold from the proceeds of the sale of Common Stock or any other method of withholding the Company or the Employer deems appropriate to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
7. Grant of Option . On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period will be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common Stock determined by dividing such Eligible Employees Contributions accumulated prior to such Exercise Date and retained in the Eligible Employees account as of the Exercise Date by the applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to purchase under the Plan during each Purchase Period more than 5,000 shares of Common Stock (subject to any adjustment pursuant to Section 18) and provided further that such purchase will be subject to the limitations set forth in Sections 3(d) and 13. The Eligible Employee may accept the grant of such option (i) with respect to the first Offering Period by submitting a properly completed subscription agreement in accordance with the requirements of Section 5 on or before the last day of the Enrollment Window, and (ii) with respect to any subsequent Offering Period under the Plan, by electing to participate in the Plan in accordance with the requirements of Section 5. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that an Eligible Employee may purchase during each Purchase Period of an Offering Period. Exercise of the option will occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10. The option will expire on the last day of the Offering Period.
8. Exercise of Option .
(a) Unless a Participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of shares of Common Stock will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to the option will be purchased for such Participant at the applicable Purchase Price with the accumulated Contributions from his or her account. No fractional shares of Common Stock will be purchased; any Contributions accumulated in a Participants account, which are not sufficient to purchase a full share will be retained in the Participants account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the Participant as provided in Section 10. Any other funds left over in a Participants account after the Exercise Date will be returned to the Participant. During a Participants lifetime, a Participants option to purchase shares hereunder is exercisable only by him or her.
(b) If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares of Common Stock available
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for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or (y) provide that the Company will make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 19. The Company may make a pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Companys stockholders subsequent to such Enrollment Date.
9. Delivery . As soon as reasonably practicable after each Exercise Date on which a purchase of shares of Common Stock occurs, the Company will arrange the delivery to each Participant of the shares purchased upon exercise of his or her option in a form determined by the Administrator (in its sole discretion) and pursuant to rules established by the Administrator. The Company may permit or require that shares be deposited directly with a broker designated by the Company or to a designated agent of the Company, and the Company may utilize electronic or automated methods of share transfer. The Company may require that shares be retained with such broker or agent for a designated period of time and/or may establish other procedures to permit tracking of disqualifying dispositions of such shares. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the Participant as provided in this Section 9.
10. Withdrawal .
(a) A Participant may withdraw all but not less than all the Contributions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by (i) submitting to the Companys stock administration office (or its designee) a written notice of withdrawal in the form determined by the Administrator for such purpose (which may be similar to the form attached hereto as Exhibit B ), or (ii) following an electronic or other withdrawal procedure determined by the Administrator. All of the Participants Contributions credited to his or her account will be paid to such Participant promptly after receipt of notice of withdrawal and such Participants option for the Offering Period will be automatically terminated, and no further Contributions for the purchase of shares will be made for such Offering Period. If a Participant withdraws from an Offering Period, Contributions will not resume at the beginning of the succeeding Offering Period, unless the Participant re-enrolls in the Plan in accordance with the provisions of Section 5.
(b) A Participants withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or in succeeding Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
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11. Termination of Employment . Upon a Participants ceasing to be an Eligible Employee for any reason, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to such Participants account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan will be returned to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15, and such Participants option will be automatically terminated. Unless determined otherwise by the Administrator in a manner that, with respect to an Offering under the 423 Component, is permitted by, and compliant with, Section 423 of the Code, a Participant whose employment transfers between entities through a termination with an immediate rehire (with no break in service) by the Company or a Designated Company shall not be treated as terminated under the Plan; however, no Participant shall be deemed to switch from an Offering under the Non-423 Component to an Offering under the 423 Component or vice versa unless (and then only to the extent) such switch would not cause the 423 Component or any option thereunder to fail to comply with Section 423 of the Code.
12. Interest . No interest will accrue on the Contributions of a participant in the Plan, except as may be required by Applicable Law, as determined by the Company, and if so required by the laws of a particular jurisdiction, shall, with respect to Offerings under the 423 Component, apply to all Participants in the relevant Offering, except to the extent otherwise permitted by U.S. Treasury Regulation Section 1.423-2(f).
13. Stock .
(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 18 hereof, the maximum number of shares of Common Stock that will be made available for sale under the Plan will be 2,970,000 shares of Common Stock, plus the number of shares of Common Stock to be added to the Plan pursuant to the next sentence.
(b) The number of shares of Common Stock available for issuance under the Plan will be increased on the first day of each Fiscal Year beginning with the 2019 Fiscal Year equal to the least of (i) 2,970,000 shares of Common Stock, (ii) 1.5% of the outstanding shares of all classes of common stock of the Company on the last day of the immediately preceding Fiscal Year, or (iii) an amount determined by the Administrator.
(c) Until the shares of Common Stock are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a Participant will only have the rights of an unsecured creditor with respect to such shares, and no right to vote or receive dividends or any other rights as a stockholder will exist with respect to such shares.
(d) Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the name of the Participant and his or her spouse.
14. Administration . The Plan will be administered by the Board or a Committee appointed by the Board, which Committee will be constituted to comply with Applicable Laws. To the extent permitted by Applicable Laws, the Administrator will have full and exclusive
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discretionary authority to construe, interpret and apply the terms of the Plan, to designate separate Offerings under the Plan, to designate Subsidiaries and Affiliates as participating in the 423 Component or Non-423 Component, to determine eligibility, to adjudicate all disputed claims filed under the Plan and to establish such procedures that it deems necessary for the administration of the Plan (including, without limitation, to adopt such procedures and sub-plans as are necessary or appropriate to permit the participation in the Plan by employees who are non-U.S. nationals or employed outside the U.S., the terms of which sub-plans may take precedence over other provisions of this Plan, with the exception of Section 13(a) hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan). Unless otherwise determined by the Administrator, the employees eligible to participate in each sub-plan will participate in a separate Offering and will be in the Non-423 Component unless such designation would cause the 423 Component to violate the requirements of Section 423 of the Code. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding eligibility to participate, the definition of Compensation, handling of Contributions, making of Contributions to the Plan (including, without limitation, in forms other than payroll deductions), establishment of bank or trust accounts to hold Contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates that vary with applicable local requirements. The Administrator also is authorized to determine that, to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f), the terms of an option granted under the Plan or an Offering to citizens or residents of a non-U.S. jurisdiction will be less favorable than the terms of options granted under the Plan or the same Offering to employees resident solely in the U.S. Every finding, decision and determination made by the Administrator will, to the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary .
(a) If permitted by the Administrator, a Participant may file a designation of a beneficiary who is to receive any shares of Common Stock and cash, if any, from the Participants account under the Plan in the event of such Participants death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such Participant of such shares and cash. In addition, if permitted by the Administrator, a Participant may file a designation of a beneficiary who is to receive any cash from the Participants account under the Plan in the event of such Participants death prior to exercise of the option. If a Participant is married and the designated beneficiary is not the spouse, spousal consent will be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the Participant at any time by notice in a form determined by the Administrator. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participants death, the Company will deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
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(c) All beneficiary designations will be in such form and manner as the Administrator may designate from time to time. Notwithstanding Sections 15(a) and (b) above, the Company and/or the Administrator may decide not to permit such designations by Participants in non-U.S. jurisdictions to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
16. Transferability . Neither Contributions credited to a Participants account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition will be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds . The Company may use all Contributions received or held by it under the Plan for any corporate purpose, and the Company will not be obligated to segregate such Contributions except under Offerings or for Participants in the Non-423 Component for which Applicable Laws require that Contributions to the Plan by Participants be segregated from the Companys or the Employers general corporate funds and/or deposited with an independent third party. Until shares of Common Stock are issued, Participants will only have the rights of an unsecured creditor with respect to such shares.
18. Adjustments, Dissolution, Liquidation, Merger or Change in Control .
(a) Adjustments . In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock occurs, the Administrator, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will, in such manner as it may deem equitable, adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised, and the numerical limits of Sections 7 and 13.
(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, any Offering Period then in progress will be shortened by setting a New Exercise Date, and will terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date will be before the date of the Companys proposed dissolution or liquidation. The Administrator will notify each Participant in writing or electronically, prior to the New Exercise Date, that the Exercise Date for the Participants option has been changed to the New Exercise Date 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 as provided in Section 10 hereof.
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(c) Merger or Change in Control . In the event of a merger or Change in Control, each outstanding option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering Period with respect to which such option relates will be shortened by setting a New Exercise Date on which such Offering Period shall end. The New Exercise Date will occur before the date of the Companys proposed merger or Change in Control. The Administrator will notify each Participant in writing or electronically prior to the New Exercise Date, that the Exercise Date for the Participants option has been changed to the New Exercise Date 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 as provided in Section 10 hereof.
19. Amendment or Termination .
(a) The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Administrator, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Exercise Date (which may be sooner than originally scheduled, if determined by the Administrator in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 18). If the Offering Periods are terminated prior to expiration, all amounts then credited to Participants accounts that have not been used to purchase shares of Common Stock will be returned to the Participants (without interest thereon, except as otherwise required under Applicable Laws, as further set forth in Section 12 hereof) as soon as administratively practicable.
(b) Without stockholder consent and without limiting Section 19(a), the Administrator will be entitled to change the Offering Periods or Purchase Periods, designate separate Offerings, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit Contributions in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Companys processing of properly completed Contribution elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with Contribution amounts, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable that are consistent with the Plan.
(c) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequence, including, but not limited to:
(i) amending the Plan to conform with the safe harbor definition under the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto), including with respect to an Offering Period underway at the time;
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(ii) altering the Purchase Price for any Offering Period or Purchase Period including an Offering Period or Purchase Period underway at the time of the change in Purchase Price, but, with respect to any existing Offerings under the 423 Component, in no event below the lowest Purchase Price permitted by Treasury Regulation Section 1.423-2(g);
(iii) shortening any Offering Period or Purchase Period by setting a New Exercise Date, including an Offering Period or Purchase Period underway at the time of the Administrator action;
(iv) reducing the maximum Elected Contribution Amount a Participant may elect; and
(v) reducing the maximum number of shares of Common Stock a Participant may purchase during any Offering Period or Purchase Period.
Such modifications or amendments will not require stockholder approval or the consent of any Plan Participants.
20. Notices . All notices or other communications by a Participant to the Company under or in connection with the Plan will be deemed to have been duly given when received in the form and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares . Shares of Common Stock will not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and will be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
22. Code Section 409A. The 423 Component of the Plan is exempt from the application of Code Section 409A and any ambiguities herein will be interpreted to so be exempt from Code Section 409A. The Non-423 Component is intended to be exempt from the application of Code Section 409A as options granted thereunder are intended to constitute short term deferrals and any ambiguities herein will be interpreted such that those options shall so be exempt from Code Section 409A. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that an option granted under the Plan may be subject to Code Section 409A or that any provision in the Plan would cause an option under the Plan to be subject to Code Section 409A, the Administrator may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the
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Participants consent, to exempt any outstanding option or future option that may be granted under the Plan from or to allow any such options to comply with Code Section 409A, but only to the extent any such amendments or action by the Administrator would not violate Code Section 409A. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the option to purchase Common Stock under the Plan that is intended to be exempt from or compliant with Code Section 409A is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the option to purchase Common Stock under the Plan is compliant with Code Section 409A.
23. Term of Plan . The Plan will become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. Unless sooner terminated under Section 19, the Plan will continue in effect for a term of twenty (20) years from the date the Plan is adopted by the Board and Section 13(b) will operate only until the date that is ten (10) years from the date the Plan is adopted by the Board.
24. Stockholder Approval . The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
25. Automatic Transfer to Low Price Offering Period . Unless the Administrator, in its sole discretion, chooses otherwise prior to an Enrollment Date, and to the extent permitted by Applicable Laws, if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period automatically will be withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof and the preceding Offering Period will terminate.
26. Governing Law . The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except its choice-of-law provisions).
27. No Right to Employment . Participation in the Plan by a Participant shall not be construed as giving a Participant the right to be retained as an employee of the Company or a Subsidiary or Affiliate, as applicable. Furthermore, the Company or a Subsidiary or Affiliate may dismiss a Participant from employment at any time, free from any liability or any claim under the Plan.
28. Severability . If any provision of the Plan is or becomes or is deemed to be invalid, illegal, or unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity, illegality or unenforceability shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as to such jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included.
29. Compliance with Applicable Laws . The terms of this Plan are intended to comply with all Applicable Laws and will be construed accordingly.
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EXHIBIT A
PLURALSIGHT, INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application | Offering Date:____________________ | |
_____ Change in Elected Contribution Amount |
Capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Pluralsight, Inc. 2018 Employee Stock Purchase Plan.
1. ____________________ hereby elects to participate in the Pluralsight, Inc. 2018 Employee Stock Purchase Plan (the Plan) and subscribes to purchase shares of the Companys Common Stock in accordance with this 2018 Employee Stock Purchase Plan Subscription Agreement (the Subscription Agreement) and the Plan.
2. I hereby authorize an Elected Contribution Amount during each Purchase Period of $___________. I understand that, except to the extent otherwise permitted by the Administrator, Contributions will be deducted in equal installments from my payroll during each Purchase Period up to my Elected Contribution Amount. I further understand that my Elected Contribution Amount will not exceed (i) seventy-five percent (75%) of the Compensation which I receive during a Purchase Period, or (ii) $12,500 (increased to $25,000 for purposes of the first Purchase Period under the Plan).
3. I hereby authorize the Company and/or my Employer to sell shares of Common Stock acquired pursuant to an Offering under the Plan that are necessary to satisfy any Tax-Related Items legally payable by me, as specified in Section 7 of this Subscription Agreement.
4. I understand that Contributions in the form of payroll deductions will be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option and purchase Common Stock under the Plan.
5. I have received a copy of the complete Plan and its accompanying prospectus. I understand that my participation in the Plan is in all respects subject to the terms of the Plan.
6. I understand that I am participating in the Non-423 Component of the Plan. The Company reserves the right to modify the Plan and to impose other requirements on my participation in the Plan, on the option and on any shares of Common Stock purchased under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons. I agree to be bound by such modifications regardless of whether notice is
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given to me of such event, subject, in any case, to my right to withdrawal from participation in the Plan. I further agree to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. I further agree that any purchase of shares under the Plan shall be made in a manner consistent with the Fourth Amended and Restated Limited Liability Company Agreement of Pluralsight Holdings, LLC, an Affiliate of the Company, as amended from time to time.
7. I understand the following paragraph applies to me if I am a U.S. taxpayer or subject to U.S. taxation : If I purchase any shares of Common Stock pursuant to an Offering under the Plan, I understand that such purchase will likely result in me recognizing taxable ordinary income in the United States. The issuance of such shares will be subject to me making satisfactory arrangements (as determined by the Administrator) for the payment of income, employment, social insurance, National Insurance Contributions, payroll tax, fringe benefit tax, payment on account or other tax-related items related to my participation in the Plan and legally applicable to me (Tax-Related Items) that the Administrator determines must be withheld. I hereby specifically authorize the Company and/or my Employer to withhold any Tax-Related Items from proceeds of the sale of shares of Common Stock acquired pursuant to an Offering under the Plan through a sale arranged by the Company and I hereby authorize the Company and/or the Employer to withhold any Tax-Related Items legally payable by me from proceeds of the sale of shares of Common Stock on my behalf pursuant to this authorization without further consent . In addition, the Company has the right (but not the obligation) to satisfy any Tax-Related Items by reducing the number of shares of Common Stock otherwise deliverable to me. If I do not arrange for the payment of any Tax-Related Items the Company may refuse to deliver the shares to me. If I am subject to taxation in more than one jurisdiction during an Offering Period, the Company and/or the Employer or former Employer may withhold or account for tax in greater than one jurisdiction. Regardless of any action of the Company or the Employer, I acknowledge that the ultimate liability for all Tax-Related Items is and remains my responsibility and may exceed the amount actually withheld by the Company or the Employer. I further acknowledge that the Company and the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of my participation in the Plan; and (2) do not commit to and are under no obligation to structure the terms of the Plan to reduce or eliminate my liability for Tax-Related Items or achieve any particular tax result.
8. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. I hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
9. The Subscription Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (without regard to its conflicts of law provisions) as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within Delaware. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties, I hereby submit and consent to the exclusive jurisdiction of the State of Delaware and agree that such litigation shall be conducted only in the Delaware Court of Chancery or the federal courts for the United States for the District of Delaware, and no other courts.
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10. Notwithstanding any provision of this Subscription Agreement, I understand that if I am working or resident in a country other than the United States, my participation in the Plan shall also be subject to the Additional Terms and Conditions for Non-U.S. Employees set forth in Appendix A attached hereto and any special terms and conditions for my country set forth in Appendix B attached hereto. Further, I understand that if I relocate to one of the countries included in Appendix B, the special terms and conditions for such country will apply to me to the extent the Company determines in its sole discretion that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. Appendix A and Appendix B constitute part of this Subscription Agreement.
11. I hereby agree to be bound by the terms of the Plan and this Subscription. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.
Employees Social Security Number: |
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Employees Address: | ||||||
I ACKNOWLEDGE AND UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT INCLUDING ITS APPENDICES AND MY PARTICIPATION IN THE PLAN WILL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS AFFIRMATIVELY TERMINATED BY ME.
Dated: | ||||||||
Signature of Employee |
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APPENDIX A
PLURALSIGHT, INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
ADDITIONAL TERMS AND CONDITIONS FOR NON U.S. EMPLOYEES
Capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Pluralsight, Inc. 2018 Employee Stock Purchase Plan
1. Terms of Plan Participation for Non-U.S. Employees . I understand and agree that this Appendix A contains additional terms and conditions that, together with the Plan and the Subscription Agreement, govern my participation in the Plan if I am working or resident in a country other than the United States. I further understand and agree that my participation in the Plan will also be subject to any terms and conditions for my country set forth in Appendix B attached hereto.
2. [TBD]
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APPENDIX B
PLURALSIGHT, INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
COUNTRY-SPECIFIC PROVISIONS FOR NON-U.S. EMPLOYEES
Terms and Conditions
I understand that this Appendix B includes additional terms and conditions that govern the options to purchase shares of Common Stock granted to me under the Plan if I work in one of the countries listed below. If I am a citizen or resident of a country other than the one in which I am currently working (or if I am considered as such for local law purposes) or if I transfer employment to another country after enrolling in the Plan, I acknowledge and agree that the Company will, in its discretion, determine the extent to which the terms and conditions herein will be applicable to me.
Capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Pluralsight, Inc. 2018 Employee Stock Purchase Plan, the Subscription Agreement or Appendix A to the Subscription Agreement.
Notifications
This Appendix B also includes notifications that contain information regarding securities laws, exchange controls and certain other issues of which you should be aware with respect to your participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of the effective date of this Plan. Such laws are often complex and change frequently. As a result, the Company recommends that you not rely on the information in this Appendix B as the only source of information relating to the consequences of your participation in the Plan because the information included herein may be out of date at the time that you exercise your option and purchase shares of Common Stock under the Plan or subsequently sell such shares.
In addition, the information contained herein is general in nature and may not apply to your particular situation and the Company is not in a position to assure you of any particular result. Accordingly, you are advised to seek appropriate professional advice as to how the relevant laws in my country may apply to your situation.
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Finally, if you are a citizen or resident of a country other than the one in which you are currently working (or if you are considered as such for local law purposes) or if you move to another country after options have been granted to you under the Plan, the information contained herein may not be applicable to you.
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EXHIBIT B
PLURALSIGHT, INC.
2018 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF REDUCTION OF ELECTED CONTRIBUTION AMOUNT
OR
WITHDRAWAL
Check Appropriate Box
☐ Reduction of Elected Contribution Amount. The undersigned Participant in the Offering Period of the Pluralsight, Inc. 2018 Employee Stock Purchase Plan that began on ____________, ______ (the Offering Date ) hereby notifies the Company that he or she hereby wishes to reduce his or her Elected Contribution Amount to the following amount:
$ _________ (the Reduced Elected Contribution Amount )
The undersigned understands that all subsequent payroll deductions will be made pursuant to the Reduced Elected Contribution Amount for the purchase of shares in the current Offering Period and for subsequent Offering Periods. The undersigned will be eligible to participate in succeeding Offering Periods at a higher rate of contribution only by delivering to the Company a new Subscription Agreement.
☐ Withdrawal. The undersigned Participant in the Offering Period of Pluralsight, Inc. 2018 Employee Stock Purchase Plan that began on ____________, ______ (the Offering Date ) hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be terminated automatically. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned will be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant: | ||
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Signature: |
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Date: |
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Exhibit 10.24
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this Agreement ) is made and entered into as of [Month] [Day], 2018, by and between Pluralsight, Inc., a Delaware corporation (the Company ) and the persons and entities (each, a Contributor and collectively, the Contributors ) listed on Schedule I below. Each of the Contributors and the Company shall be known as a Party herein.
RECITALS
WHEREAS , each Contributor owns Series A Preferred Units, Series B Preferred Units, Series C Preferred Units, Class A Common Units, Class B Common Units, and/or Incentive Units (collectively, Units ) of Pluralsight Holdings, LLC ( Holdings ).
WHEREAS , each Contributor desires to assign, convey, transfer, deliver, and contribute all of his, her, or its, rights, obligations, titles, and other interests in his, her, or its Units to the Company, and the Company desires to accept and assume such rights, obligations, titles, and other interests.
WHEREAS , in consideration of each Contributors assignment, conveyance, transfer, delivery, and contribution of his, her, or its Units to the Company, the Company desires to issue and deliver to each such Contributor a number of shares of Class A Common Stock of the Company (the Class A Common Stock ), at a price per share of Class A Common Stock equal to the offering price of the Class A Common Stock in the Companys initial public offering of the Class A Common Stock (the IPO ), having a value equal to the value of the Units assigned, conveyed, delivered and transferred to the Company by each such Contributor based on the implied equity value of Holdings in such IPO.
WHEREAS , the Contributors contributions of Units to the Company in exchange for Class A Common Stock, taken together with the Companys issuance of Class A Common Stock in the IPO and certain other transactions undertaken in connection with the IPO, is intended to constitute a transaction described in Section 351 of the Internal Revenue Code of 1986, as amended (the Code ).
AGREEMENT
NOW, THEREFORE , in consideration of the mutual promises and covenants herein contained, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Contribution of Units . Effective as of the date hereof, each Contributor hereby assigns, conveys, transfers, delivers, and contributes to the Company, and the Company hereby accepts and assumes from Contributor, all of Contributors right, title, obligations, and other interest in and to the Units owned by such Contributor.
2. Exchange By The Company . Effective as of the date hereof, in consideration of each Contributors assignment, conveyance, transfer, delivery and contribution to the Company of all of his, her, or its Units, the Company hereby issues and delivers to each such Contributor, and each such Contributor hereby accepts and assumes from the Company, a number of shares of Class A Common Stock, at a price per share of Class A Common Stock equal to the offering price of the Class A Common Stock in the IPO, having a value equal to the value of such Units implied by the equity value of Holdings in the IPO.
3. Company Agreement to be Bound . If and to the extent the Company is not already a member of Holdings, the Company hereby agrees to be bound by the terms and conditions of the limited liability agreement of Holdings (the LLC Agreement ) as in effect on the date hereof, and hereby assumes all obligations of each Contributor under such LLC Agreement in respect of the Units.
4. Tax Reporting .
a. As of the date hereof, no Contributor has a binding obligation to dispose of any shares of Class A Common Stock received in exchange for Units pursuant to this Agreement.
b. The Contributors exchange of Units for Class A Common Stock, taken together with the Companys issuance of Class A Common Stock in the IPO and certain other transactions undertaken in connection with the IPO, is intended to constitute a transaction described in Section 351 of the Code for U.S. federal income tax purposes. The Parties to this Agreement shall prepare all tax returns consistent with such intended tax treatment, unless otherwise required by applicable law.
c. Notwithstanding anything else in this Agreement, no Party to this Agreement is providing any representations or warranties as to the tax consequences of the transactions contemplated by this Agreement, and each Party is relying solely on its own tax advisors as to such tax consequences, including in the event of any Internal Revenue Service challenge to the intended tax treatment.
5. Tax Withholding . Notwithstanding any other provision in this Agreement, Company, Holdings and their agents and affiliates shall have the right to deduct and withhold taxes from any payments to be made pursuant to the transactions contemplated by this Agreement if, in their opinion, such withholding is required by law, and shall be provided with any necessary Tax forms, including Form W-9 or the appropriate series of Form W-8, as applicable (attached hereto as Exhibits A to A-2, as applicable), and any similar information. To the extent that any of the aforementioned amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been delivered and paid to the recipient of the payments in respect of which such deduction and withholding was made. To the extent that any payment pursuant to this Agreement is not reduced by such deductions or withholdings, such recipient shall indemnify the applicable withholding agent for any amounts imposed by any taxing authority together with any costs and expenses related thereto.
6. 83(b) Election . To the extent a Contributor holds Incentive Units or other Units that are expected to be unvested as of immediately prior to the time of the IPO, Contributor must, as a condition to participation in the exchange, complete and deliver to the Company an election pursuant to Section 83(b) of the Code, in the form attached hereto as Exhibit B, (the 83(b) Election ) that the Company will file on Contributors behalf within 30 days following the completion of the exchange. The filing of an 83(b) Election is intended so that any future appreciation in the shares of Class A Common Stock will not result in a taxable event to Contributor when the unvested shares of Class A Common Stock Contributor receives in the exchange vest.
7. Lock-Up . In connection with any registration of any equity securities of the Company (including Class A Common Stock) for sale to the public pursuant to an underwritten offering (including the IPO), the Contributor shall not (a) 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 Units or shares of Class A Common Stock or any other securities so owned convertible into or exercisable or exchangeable for any Units or shares of Class A Common Stock (such shares of Units, shares of Class A Common Stock, or such other securities collectively, the Securities ) or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of the Securities, in cash or
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otherwise (except as otherwise provided in a contractual lock-up agreement between the Contributor and the underwriter(s) in connection with such registration) without the prior written consent of the Company, for a period beginning not more than 2 days prior to the date of such registration and ending not more than 180 days after the date of such registration; provided, however, that any such period shall terminate on such earlier date as the Company gives written notice to the Contributor that the Company will not proceed with such registration.
8. Miscellaneous .
(a) Entire Agreement; Amendment and Waiver . This Agreement, together with any agreements referenced herein, constitutes the full and entire understanding and agreement among the Parties with regard to the subject matter hereof. No Party shall be liable or bound to any third party in any manner with regard to the subject matter hereof by any warranties, representations or covenants except as specifically set forth herein. No amendment, supplement, modification, or waiver of this Agreement shall be binding unless executed in writing by all the Parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such wavier constitute a continuing waiver unless expressly agreed to in writing by the affected party.
(b) Governing Law . This Agreement shall be governed in all respects by the laws of the State of Delaware, without regard to applicable principles of conflicts of law.
(c) Further Assurances . Each Party hereto agrees to execute and deliver all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement.
(d) Severability . If any provision of this Agreement 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 Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with its terms.
(e) Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart.
(f) Assignment . This Agreement shall be binding upon each of the Parties hereto and their successors and assigns.
(g) Further Assurances . Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement.
( Signature Pages Follow )
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IN WITNESS WHEREOF, the Parties have executed this Exchange Agreement as of the date first written above.
THE COMPANY: | ||
PLURALSIGHT, INC. a Delaware corporation |
By: |
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Title: |
[Signature Page to Exchange Agreement]
IN WITNESS WHEREOF, the Parties have executed this Exchange Agreement as of the date first written above.
CONTRIBUTOR: | ||
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By: |
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Name: |
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Title: |
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[Signature Page to Exchange Agreement]
Schedule I
Contributors
Exhibit A
Form W-9
Form W-9 (Rev. November 2017) Department of the Treasury Internal Revenue Service
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Request for Taxpayer Identification Number and Certification
u Go to www.irs.gov/FormW9 for instructions and the latest information.
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Give Form to the requester. Do not send to the IRS. |
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1 Name (as shown on your income tax return). Name is required on this line; do not leave this line blank.
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2 Business name/disregarded entity name, if different from above
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3 Check appropriate box for federal tax classification of the person whose name is entered on line 1. Check only one of the following seven boxes. |
4 Exemptions (codes apply only to certain entities, not individuals; see instructions on page 3):
Exempt payee code (if any)
Exemption from FATCA reporting code (if any)
(Applies to accounts maintained outside of the U.S.) |
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☐ Individual/sole proprietor ☐ C Corporation ☐ S Corporation ☐ Partnership ☐ Trust/estate | ||||||||
or single-member LLC |
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☐ Limited liability company. Enter the tax classification (C=C corporation, S=S corporation, P=Partnership) u |
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Note: Check the appropriate box in the line above for the tax classification of the single-member owner. Do not check LLC if the LLC is classified as a single-member LLC that is disregarded from the owner unless the owner of the LLC is another LLC that is not disregarded from the owner for U.S. federal tax purposes. Otherwise, a single-member LLC that is disregarded from the owner should check the appropriate box for the tax classification of its owner. |
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☐ Other (see instructions) u |
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5 Address (number, street, and apt. or suite no.) See instructions.
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Requesters name and address (optional)
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6 City, state, and ZIP code
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7 List account number(s) here (optional)
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Part I | Taxpayer Identification Number (TIN) |
Enter your TIN in the appropriate box. The TIN provided must match the name given on line 1 to avoid backup withholding. For individuals, this is generally your social security number (SSN). However, for a resident alien, sole proprietor, or disregarded entity, see the instructions for Part I, later. For other entities, it is your employer identification number (EIN). If you do not have a number, see How to get a TIN, later.
Note: If the account is in more than one name, see the instructions for line 1. Also see What Name and Number To Give the Requester for guidelines on whose number to enter.
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Social security number | |||||||||||||||||||||
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or
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Employer identification number | ||||||||||||||||||||||
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Part II | Certification |
Under penalties of perjury, I certify that:
1. | The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me); and |
2. | I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding; and |
3. | I am a U.S. citizen or other U.S. person (defined below); and |
4. | The FATCA code(s) entered on this form (if any) indicating that I am exempt from FATCA reporting is correct. |
Certification instructions . You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally, payments other than interest and dividends, you are not required to sign the certification, but you must provide your correct TIN. See the instructions for Part II, later.
Sign Here |
Signature of U.S. person u |
Date u |
General Instructions
Section references are to the Internal Revenue Code unless otherwise noted.
Future developments. For the latest information about developments related to Form W-9 and its instructions, such as legislation enacted after they were published, go to www.irs.gov/FormW9.
Purpose of Form
An individual or entity (Form W-9 requester) who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) which may be your social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN), to report on an information return the amount paid to you, or other amount reportable on an information return. Examples of information returns include, but are not limited to, the following.
Form 1099-INT (interest earned or paid)
Form 1099-DIV (dividends, including those from stocks or mutual funds)
Form 1099-MISC (various types of income, prizes, awards, or gross proceeds)
Form 1099-B (stock or mutual fund sales and certain other transactions by brokers)
Form 1099-S (proceeds from real estate transactions)
Form 1099-K (merchant card and third party network transactions)
Form 1098 (home mortgage interest), 1098-E (student loan interest), 1098-T (tuition)
Form 1099-C (canceled debt)
Form 1099-A (acquisition or abandonment of secured property)
Use Form W-9 only if you are a U.S. person (including a resident alien), to provide your correct TIN.
If you do not return Form W-9 to the requester with a TIN, you might be subject to backup withholding. See What is backup withholding, later.
Cat. No. 10231X | Form W-9 (Rev. 11-2017) |
Form W-9 (Rev. 11-2017) | Page 2 |
By signing the filled-out form, you:
1. Certify that the TIN you are giving is correct (or you are waiting for a number to be issued),
2. Certify that you are not subject to backup withholding, or
3. Claim exemption from backup withholding if you are a U.S. exempt payee. If applicable, you are also certifying that as a U.S. person, your allocable share of any partnership income from a U.S. trade or business is not subject to the withholding tax on foreign partners share of effectively connected income, and
4. Certify that FATCA code(s) entered on this form (if any) indicating that you are exempt from the FATCA reporting, is correct. See What is FATCA reporting, later, for further information.
Note: If you are a U.S. person and a requester gives you a form other than Form W-9 to request your TIN, you must use the requesters form if it is substantially similar to this Form W-9.
Definition of a U.S. person. For federal tax purposes, you are considered a U.S. person if you are:
An individual who is a U.S. citizen or U.S. resident alien;
A partnership, corporation, company, or association created or organized in the United States or under the laws of the United States;
An estate (other than a foreign estate); or
A domestic trust (as defined in Regulations section 301.7701-7).
Special rules for partnerships. Partnerships that conduct a trade or business in the United States are generally required to pay a withholding tax under section 1446 on any foreign partners share of effectively connected taxable income from such business. Further, in certain cases where a Form W-9 has not been received, the rules under section 1446 require a partnership to presume that a partner is a foreign person, and pay the section 1446 withholding tax. Therefore, if you are a U.S. person that is a partner in a partnership conducting a trade or business in the United States, provide Form W-9 to the partnership to establish your U.S. status and avoid section 1446 withholding on your share of partnership income.
In the cases below, the following person must give Form W-9 to the partnership for purposes of establishing its U.S. status and avoiding withholding on its allocable share of net income from the partnership conducting a trade or business in the United States.
In the case of a disregarded entity with a U.S. owner, the U.S. owner of the disregarded entity and not the entity;
In the case of a grantor trust with a U.S. grantor or other U.S. owner, generally, the U.S. grantor or other U.S. owner of the grantor trust and not the trust; and
In the case of a U.S. trust (other than a grantor trust), the U.S. trust (other than a grantor trust) and not the beneficiaries of the trust.
Foreign person. If you are a foreign person or the U.S. branch of a foreign bank that has elected to be treated as a U.S. person, do not use Form W-9. Instead, use the appropriate Form W-8 or Form 8233 (see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities).
Nonresident alien who becomes a resident alien. Generally, only a nonresident alien individual may use the terms of a tax treaty to reduce or eliminate U.S. tax on certain types of income. However, most tax treaties contain a provision known as a saving clause. Exceptions specified in the saving clause may permit an exemption from tax to continue for certain types of income even after the payee has otherwise become a U.S. resident alien for tax purposes.
If you are a U.S. resident alien who is relying on an exception contained in the saving clause of a tax treaty to claim an exemption from U.S. tax on certain types of income, you must attach a statement to Form W-9 that specifies the following five items.
1. The treaty country. Generally, this must be the same treaty under which you claimed exemption from tax as a nonresident alien.
2. The treaty article addressing the income.
3. The article number (or location) in the tax treaty that contains the saving clause and its exceptions.
4. The type and amount of income that qualifies for the exemption from tax.
5. Sufficient facts to justify the exemption from tax under the terms of the treaty article.
Example. Article 20 of the U.S.-China income tax treaty allows an exemption from tax for scholarship income received by a Chinese student temporarily present in the United States. Under U.S. law, this student will become a resident alien for tax purposes if his or her stay in the United States exceeds 5 calendar years. However, paragraph 2 of the first Protocol to the U.S.-China treaty (dated April 30, 1984) allows the provisions of Article 20 to continue to apply even after the Chinese student becomes a resident alien of the United States. A Chinese student who qualifies for this exception (under paragraph 2 of the first protocol) and is relying on this exception to claim an exemption from tax on his or her scholarship or fellowship income would attach to Form W-9 a statement that includes the information described above to support that exemption.
If you are a nonresident alien or a foreign entity, give the requester the appropriate completed Form W-8 or Form 8233.
Backup Withholding
What is backup withholding? Persons making certain payments to you must under certain conditions withhold and pay to the IRS 28% of such payments. This is called backup withholding. Payments that may be subject to backup withholding include interest, tax-exempt interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee pay, payments made in settlement of payment card and third party network transactions, and certain payments from fishing boat operators. Real estate transactions are not subject to backup withholding.
You will not be subject to backup withholding on payments you receive if you give the requester your correct TIN, make the proper certifications, and report all your taxable interest and dividends on your tax return.
Payments you receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester,
2. You do not certify your TIN when required (see the instructions for Part II for details),
3. The IRS tells the requester that you furnished an incorrect TIN,
4. The IRS tells you that you are subject to backup withholding because you did not report all your interest and dividends on your tax return (for reportable interest and dividends only), or
5. You do not certify to the requester that you are not subject to backup withholding under 4 above (for reportable interest and dividend accounts opened after 1983 only).
Certain payees and payments are exempt from backup withholding. See Exempt payee code, later, and the separate Instructions for the Requester of Form W-9 for more information.
Also see Special rules for partnerships, earlier.
What is FATCA Reporting?
The Foreign Account Tax Compliance Act (FATCA) requires a participating foreign financial institution to report all United States account holders that are specified United States persons. Certain payees are exempt from FATCA reporting. See Exemption from FATCA reporting code, later, and the Instructions for the Requester of Form W-9 for more information.
Updating Your Information
You must provide updated information to any person to whom you claimed to be an exempt payee if you are no longer an exempt payee and anticipate receiving reportable payments in the future from this person. For example, you may need to provide updated information if you are a C corporation that elects to be an S corporation, or if you no longer are tax exempt. In addition, you must furnish a new Form W-9 if the name or TIN changes for the account; for example, if the grantor of a grantor trust dies.
Penalties
Failure to furnish TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.
Civil penalty for false information with respect to withholding. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty.
Form W-9 (Rev. 11-2017) | Page 3 |
Criminal penalty for falsifying information. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment.
Misuse of TINs. If the requester discloses or uses TINs in violation of federal law, the requester may be subject to civil and criminal penalties.
Specific Instructions
Line 1
You must enter one of the following on this line; do not leave this line blank. The name should match the name on your tax return.
If this Form W-9 is for a joint account (other than an account maintained by a foreign financial institution (FFI)), list first, and then circle, the name of the person or entity whose number you entered in Part I of Form W-9. If you are providing Form W-9 to an FFI to document a joint account, each holder of the account that is a U.S. person must provide a Form W-9.
a. Individual. Generally, enter the name shown on your tax return. If you have changed your last name without informing the Social Security Administration (SSA) of the name change, enter your first name, the last name as shown on your social security card, and your new last name.
Note: ITIN applicant: Enter your individual name as it was entered on your Form W-7 application, line 1a. This should also be the same as the name you entered on the Form 1040/1040A/1040EZ you filed with your application.
b. Sole proprietor or single-member LLC. Enter your individual name as shown on your 1040/1040A/1040EZ on line 1. You may enter your business, trade, or doing business as (DBA) name on line 2.
c. Partnership, LLC that is not a single-member LLC, C corporation, or S corporation. Enter the entitys name as shown on the entitys tax return on line 1 and any business, trade, or DBA name on line 2.
d. Other entities. Enter your name as shown on required U.S. federal tax documents on line 1. This name should match the name shown on the charter or other legal document creating the entity. You may enter any business, trade, or DBA name on line 2.
e. Disregarded entity. For U.S. federal tax purposes, an entity that is disregarded as an entity separate from its owner is treated as a disregarded entity. See Regulations section 301.7701-2(c)(2)(iii). Enter the owners name on line 1. The name of the entity entered on line 1 should never be a disregarded entity. The name on line 1 should be the name shown on the income tax return on which the income should be reported. For example, if a foreign LLC that is treated as a disregarded entity for U.S. federal tax purposes has a single owner that is a U.S. person, the U.S. owners name is required to be provided on line 1. If the direct owner of the entity is also a disregarded entity, enter the first owner that is not disregarded for federal tax purposes. Enter the disregarded entitys name on line 2, Business name/disregarded entity name. If the owner of the disregarded entity is a foreign person, the owner must complete an appropriate Form W-8 instead of a Form W-9. This is the case even if the foreign person has a U.S. TIN.
Line 2
If you have a business name, trade name, DBA name, or disregarded entity name, you may enter it on line 2.
Line 3
Check the appropriate box on line 3 for the U.S. federal tax classification of the person whose name is entered on line 1. Check only one box on line 3.
IF the entity/person on line 1 is a(n) . . . | THEN check the box for . . . | |
Corporation | Corporation | |
Individual
Sole proprietorship, or
Single-member limited liability company (LLC) owned by an individual and disregarded for U.S. federal tax purposes.
|
Individual/sole proprietor or single- member LLC | |
LLC treated as a partnership for U.S. federal tax purposes,
LLC that has filed Form 8832 or 2553 to be taxed as a corporation, or
LLC that is disregarded as an entity separate from its owner but the owner is another LLC that is not disregarded for U.S. federal tax purposes.
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Limited liability company and enter the appropriate tax classification. (P= Partnership; C= C corporation; or S= S corporation) | |
Partnership | Partnership | |
Trust/estate | Trust/estate |
Line 4, Exemptions
If you are exempt from backup withholding and/or FATCA reporting, enter in the appropriate space on line 4 any code(s) that may apply to you.
Exempt payee code.
Generally, individuals (including sole proprietors) are not exempt from backup withholding.
Except as provided below, corporations are exempt from backup withholding for certain payments, including interest and dividends.
Corporations are not exempt from backup withholding for payments made in settlement of payment card or third party network transactions.
Corporations are not exempt from backup withholding with respect to attorneys fees or gross proceeds paid to attorneys, and corporations that provide medical or health care services are not exempt with respect to payments reportable on Form 1099-MISC.
The following codes identify payees that are exempt from backup withholding. Enter the appropriate code in the space in line 4.
1 An organization exempt from tax under section 501(a), any IRA, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2)
2 The United States or any of its agencies or instrumentalities
3 A state, the District of Columbia, a U.S. commonwealth or possession, or any of their political subdivisions or instrumentalities
4 A foreign government or any of its political subdivisions, agencies, or instrumentalities
5 A corporation
6 A dealer in securities or commodities required to register in the United States, the District of Columbia, or a U.S. commonwealth or possession
7 A futures commission merchant registered with the Commodity Futures Trading Commission
8 A real estate investment trust
9 An entity registered at all times during the tax year under the Investment Company Act of 1940
10 A common trust fund operated by a bank under section 584(a)
11 A financial institution
12 A middleman known in the investment community as a nominee or custodian
13 A trust exempt from tax under section 664 or described in section 4947
Form W-9 (Rev. 11-2017) | Page 4 |
The following chart shows types of payments that may be exempt from backup withholding. The chart applies to the exempt payees listed above, 1 through 13.
IF the payment is for . . . |
THEN the payment is exempt for . . . | |
Interest and dividend payments | All exempt payees except for 7 | |
Broker transactions | Exempt payees 1 through 4 and 6 through 11 and all C corporations. S corporations must not enter an exempt payee code because they are exempt only for sales of noncovered securities acquired prior to 2012. | |
Barter exchange transactions and patronage dividends | Exempt payees 1 through 4 | |
Payments over $600 required to be reported and direct sales over $5,000 1 | Generally, exempt payees 1 through 5 2 | |
Payments made in settlement of payment card or third party network transactions | Exempt payees 1 through 4 |
1 | See Form 1099-MISC, Miscellaneous Income, and its instructions. |
2 | However, the following payments made to a corporation and reportable on Form 1099-MISC are not exempt from backup withholding: medical and health care payments, attorneys fees, gross proceeds paid to an attorney reportable under section 6045(f), and payments for services paid by a federal executive agency. |
Exemption from FATCA reporting code. The following codes identify payees that are exempt from reporting under FATCA. These codes apply to persons submitting this form for accounts maintained outside of the United States by certain foreign financial institutions. Therefore, if you are only submitting this form for an account you hold in the United States, you may leave this field blank. Consult with the person requesting this form if you are uncertain if the financial institution is subject to these requirements. A requester may indicate that a code is not required by providing you with a Form W-9 with Not Applicable (or any similar indication) written or printed on the line for a FATCA exemption code.
A An organization exempt from tax under section 501(a) or any individual retirement plan as defined in section 7701(a)(37)
B The United States or any of its agencies or instrumentalities
C A state, the District of Columbia, a U.S. commonwealth or possession, or any of their political subdivisions or instrumentalities
D A corporation the stock of which is regularly traded on one or more established securities markets, as described in Regulations section 1.1472-1(c)(1)(i)
E A corporation that is a member of the same expanded affiliated group as a corporation described in Regulations section 1.1472-1(c)(1)(i)
F A dealer in securities, commodities, or derivative financial instruments (including notional principal contracts, futures, forwards, and options) that is registered as such under the laws of the United States or any state
G A real estate investment trust
H A regulated investment company as defined in section 851 or an entity registered at all times during the tax year under the Investment Company Act of 1940
I A common trust fund as defined in section 584(a)
J A bank as defined in section 581
K A broker
L A trust exempt from tax under section 664 or described in section 4947(a)(1)
M A tax exempt trust under a section 403(b) plan or section 457(g) plan
Note: You may wish to consult with the financial institution requesting this form to determine whether the FATCA code and/or exempt payee code should be completed.
Line 5
Enter your address (number, street, and apartment or suite number). This is where the requester of this Form W-9 will mail your information returns. If this address differs from the one the requester already has on file, write NEW at the top. If a new address is provided, there is still a chance the old address will be used until the payor changes your address in their records.
Line 6
Enter your city, state, and ZIP code.
Part I. Taxpayer Identification Number (TIN)
Enter your TIN in the appropriate box. If you are a resident alien and you do not have and are not eligible to get an SSN, your TIN is your IRS individual taxpayer identification number (ITIN). Enter it in the social security number box. If you do not have an ITIN, see How to get a TIN below.
If you are a sole proprietor and you have an EIN, you may enter either your SSN or EIN.
If you are a single-member LLC that is disregarded as an entity separate from its owner, enter the owners SSN (or EIN, if the owner has one). Do not enter the disregarded entitys EIN. If the LLC is classified as a corporation or partnership, enter the entitys EIN.
Note: See What Name and Number To Give the Requester , later, for further clarification of name and TIN combinations.
How to get a TIN. If you do not have a TIN, apply for one immediately. To apply for an SSN, get Form SS-5, Application for a Social Security Card, from your local SSA office or get this form online at www.SSA.gov . You may also get this form by calling 1-800-772-1213. Use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN, or Form SS-4, Application for Employer Identification Number, to apply for an EIN. You can apply for an EIN online by accessing the IRS website at www.irs.gov/Businesses and clicking on Employer Identification Number (EIN) under Starting a Business. Go to www.irs.gov/Forms to view, download, or print Form W-7 and/or Form SS-4. Or, you can go to www.irs.gov/OrderForms to place an order and have Form W-7 and/or SS-4 mailed to you within 10 business days.
If you are asked to complete Form W-9 but do not have a TIN, apply for a TIN and write Applied For in the space for the TIN, sign and date the form, and give it to the requester. For interest and dividend payments, and certain payments made with respect to readily tradable instruments, generally you will have 60 days to get a TIN and give it to the requester before you are subject to backup withholding on payments. The 60-day rule does not apply to other types of payments. You will be subject to backup withholding on all such payments until you provide your TIN to the requester.
Note: Entering Applied For means that you have already applied for a TIN or that you intend to apply for one soon.
Caution: A disregarded U.S. entity that has a foreign owner must use the appropriate Form W-8.
Part II. Certification
To establish to the withholding agent that you are a U.S. person, or resident alien, sign Form W-9. You may be requested to sign by the withholding agent even if item 1, 4, or 5 below indicates otherwise.
For a joint account, only the person whose TIN is shown in Part I should sign (when required). In the case of a disregarded entity, the person identified on line 1 must sign. Exempt payees, see Exempt payee code , earlier.
Signature requirements. Complete the certification as indicated in items 1 through 5 below.
Form W-9 (Rev. 11-2017) | Page 5 |
1. Interest, dividend, and barter exchange accounts opened before 1984 and broker accounts considered active during 1983. You must give your correct TIN, but you do not have to sign the certification.
2. Interest, dividend, broker, and barter exchange accounts opened after 1983 and broker accounts considered inactive during 1983. You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form.
3. Real estate transactions. You must sign the certification. You may cross out item 2 of the certification.
4. Other payments. You must give your correct TIN, but you do not have to sign the certification unless you have been notified that you have previously given an incorrect TIN. Other payments include payments made in the course of the requesters trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services, payments made in settlement of payment card and third party network transactions, payments to certain fishing boat crew members and fishermen, and gross proceeds paid to attorneys (including payments to corporations).
5. Mortgage interest paid by you, acquisition or abandonment of secured property, cancellation of debt, qualified tuition program payments (under section 529), ABLE accounts (under section 529A), IRA, Coverdell ESA, Archer MSA or HSA contributions or distributions, and pension distributions. You must give your correct TIN, but you do not have to sign the certification.
What Name and Number To Give the Requester
For this type of account: | Give name and SSN of: | |
1. Individual |
The individual | |
2. Two or more individuals (joint account) other than an account maintained by an FFI |
The actual owner of the account or, if combined funds, the first individual on the account 1 | |
3. Two or more U.S. persons (joint account maintained by an FFI) |
Each holder of the account | |
4. Custodial account of a minor (Uniform Gift to Minors Act) |
The minor 2 | |
5. a. The usual revocable savings trust (grantor is also trustee) |
The grantor-trustee 1 | |
b. So-called trust account that is not a legal or valid trust under state law |
The actual owner 1 | |
6. Sole proprietorship or disregarded entity owned by an individual |
The owner 3 | |
7. Grantor trust filing under Optional Form 1099 Filing Method 1 (see Regulations section 1.671-4(b)(2)(i) (A)) |
The grantor* | |
For this type of account: | Give name and EIN of: | |
8. Disregarded entity not owned by an individual |
The owner | |
9. A valid trust, estate, or pension trust |
Legal entity 4 | |
10. Corporation or LLC electing corporate status on Form 8832 or Form 2553 |
The corporation | |
11. Association, club, religious, charitable, educational, or other tax-exempt organization |
The organization | |
12. Partnership or multi-member LLC |
The partnership | |
13. A broker or registered nominee |
The broker or nominee |
For this type of account: | Give name and EIN of: | |
14. Account with the Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments |
The public entity | |
15. Grantor trust filing under the Form 1041 Filing Method or the Optional Form 1099 Filing Method 2 (see Regulations section 1.671-4(b)(2)(i)(B)) |
The trust |
1 List first and circle the name of the person whose number you furnish. If only one person on a joint account has an SSN, that persons number must be furnished.
2 Circle the minors name and furnish the minors SSN.
3 You must show your individual name and you may also enter your business or DBA name on the Business name/disregarded entity name line. You may use either your SSN or EIN (if you have one), but the IRS encourages you to use your SSN.
4 List first and circle the name of the trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) Also see Special rules for partnerships , earlier.
*Note: The grantor also must provide a Form W-9 to trustee of trust.
Note: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed.
Secure Your Tax Records From Identity Theft
Identity theft occurs when someone uses your personal information such as your name, SSN, or other identifying information, without your permission, to commit fraud or other crimes. An identity thief may use your SSN to get a job or may file a tax return using your SSN to receive a refund.
To reduce your risk:
| Protect your SSN, |
| Ensure your employer is protecting your SSN, and |
| Be careful when choosing a tax preparer. |
If your tax records are affected by identity theft and you receive a notice from the IRS, respond right away to the name and phone number printed on the IRS notice or letter.
If your tax records are not currently affected by identity theft but you think you are at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Theft Hotline at 1-800-908-4490 or submit Form 14039.
For more information, see Pub. 5027, Identity Theft Information for Taxpayers.
Victims of identity theft who are experiencing economic harm or a systemic problem, or are seeking help in resolving tax problems that have not been resolved through normal channels, may be eligible for Taxpayer Advocate Service (TAS) assistance. You can reach TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059.
Protect yourself from suspicious emails or phishing schemes. Phishing is the creation and use of email and websites designed to mimic legitimate business emails and websites. The most common act is sending an email to a user falsely claiming to be an established legitimate enterprise in an attempt to scam the user into surrendering private information that will be used for identity theft.
Form W-9 (Rev. 11-2017) | Page 6 |
The IRS does not initiate contacts with taxpayers via emails. Also, the IRS does not request personal detailed information through email or ask taxpayers for the PIN numbers, passwords, or similar secret access information for their credit card, bank, or other financial accounts.
If you receive an unsolicited email claiming to be from the IRS, forward this message to phishing@irs.gov . You may also report misuse of the IRS name, logo, or other IRS property to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484. You can forward suspicious emails to the Federal Trade Commission at spam@uce.gov or report them at www.ftc.gov/complaint . You can contact the FTC at www.ftc.gov/idtheft or 877-IDTHEFT (877-438-4338). If you have been the victim of identity theft, see www.IdentityTheft.gov and Pub. 5027.
Visit www.irs.gov/IdentityTheft to learn more about identity theft and how to reduce your risk.
Privacy Act Notice
Section 6109 of the Internal Revenue Code requires you to provide your correct TIN to persons (including federal agencies) who are required to file information returns with the IRS to report interest, dividends, or certain other income paid to you; mortgage interest you paid; the acquisition or abandonment of secured property; the cancellation of debt; or contributions you made to an IRA, Archer MSA, or HSA. The person collecting this form uses the information on the form to file information returns with the IRS, reporting the above information. Routine uses of this information include giving it to the Department of Justice for civil and criminal litigation and to cities, states, the District of Columbia, and U.S. commonwealths and possessions for use in administering their laws. The information also may be disclosed to other countries under a treaty, to federal and state agencies to enforce civil and criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism. You must provide your TIN whether or not you are required to file a tax return. Under section 3406, payers must generally withhold a percentage of taxable interest, dividend, and certain other payments to a payee who does not give a TIN to the payer. Certain penalties may also apply for providing false or fraudulent information.
Exhibit A-1
Form W-8BEN
Form W-8BEN
(Rev. July 2017)
Department of the Treasury Internal Revenue Service |
Certificate of Foreign Status
of Beneficial Owner for United
u For use by individuals. Entities must use Form W-8BEN-E. u Go to www.irs.gov/FormW8BEN for instructions and the latest information. u Give this form to the withholding agent or payer. Do not send to the IRS. |
OMB No. 1545-1621 |
Do NOT use this form if: | Instead, use Form: | |||
You are NOT an individual |
W-8BEN-E | |||
You are a U.S. citizen or other U.S. person, including a resident alien individual |
W-9 | |||
You are a beneficial owner claiming that income is effectively connected with the conduct of trade or business within the U.S. (other than personal services) |
W-8ECI | |||
You are a beneficial owner who is receiving compensation for personal services performed in the United States |
8233 or W-4 | |||
You are a person acting as an intermediary |
W-8IMY |
Note: If you are resident in a FATCA partner jurisdiction (i.e., a Model 1 IGA jurisdiction with reciprocity), certain tax account information may be provided to your jurisdiction of residence.
Part I |
Identification of Beneficial Owner (see instructions) |
1 | Name of individual who is the beneficial owner |
2 Country of citizenship
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3
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Permanent residence address (street, apt. or suite no., or rural route). Do not use a P.O. box or in-care-of address.
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City or town, state or province. Include postal code where appropriate. |
Country
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4 |
Mailing address (if different from above)
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City or town, state or province. Include postal code where appropriate. |
Country
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5 | U.S. taxpayer identification number (SSN or ITIN), if required (see instructions) |
6 Foreign tax identifying number (see instructions)
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7 | Reference number(s) (see instructions) |
8 Date of birth (MM-DD-YYYY) (see instructions)
|
Part II |
Claim of Tax Treaty Benefits (for chapter 3 purposes only) (see instructions) |
Part III |
Certification |
Under penalties of perjury, I declare that I have examined the information on this form and to the best of my knowledge and belief it is true, correct, and complete. I further certify under penalties of perjury that:
| I am the individual that is the beneficial owner (or am authorized to sign for the individual that is the beneficial owner) of all the income to which this form relates or am using this form to document myself for chapter 4 purposes, | |
| The person named on line 1 of this form is not a U.S. person, | |
| The income to which this form relates is: | |
(a) not effectively connected with the conduct of a trade or business in the United States,
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(b) effectively connected but is not subject to tax under an applicable income tax treaty, or
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(c) the partners share of a partnership's effectively connected income, | ||
| The person named on line 1 of this form is a resident of the treaty country listed on line 9 of the form (if any) within the meaning of the income tax treaty between the United States and that country, and | |
| For broker transactions or barter exchanges, the beneficial owner is an exempt foreign person as defined in the instructions. | |
Furthermore, I authorize this form to be provided to any withholding agent that has control, receipt, or custody of the income of which I am the beneficial owner or any withholding agent that can disburse or make payments of the income of which I am the beneficial owner. I agree that I will submit a new form within 30 days if any certification made on this form becomes incorrect. |
Sign Here | u | |||||||
Signature of beneficial owner (or individual authorized to sign for beneficial owner) | Date (MM--DD-YYYY) |
Print name of signer | Capacity in which acting (if form is not signed by beneficial owner) |
For Paperwork Reduction Act Notice, see separate instructions. |
Cat. No. 25047Z Form W-8BEN (Rev. 7-2017) |
Exhibit A-2
Form W-8BEN-E
Form W-8BEN-E
(Rev. July 2017)
Department of the Treasury Internal Revenue Service |
Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)
u For use by entities. Individuals must use Form W-8BEN. u Section references are to the Internal Revenue Code. u Go to www.irs.gov/FormW8BENE for instructions and the latest information. u Give this form to the withholding agent or payer. Do not send to the IRS. |
OMB No. 1545-1621 |
Do NOT use this form for: | Instead use Form: | |||||
|
U.S. entity or U.S. citizen or resident | W-9 | ||||
|
A foreign individual | W-8BEN (Individual) or Form 8233 | ||||
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A foreign individual or entity claiming that income is effectively connected with the conduct of trade or business within the U.S. (unless claiming treaty benefits) | W-8ECI | ||||
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A foreign partnership, a foreign simple trust, or a foreign grantor trust (unless claiming treaty benefits) (see instructions for exceptions) |
W-8IMY | ||||
|
A foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession claiming that income is effectively connected U.S. income or that is claiming the applicability of section(s) 115(2), 501(c), 892, 895, or 1443(b) (unless claiming treaty benefits) (see instructions for other exceptions) |
W-8ECI or W-8EXP | ||||
|
Any person acting as an intermediary (including a qualified intermediary acting as a qualified derivatives dealer) |
W-8IMY |
Part I |
Identification of Beneficial Owner |
1 Name of organization that is the beneficial owner
|
2 Country of incorporation or organization |
3 Name of disregarded entity receiving the payment (if applicable, see instructions)
|
4 Chapter 3 Status (entity type) (Must check one box only): | ☐ Corporation | ☐ Disregarded entity | ☐ Partnership | |||||
☐ Simple trust ☐ Central Bank of Issue |
☐ Grantor trust ☐ Tax-exempt organization |
☐ Complex trust ☐ Private foundation |
☐ Estate ☐ International organization |
☐ Government | ||||
If you entered disregarded entity, partnership, simple trust, or grantor trust above, is the entity a hybrid making a treaty claim? If Yes complete Part III. |
☐ Yes ☐ No |
5 Chapter 4 Status (FATCA status) (See instructions for details and complete the certification below for the entity's applicable status.) | ||||||||
☐ | Nonparticipating FFI (including an FFI related to a Reporting IGA FFI other than a deemed-compliant FFI, participating FFI, or exempt beneficial owner). | ☐ | Nonreporting IGA FFI. Complete Part XII. | |||||
☐ | Foreign government, government of a U.S. possession, or foreign central bank of issue. Complete Part XIII. | |||||||
☐ | Participating FFI. | ☐ | International organization. Complete Part XIV. | |||||
☐ | Reporting Model 1 FFI. | ☐ | Exempt retirement plans. Complete Part XV. | |||||
☐ | Reporting Model 2 FFI. | ☐ | Entity wholly owned by exempt beneficial owners. Complete Part XVI. | |||||
☐ | Registered deemed-compliant FFI (other than a reporting Model 1 FFI, sponsored FFI, or nonreporting IGA FFI covered in Part XII). See instructions. | ☐ | Territory financial institution. Complete Part XVII. | |||||
☐ | Excepted nonfinancial group entity. Complete Part XVIII. | |||||||
☐ | Excepted nonfinancial start-up company. Complete Part XIX. | |||||||
☐ | Sponsored FFI. Complete Part IV. | ☐ | Excepted nonfinancial entity in liquidation or bankruptcy. Complete Part XX. | |||||
☐ | Certified deemed-compliant nonregistering local bank. Complete Part V. | |||||||
☐ | 501(c) organization. Complete Part XXI. | |||||||
☐ | Certified deemed-compliant FFI with only low-value accounts. Complete Part VI. | ☐ | Nonprofit organization. Complete Part XXII. | |||||
☐ | Publicly traded NFFE or NFFE affiliate of a publicly traded corporation. Complete Part XXIII. | |||||||
☐ | Certified deemed-compliant sponsored, closely held investment vehicle. Complete Part VII. | |||||||
☐ | Excepted territory NFFE. Complete Part XXIV. | |||||||
☐ | Certified deemed-compliant limited life debt investment entity. Complete Part VIII. | ☐ | Active NFFE. Complete Part XXV. | |||||
☐ | Passive NFFE. Complete Part XXVI. | |||||||
☐ | Certain investment entities that do not maintain financial accounts. Complete Part IX. | ☐ | Excepted inter-affiliate FFI. Complete Part XXVII. | |||||
☐ | Direct reporting NFFE. | |||||||
☐ | Owner-documented FFI. Complete Part X. | ☐ | Sponsored direct reporting NFFE. Complete Part XXVIII. | |||||
☐ | Restricted distributor. Complete Part XI. | ☐ | Account that is not a financial account. |
8 U.S. taxpayer identification number (TIN), if required |
9a GIIN | b Foreign TIN | ||
10 Reference number(s) (see instructions)
|
Note: Please complete remainder of the form including signing the form in Part XXX. | ||||
For Paperwork Reduction Act Notice, see separate instructions. | Cat. No. 59689N | Form W-8BEN-E (Rev. 7-2017) |
Form W-8BEN-E (Rev. 7-2017)
Form W-8BEN-E (Rev. 7-2017) | Page 3 |
Part V |
Certified Deemed-Compliant Nonregistering Local Bank |
18 | ☐ I certify that the FFI identified in Part I: |
| Operates and is licensed solely as a bank or credit union (or similar cooperative credit organization operated without profit) in its country of incorporation or organization; |
| Engages primarily in the business of receiving deposits from and making loans to, with respect to a bank, retail customers unrelated to such bank and, with respect to a credit union or similar cooperative credit organization, members, provided that no member has a greater than 5% interest in such credit union or cooperative credit organization; |
| Does not solicit account holders outside its country of organization; |
| Has no fixed place of business outside such country (for this purpose, a fixed place of business does not include a location that is not advertised to the public and from which the FFI performs solely administrative support functions); |
| Has no more than $175 million in assets on its balance sheet and, if it is a member of an expanded affiliated group, the group has no more than $500 million in total assets on its consolidated or combined balance sheets; and |
| Does not have any member of its expanded affiliated group that is a foreign financial institution, other than a foreign financial institution that is incorporated or organized in the same country as the FFI identified in Part I and that meets the requirements set forth in this part. |
Part VI |
Certified Deemed-Compliant FFI with Only Low-Value Accounts |
19 | ☐ I certify that the FFI identified in Part I: |
| Is not engaged primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, notional principal contracts, insurance or annuity contracts, or any interest (including a futures or forward contract or option) in such security, partnership interest, commodity, notional principal contract, insurance contract or annuity contract; |
| No financial account maintained by the FFI or any member of its expanded affiliated group, if any, has a balance or value in excess of $50,000 (as determined after applying applicable account aggregation rules); and |
| Neither the FFI nor the entire expanded affiliated group, if any, of the FFI, have more than $50 million in assets on its consolidated or combined balance sheet as of the end of its most recent accounting year. |
Part VII |
Certified Deemed-Compliant Sponsored, Closely Held Investment Vehicle |
20 | Name of sponsoring entity: |
|
21 | ☐ I certify that the entity identified in Part I: |
| Is an FFI solely because it is an investment entity described in Regulations section 1.1471-5(e)(4); |
| Is not a QI, WP, or WT; |
| Will have all of its due diligence, withholding, and reporting responsibilities (determined as if the FFI were a participating FFI) fulfilled by the sponsoring entity identified on line 20; and |
| 20 or fewer individuals own all of the debt and equity interests in the entity (disregarding debt interests owned by U.S. financial institutions, participating FFIs, registered deemed-compliant FFIs, and certified deemed-compliant FFIs and equity interests owned by an entity if that entity owns 100% of the equity interests in the FFI and is itself a sponsored FFI). |
Part VIII |
Certified Deemed-Compliant Limited Life Debt Investment Entity |
22 | ☐ I certify that the entity identified in Part I: |
| Was in existence as of January 17, 2013; |
| Issued all classes of its debt or equity interests to investors on or before January 17, 2013, pursuant to a trust indenture or similar agreement; and |
| Is certified deemed-compliant because it satisfies the requirements to be treated as a limited life debt investment entity (such as the restrictions with respect to its assets and other requirements under Regulations section 1.1471-5(f)(2)(iv)). |
Part IX |
Certain Investment Entities that Do Not Maintain Financial Accounts |
23 | ☐ I certify that the entity identified in Part I: |
| Is a financial institution solely because it is an investment entity described in Regulations section 1.1471-5(e)(4)(i)(A), and |
| Does not maintain financial accounts. |
Part X |
Owner-Documented FFI |
Note: This status only applies if the U.S. financial institution, participating FFI, or reporting Model 1 FFI to which this form is given has agreed that it will treat the FFI as an owner-documented FFI (see instructions for eligibility requirements). In addition, the FFI must make the certifications below.
24a | ☐ (All owner-documented FFIs check here) I certify that the FFI identified in Part I: |
| Does not act as an intermediary; |
| Does not accept deposits in the ordinary course of a banking or similar business; |
| Does not hold, as a substantial portion of its business, financial assets for the account of others; |
| Is not an insurance company (or the holding company of an insurance company) that issues or is obligated to make payments with respect to a financial account; |
| Is not owned by or in an expanded affiliated group with an entity that accepts deposits in the ordinary course of a banking or similar business, holds, as a substantial portion of its business, financial assets for the account of others, or is an insurance company (or the holding company of an insurance company) that issues or is obligated to make payments with respect to a financial account; |
| Does not maintain a financial account for any nonparticipating FFI; and |
| Does not have any specified U.S. persons that own an equity interest or debt interest (other than a debt interest that is not a financial account or that has a balance or value not exceeding $50,000) in the FFI other than those identified on the FFI owner reporting statement. |
Form W-8BEN-E (Rev. 7-2017)
Form W-8BEN-E (Rev. 7-2017) | Page 4 |
Part X |
Owner-Documented FFI (continued) |
Check box 24b or 24c, whichever applies.
b | ☐ I certify that the FFI identified in Part I: |
| Has provided, or will provide, an FFI owner reporting statement that contains: |
(i) | The name, address, TIN (if any), chapter 4 status, and type of documentation provided (if required) of every individual and specified U.S. person that owns a direct or indirect equity interest in the owner-documented FFI (looking through all entities other than specified U.S. persons); |
(ii) | The name, address, TIN (if any), and chapter 4 status of every individual and specified U.S. person that owns a debt interest in the owner-documented FFI (including any indirect debt interest, which includes debt interests in any entity that directly or indirectly owns the payee or any direct or indirect equity interest in a debt holder of the payee) that constitutes a financial account in excess of $50,000 (disregarding all such debt interests owned by participating FFIs, registered deemed-compliant FFIs, certified deemed-compliant FFIs, excepted NFFEs, exempt beneficial owners, or U.S. persons other than specified U.S. persons); and |
(iii) | Any additional information the withholding agent requests in order to fulfill its obligations with respect to the entity. |
| Has provided, or will provide, valid documentation meeting the requirements of Regulations section 1.1471-3(d)(6)(iii) for each person identified in the FFI owner reporting statement. |
c ☐ | I certify that the FFI identified in Part I has provided, or will provide, an auditors letter, signed within 4 years of the date of payment, from an independent accounting firm or legal representative with a location in the United States stating that the firm or representative has reviewed the FFIs documentation with respect to all of its owners and debt holders identified in Regulations section 1.1471-3(d)(6)(iv)(A)(2), and that the FFI meets all the requirements to be an owner-documented FFI. The FFI identified in Part I has also provided, or will provide, an FFI owner reporting statement of its owners that are specified U.S. persons and Form(s) W-9, with applicable waivers. |
Check box 24d if applicable (optional, see instructions).
d | ☐ I certify that the entity identified on line 1 is a trust that does not have any contingent beneficiaries or designated classes with unidentified beneficiaries. |
Part X I |
Restricted Distributor |
25a | ☐ (All restricted distributors check here) I certify that the entity identified in Part I: |
| Operates as a distributor with respect to debt or equity interests of the restricted fund with respect to which this form is furnished; |
| Provides investment services to at least 30 customers unrelated to each other and less than half of its customers are related to each other; |
| Is required to perform AML due diligence procedures under the anti-money laundering laws of its country of organization (which is an FATF-compliant jurisdiction); |
| Operates solely in its country of incorporation or organization, has no fixed place of business outside of that country, and has the same country of incorporation or organization as all members of its affiliated group, if any; |
| Does not solicit customers outside its country of incorporation or organization; |
| Has no more than $175 million in total assets under management and no more than $7 million in gross revenue on its income statement for the most recent accounting year; |
| Is not a member of an expanded affiliated group that has more than $500 million in total assets under management or more than $20 million in gross revenue for its most recent accounting year on a combined or consolidated income statement; and |
| Does not distribute any debt or securities of the restricted fund to specified U.S. persons, passive NFFEs with one or more substantial U.S. owners, or nonparticipating FFIs. |
Check box 25b or 25c, whichever applies.
I further certify that with respect to all sales of debt or equity interests in the restricted fund with respect to which this form is furnished that are made after December 31, 2011, the entity identified in Part I:
b ☐ | Has been bound by a distribution agreement that contained a general prohibition on the sale of debt or securities to U.S. entities and U.S. resident individuals and is currently bound by a distribution agreement that contains a prohibition of the sale of debt or securities to any specified U.S. person, passive NFFE with one or more substantial U.S. owners, or nonparticipating FFI. |
c ☐ | Is currently bound by a distribution agreement that contains a prohibition on the sale of debt or securities to any specified U.S. person, passive NFFE with one or more substantial U.S. owners, or nonparticipating FFI and, for all sales made prior to the time that such a restriction was included in its distribution agreement, has reviewed all accounts related to such sales in accordance with the procedures identified in Regulations section 1.1471-4(c) applicable to preexisting accounts and has redeemed or retired any, or caused the restricted fund to transfer the securities to a distributor that is a participating FFI or reporting Model 1 FFI securities which were sold to specified U.S. persons, passive NFFEs with one or more substantial U.S. owners, or nonparticipating FFIs. |
Form W-8BEN-E (Rev. 7-2017)
Form W-8BEN-E (Rev. 7-2017) | Page 5 |
Part XII |
Nonreporting IGA FFI |
26 | ☐ I certify that the entity identified in Part I: |
| Meets the requirements to be considered a nonreporting financial institution pursuant to an applicable IGA between the United States and . The applicable IGA is a ☐ Model 1 IGA or a ☐ Model 2 IGA; and is treated as a under the provisions of the applicable IGA or Treasury regulations (if applicable, see instructions); |
| If you are a trustee documented trust or a sponsored entity, provide the name of the trustee or sponsor . |
The trustee is: ☐ U.S. ☐ Foreign
Part XIII |
Foreign Government, Government of a U.S. Possession, or Foreign Central Bank of Issue |
27 ☐ | I certify that the entity identified in Part I is the beneficial owner of the payment, and is not engaged in commercial financial activities of a type engaged in by an insurance company, custodial institution, or depository institution with respect to the payments, accounts, or obligations for which this form is submitted (except as permitted in Regulations section 1.1471-6(h)(2)). |
Part XIV |
International Organization |
Check box 28a or 28b, whichever applies.
28a | ☐ I certify that the entity identified in Part I is an international organization described in section 7701(a)(18). |
b | ☐ I certify that the entity identified in Part I: |
| Is comprised primarily of foreign governments; |
| Is recognized as an intergovernmental or supranational organization under a foreign law similar to the International Organizations Immunities Act or that has in effect a headquarters agreement with a foreign government; |
| The benefit of the entitys income does not inure to any private person; and |
| Is the beneficial owner of the payment and is not engaged in commercial financial activities of a type engaged in by an insurance company, custodial institution, or depository institution with respect to the payments, accounts, or obligations for which this form is submitted (except as permitted in Regulations section 1.1471-6(h)(2)). |
Part XV |
Exempt Retirement Plans |
Check box 29a, b, c, d, e, or f, whichever applies.
29a | ☐ I certify that the entity identified in Part I: |
| Is established in a country with which the United States has an income tax treaty in force (see Part III if claiming treaty benefits); |
| Is operated principally to administer or provide pension or retirement benefits; and |
| Is entitled to treaty benefits on income that the fund derives from U.S. sources (or would be entitled to benefits if it derived any such income) as a resident of the other country which satisfies any applicable limitation on benefits requirement. |
b | ☐ I certify that the entity identified in Part I: |
| Is organized for the provision of retirement, disability, or death benefits (or any combination thereof) to beneficiaries that are former employees of one or more employers in consideration for services rendered; |
| No single beneficiary has a right to more than 5% of the FFIs assets; |
| Is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities in the country in which the fund is established or operated; and |
(i) | Is generally exempt from tax on investment income under the laws of the country in which it is established or operates due to its status as a retirement or pension plan; |
(ii) | Receives at least 50% of its total contributions from sponsoring employers (disregarding transfers of assets from other plans described in this part, retirement and pension accounts described in an applicable Model 1 or Model 2 IGA, other retirement funds described in an applicable Model 1 or Model 2 IGA, or accounts described in Regulations section 1.1471-5(b)(2)(i)(A)); |
(iii) | Either does not permit or penalizes distributions or withdrawals made before the occurrence of specified events related to retirement, disability, or death (except rollover distributions to accounts described in Regulations section 1.1471-5(b)(2)(i)(A) (referring to retirement and pension accounts), to retirement and pension accounts described in an applicable Model 1 or Model 2 IGA, or to other retirement funds described in this part or in an applicable Model 1 or Model 2 IGA); or |
(iv) | Limits contributions by employees to the fund by reference to earned income of the employee or may not exceed $50,000 annually. |
c | ☐ I certify that the entity identified in Part I: |
| Is organized for the provision of retirement, disability, or death benefits (or any combination thereof) to beneficiaries that are former employees of one or more employers in consideration for services rendered; |
| Has fewer than 50 participants; |
| Is sponsored by one or more employers each of which is not an investment entity or passive NFFE; |
| Employee and employer contributions to the fund (disregarding transfers of assets from other plans described in this part, retirement and pension accounts described in an applicable Model 1 or Model 2 IGA, or accounts described in Regulations section 1.1471-5(b)(2)(i)(A)) are limited by reference to earned income and compensation of the employee, respectively; |
| Participants that are not residents of the country in which the fund is established or operated are not entitled to more than 20% of the funds assets; and |
| Is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities in the country in which the fund is established or operates. |
Form W-8BEN-E (Rev. 7-2017)
Form W-8BEN-E (Rev. 7-2017) | Page 6 |
Part XV | Exempt Retirement Plans (continued) |
d | ☐ I certify that the entity identified in Part I is formed pursuant to a pension plan that would meet the requirements of section 401(a), other than the requirement that the plan be funded by a trust created or organized in the United States. |
e | ☐ I certify that the entity identified in Part I is established exclusively to earn income for the benefit of one or more retirement funds described in this part or in an applicable Model 1 or Model 2 IGA, or accounts described in Regulations section 1.1471-5(b)(2)(i)(A) (referring to retirement and pension accounts), or retirement and pension accounts described in an applicable Model 1 or Model 2 IGA. |
f | ☐ I certify that the entity identified in Part I: |
Is established and sponsored by a foreign government, international organization, central bank of issue, or government of a U.S. possession (each as defined in Regulations section 1.1471-6) or an exempt beneficial owner described in an applicable Model 1 or Model 2 IGA to provide retirement, disability, or death benefits to beneficiaries or participants that are current or former employees of the sponsor (or persons designated by such employees); or
Is established and sponsored by a foreign government, international organization, central bank of issue, or government of a U.S. possession (each as defined in Regulations section 1.1471-6) or an exempt beneficial owner described in an applicable Model 1 or Model 2 IGA to provide retirement, disability, or death benefits to beneficiaries or participants that are not current or former employees of such sponsor, but are in consideration of personal services performed for the sponsor.
Part XVI | Entity Wholly Owned by Exempt Beneficial Owners |
30 | ☐ I certify that the entity identified in Part I: |
Is an FFI solely because it is an investment entity;
Each direct holder of an equity interest in the investment entity is an exempt beneficial owner described in Regulations section 1.1471-6 or in an applicable Model 1 or Model 2 IGA;
Each direct holder of a debt interest in the investment entity is either a depository institution (with respect to a loan made to such entity) or an exempt beneficial owner described in Regulations section 1.1471-6 or an applicable Model 1 or Model 2 IGA.
Has provided an owner reporting statement that contains the name, address, TIN (if any), chapter 4 status, and a description of the type of documentation provided to the withholding agent for every person that owns a debt interest constituting a financial account or direct equity interest in the entity; and
Has provided documentation establishing that every owner of the entity is an entity described in Regulations section 1.1471-6(b), (c), (d), (e), (f) and/or (g) without regard to whether such owners are beneficial owners.
Part XVII | Territory Financial Institution |
31 | ☐ I certify that the entity identified in Part I is a financial institution (other than an investment entity) that is incorporated or organized under the laws of a possession of the United States. |
Part XVIII | Excepted Nonfinancial Group Entity |
32 | ☐ I certify that the entity identified in Part I: |
Is a holding company, treasury center, or captive finance company and substantially all of the entitys activities are functions described in Regulations section 1.1471-5(e)(5)(i)(C) through (E);
Is a member of a nonfinancial group described in Regulations section 1.1471-5(e)(5)(i)(B);
Is not a depository or custodial institution (other than for members of the entitys expanded affiliated group); and
Does not function (or hold itself out) as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle with an investment strategy to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes.
Part XIX | Excepted Nonfinancial Start-Up Company |
33 | ☐ I certify that the entity identified in Part I: |
Was formed on (or, in the case of a new line of business, the date of board resolution approving the new line of business) (date must be less than 24 months prior to date of payment);
Is not yet operating a business and has no prior operating history or is investing capital in assets with the intent to operate a new line of business other than that of a financial institution or passive NFFE;
Is investing capital into assets with the intent to operate a business other than that of a financial institution; and
Does not function (or hold itself out) as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes.
Part XX | Excepted Nonfinancial Entity in Liquidation or Bankruptcy |
34 | ☐ I certify that the entity identified in Part I: |
Filed a plan of liquidation, filed a plan of reorganization, or filed for bankruptcy on ;
During the past 5 years has not been engaged in business as a financial institution or acted as a passive NFFE;
Is either liquidating or emerging from a reorganization or bankruptcy with the intent to continue or recommence operations as a nonfinancial entity; and
Has, or will provide, documentary evidence such as a bankruptcy filing or other public documentation that supports its claim if it remains in bankruptcy or liquidation for more than 3 years.
Form W-8BEN-E (Rev. 7-2017)
Form W-8BEN-E (Rev. 7-2017)
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Page 7
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Part XXI | 501(c) Organization |
35 | ☐ I certify that the entity identified in Part I is a 501(c) organization that: |
Has been issued a determination letter from the IRS that is currently in effect concluding that the payee is a section 501(c) organization that is dated ; or
Has provided a copy of an opinion from U.S. counsel certifying that the payee is a section 501(c) organization (without regard to whether the payee is a foreign private foundation).
Part XXII | Nonprofit Organization |
36 | ☐ I certify that the entity identified in Part I is a nonprofit organization that meets the following requirements. |
The entity is established and maintained in its country of residence exclusively for religious, charitable, scientific, artistic, cultural or educational purposes;
The entity is exempt from income tax in its country of residence;
The entity has no shareholders or members who have a proprietary or beneficial interest in its income or assets;
Neither the applicable laws of the entitys country of residence nor the entitys formation documents permit any income or assets of the entity to be distributed to, or applied for the benefit of, a private person or noncharitable entity other than pursuant to the conduct of the entitys charitable activities or as payment of reasonable compensation for services rendered or payment representing the fair market value of property which the entity has purchased; and
The applicable laws of the entitys country of residence or the entitys formation documents require that, upon the entitys liquidation or dissolution, all of its assets be distributed to an entity that is a foreign government, an integral part of a foreign government, a controlled entity of a foreign government, or another organization that is described in this part or escheats to the government of the entitys country of residence or any political subdivision thereof.
Part XXIII | Publicly Traded NFFE or NFFE Affiliate of a Publicly Traded Corporation |
Check box 37a or 37b, whichever applies.
37a | ☐ I certify that: |
The entity identified in Part I is a foreign corporation that is not a financial institution; and
The stock of such corporation is regularly traded on one or more established securities markets, including (name one securities exchange upon which the stock is regularly traded).
b | ☐ I certify that: |
The entity identified in Part I is a foreign corporation that is not a financial institution;
The entity identified in Part I is a member of the same expanded affiliated group as an entity the stock of which is regularly traded on an established securities market;
The name of the entity, the stock of which is regularly traded on an established securities market, is ; and
The name of the securities market on which the stock is regularly traded is .
Part XXIV | Excepted Territory NFFE |
38 | ☐ I certify that: |
The entity identified in Part I is an entity that is organized in a possession of the United States;
The entity identified in Part I:
(i) | Does not accept deposits in the ordinary course of a banking or similar business; |
(ii) | Does not hold, as a substantial portion of its business, financial assets for the account of others; or |
(iii) | Is not an insurance company (or the holding company of an insurance company) that issues or is obligated to make payments with respect to a financial account; and |
All of the owners of the entity identified in Part I are bona fide residents of the possession in which the NFFE is organized or incorporated.
Part XXV | Active NFFE |
39 | ☐ I certify that: |
The entity identified in Part I is a foreign entity that is not a financial institution;
Less than 50% of such entitys gross income for the preceding calendar year is passive income; and
Less than 50% of the assets held by such entity are assets that produce or are held for the production of passive income (calculated as a weighted average of the percentage of passive assets measured quarterly) (see instructions for the definition of passive income).
Part XXVI | Passive NFFE |
40a | ☐ I certify that the entity identified in Part I is a foreign entity that is not a financial institution (other than an investment entity organized in a possession of the United States) and is not certifying its status as a publicly traded NFFE (or affiliate), excepted territory NFFE, active NFFE, direct reporting NFFE, or sponsored direct reporting NFFE. |
Check box 40b or 40c, whichever applies.
b | ☐ I further certify that the entity identified in Part I has no substantial U.S. owners (or, if applicable, no controlling U.S. persons); or |
c | ☐ I further certify that the entity identified in Part I has provided the name, address, and TIN of each substantial U.S. owner (or, if applicable, controlling U.S. person) of the NFFE in Part XXIX. |
Form W-8BEN-E (Rev. 7-2017)
Form W-8BEN-E (Rev. 7-2017) | Page 8 |
Part XXVII | Excepted Inter-Affiliate FFI |
41 | ☐ I certify that the entity identified in Part I: |
| Is a member of an expanded affiliated group; |
| Does not maintain financial accounts (other than accounts maintained for members of its expanded affiliated group); |
| Does not make withholdable payments to any person other than to members of its expanded affiliated group; |
| Does not hold an account (other than depository accounts in the country in which the entity is operating to pay for expenses) with or receive payments from any withholding agent other than a member of its expanded affiliated group; and |
| Has not agreed to report under Regulations section 1.1471-4(d)(2)(ii)(C) or otherwise act as an agent for chapter 4 purposes on behalf of any financial institution, including a member of its expanded affiliated group. |
Part XXVIII | Sponsored Direct Reporting NFFE (see instructions for when this is permitted) |
42 | Name of sponsoring entity: |
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43 | ☐ I certify that the entity identified in Part I is a direct reporting NFFE that is sponsored by the entity identified on line 42. |
Part XXIX | Substantial U.S. Owners of Passive NFFE |
As required by Part XXVI, provide the name, address, and TIN of each substantial U.S. owner of the NFFE. Please see the instructions for a definition of substantial U.S. owner. If providing the form to an FFI treated as a reporting Model 1 FFI or reporting Model 2 FFI, an NFFE may also use this part for reporting its controlling U.S. persons under an applicable IGA.
Name | Address | TIN | ||
Part XXX | Certification |
Under penalties of perjury, I declare that I have examined the information on this form and to the best of my knowledge and belief it is true, correct, and complete. I further certify under penalties of perjury that:
| The entity identified on line 1 of this form is the beneficial owner of all the income to which this form relates, is using this form to certify its status for chapter 4 purposes, or is a merchant submitting this form for purposes of section 6050W; |
| The entity identified on line 1 of this form is not a U.S. person; |
| The income to which this form relates is: (a) not effectively connected with the conduct of a trade or business in the United States, (b) effectively connected but is not subject to tax under an income tax treaty, or (c) the partners share of a partnerships effectively connected income; and |
| For broker transactions or barter exchanges, the beneficial owner is an exempt foreign person as defined in the instructions. |
Furthermore, I authorize this form to be provided to any withholding agent that has control, receipt, or custody of the income of which the entity on line 1 is the beneficial owner or any withholding agent that can disburse or make payments of the income of which the entity on line 1 is the beneficial owner.
I agree that I will submit a new form within 30 days if any certification on this form becomes incorrect.
Sign Here | u |
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Signature of individual authorized to sign for beneficial owner | Print Name | Date (MM-DD-YYYY) | ||||||
☐ I certify that I have the capacity to sign for the entity identified on line 1 of this form. |
Form W-8BEN-E (Rev. 7-2017) |
Exhibit B
83(b) Election
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayers gross income or alternative minimum taxable income, as the case may be, for the current taxable year the amount of any compensation taxable to taxpayer in connection with taxpayers receipt of the property described below.
1. | The name, address, taxpayer identification number and taxable year of the undersigned are as follows: | |||||
NAME: | SPOUSE: | |||||
ADDRESS: | ||||||
TAXPAYER IDENTIFICATION NO.: | TAXABLE YEAR: | |||||
2. | The property with respect to which the election is made is described as follows: shares (the Shares) of the Class A Common Stock of Pluralsight, Inc. (the Company). | |||||
3. | The date on which the property was transferred is the effective date of the Companys registration statement filed in connection with the IPO (the Registration Statement). The taxable year for which this election is made is calendar year 2018. | |||||
4. | The property is subject to the following restrictions: | |||||
The Shares may not be transferred and are subject to forfeiture under the terms of an agreement between the taxpayer and the Company. These restrictions lapse upon the satisfaction of certain conditions contained in such agreement. | ||||||
5. | The fair market value of the property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is the per Share cover price listed on the prospectus for which the Registration Statement is made apart. | |||||
6. | The amount, if any, paid for the property by the taxpayer is the fair market value of such property pursuant to Revenue Ruling 2007-49, Situation 2. |
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigneds receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner .
Dated: , |
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Taxpayer | ||||||
The undersigned spouse of taxpayer joins in this election. | ||||||
Dated: , |
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Spouse of Taxpayer |
Exhibit 10.26
PLURALSIGHT HOLDINGS, LLC
AMENDED AND RESTATED RESTRICTED SHARE UNIT AGREEMENT
This Amended and Restated Restricted Share Unit Agreement (the Agreement ) is made and entered into as of the date of grant set forth below (the Date of Grant ) by and between Pluralsight Holdings, LLC, a Delaware limited liability company (the Company ), Pluralsight, Inc., a Delaware corporation ( PubCo ) and the participant named below (the Participant ). Capitalized terms not defined herein shall have the meaning ascribed to them in the Fourth Amended and Restated Limited Liability Company Agreement of the Company, as amended from time to time (the LLC Agreement ).
1. AWARD OF RESTRICTED SHARE UNITS . The Company has awarded to the Participant, and the Participant has accepted, the following Restricted Share Units ( RSUs ) as of the following RSU Grant Date. The Company, PubCo, and Participant hereby agree that the RSUs shall be subject to all of the terms and conditions of this Agreement and the LLC Agreement:
Participant Name: | Aaron Skonnard | |
Total Number of RSUs: | 3,000,000 | |
RSU Grant Date: | September 29, 2017 | |
Vesting Start Date: | July 25, 2017 |
Each RSU represents and consists of the contractual deferred right to receive upon future vesting and settlement both one Common Unit and one share of Class C Common Stock (collectively referred to as a Settlement Interest ), subject in all cases to the terms and conditions set forth herein.
In the event that the number of outstanding Units 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 the number of Common Units subject to this Agreement 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.
In the event that the number of outstanding shares of Class C Common Stock of PubCo is changed by a distribution of stock, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then the number of shares of Class C Common Stock subject to this Agreement will be proportionately adjusted subject to any required action by the Committee and compliance with applicable securities laws; provided , however , that fractions of a share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a share or will be rounded down to the nearest whole Unit, as determined by the Board.
The Participant agrees that the RSUs subject to this Agreement are a separate incentive and not in lieu of any salary or other compensation, and that he is not purchasing or making any payment to the Company for his RSUs or for Settlement Interests or other securities or property issued upon settlement of his RSUs.
2. DEFINITIONS .
(a) Definitions . For all purposes of this Agreement, the following definitions apply:
(i) Affiliate means an Affiliate of the Company.
(ii) Board means the Board of Directors of PubCo.
(iii) Cause means, with respect to Participant: (a) Participants 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 or any of its Affiliates; (b) Participants conviction of a felony or of any misdemeanor involving a crime of moral turpitude; (c) Participants fraud, misappropriation of any money, assets, or other property of the Company or any of its Affiliates, embezzlement, or the like; (d) Participants 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 or any of its Affiliates that has reasonable and legitimate objectives; or (e) Participants material breach of any of his obligations, duties, or agreements to the Company or any of its Affiliates, 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.
(iv) Change in Control means the occurrence of any one of the following events:
a. Any person (as such term is defined in the Securities Exchange Act of 1934 (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, 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 Affiliate or any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate; (ii) in connection with an IPO (including by the PubCo 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 as defined in paragraph (b) below; or (iv) by a person who was a Member on the Date of Grant (or is an Affiliate of such a Member) unless with respect to this clause 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 Affiliates 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
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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 Affiliates of the Company (whether by way of merger, reorganization, consolidation or otherwise) or of all or substantially all of the assets of the Companys Affiliates 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 Affiliates.
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.
(v) Code means the Internal Revenue Code of 1986, as amended.
(vi) Committee means the committee appointed by the Board to administer this Agreement, or if no committee is appointed, the Board.
(vii) Disability means a disability, whether permanent or temporary, as determined by the Committee.
(viii) Fair Market Value means, as of any date, the value of Common Units or other equity securities issuable hereunder determined as follows: (a) if such Common Unit or such other equity security (including shares of Class A Common Stock or Class C Common Stock), as applicable, 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 Common Unit or such other equity security (including Class A Common Stock or Class C Common Stock), as applicable, 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.
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(ix) Good Reason means occurrence of one or more of the following without Participants express written consent: (a) a material diminution by the Company or its Affiliates in Purchasers base salary; provided, however, that, a reduction of base salary that (combined with all prior reductions) totals twenty percent (20%) or less and also applies to substantially all other senior executives of the Company or its Affiliates will not constitute Good Reason; (b) a material reduction of Participants authority, duties, or responsibilities relative to Participants authority, duties, or responsibilities in effect immediately prior to such reduction; or (c) the relocation of Participants principal work location to a facility or a location more than thirty-five (35) miles from his prior work location. Notwithstanding the preceding sentence, in order for an event to qualify as Good Reason, Participant must not terminate employment with the Company or its Affiliates without first providing the Company with written notice of the acts or omissions constituting the grounds for Good Reason within sixty (60) days of the initial existence of the grounds for Good Reason and a reasonable cure period of thirty (30) days following the date of written notice (the Cure Period), and Participant must resign within thirty (30) days following the end of the Cure Period if such conditions are not cured.
(x) IPO means the first sale of the PubCos Class A Common Stock to the general public pursuant to a registration statement under the Securities Act of 1933, as amended (the Securities Act ).
(xi) IPO Lockup Agreement means with respect to any IPO, any agreement between the underwriters of the public offering, PubCo, and persons who immediately prior to the IPO hold equity securities of PubCo or the Company, 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.
(xii) 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 the Securities and Exchange Commission Rule 144 restricts the free transferability of Common Units or other equity securities of the Company, PubCo or other applicable issuer
(xiii) Initial Vesting Date means (A) the effective date of the first Liquidity Event occurring after the RSU Grant Date, or if later (B) the date the Participant completes a Year of Vesting Service.
(xiv) Liquidity Event means the first of the following events to occur after the RSU Grant Date: (A) a Change in Control; or (B) an IPO with respect to the PubCo and the expiration following such IPO of any IPO Lockup Period resulting from or associated with the IPO. For clarity, in the event of an IPO but no Change in Control, the Liquidity Event and Initial Vesting Date shall not be deemed to occur earlier than the date any IPO Lockup Period resulting from or associated with the IPO expires.
(xv) Member means a Member of the company as defined in the LLC Agreement (or in the event the Company becomes a corporation, Member shall mean a shareholder in that corporation).
(xvi) Quarter of Additional Vesting Service means each additional full three (3) month elapsed, non-overlapping period of continuing service by the Participant as an employee or consultant of the Company or any Affiliate following the Participants
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completion of a Year of Vesting Service. For example, if a Participant completes 19 months of continuous employment with the Company or any Affiliate following his Vesting Start Date, he would have two Quarters of Additional Vesting Service beyond his or her first Year of Vesting Service (one such Quarter of Additional Vesting Service at the 15 month anniversary of the Vesting Start Date and a second at the 18 month anniversary of the Vesting Start Date).
(xvii) Subsequent Vesting Dates means each three (3) month anniversary of the Vesting Start Date that follows the Initial Vesting Date and occurs on or prior to the fourth (4th) anniversary of the Vesting Start Date, if any.
(xviii) Termination means 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 any Affiliate. For greater certainty, Termination includes cessation of a Participants employment or consulting engagement with the Company or any Affiliate as a result of the Participants death, Disability, resignation, expiration of a stated term of engagement, or discharge with or without cause. 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 Participant is 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 any Affiliate as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in this Agreement.
(xix) Unvested RSUs means as of any date the portion of the RSUs that have not yet vested under Section 3.
(xx) Vested RSUs means as of any date the portion of the RSUs that have vested under this Section 3 on or before such date.
(xxi) Vesting Start Date means the date listed as the Vesting Start Date on the first page of this Agreement.
(xxii) Year of Vesting Service means a full 365-day continuous period, measured from the Participants applicable Vesting Start Date listed above, during which the Participant remains an employee or consultant of the Company or any Affiliate. The Participant will not be credited with a Year of Vesting Service if such Participant experiences a Termination for any reason prior to the first anniversary of the Vesting Start Date.
3. VESTING; SETTLEMENT AND EXPIRATION .
(a) General . This Section 3 governs the vesting, settlement and expiration of RSUs awarded under this Agreement. As described below, the Participant will receive a benefit with respect to his RSUs only if and to the extent the RSUs vest. Two requirements must be satisfied on or before the seventh anniversary of the RSU Grant Date (the Expiration Date ) for the RSUs to vest in whole or in part. First, a Liquidity Event as described below must occur prior to the Expiration Date. Second, the Participant must meet certain time and continuing service-based requirements described below. The RSUs will not vest (in whole or in part) if only one (or if neither) of such vesting requirements is satisfied on or before the applicable Expiration Date.
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(b) Vesting Terms . The RSUs covered by this Agreement shall vest (i.e., become Vested RSUs) in installments in accordance with the following vesting terms and schedule:
(i) Prior to the Initial Vesting Date, none of the RSUs shall be Vested RSUs;
(ii) As of the Initial Vesting Date (which requires both the occurrence of a Liquidity Event prior to the Expiration Date and the Participants completion of at least a one Year of Vesting Service), the Participant shall vest in 25% of the RSUs covered by this Agreement plus an additional 6.25% of the RSUs covered by this Agreement for each full Quarter of Additional Vesting Service that the Participant has completed on or before the Initial Vesting Date; provided the Participants Termination has not occurred prior to that Initial Vesting Date; and
(iii) As of any Subsequent Vesting Date following the Initial Vesting Date, the Participant shall vest in an additional 6.25% of his or her RSUs covered by this Agreement; provided the Participants Termination has not occurred prior to that Subsequent Vesting Date.
For avoidance of uncertainty, the above provisions are intended to result in time and continuous service-based vesting (subject to the additional vesting requirement of a Liquidity Event) equal to 25% on the first anniversary of the Vesting Start Date and an additional 6.25% on each subsequent three-month anniversary of the Vesting Start Date; provided the Participants Termination has not occurred prior to the applicable vesting date. The Participant shall not vest further in any RSUs after his Termination and the Participants Vested RSUs under this Agreement shall never exceed 100% of the total RSUs subject to this Agreement. If application of a vesting percentage would cause vesting of a fractional RSU, then such vesting shall be rounded down to the nearest whole RSU and shall cumulate with any other fractional RSUs and such fractions shall vest as they aggregate into a whole RSU.
(c) Settlement . Subject to adjustments on account of certain Tax-Related Items (as described in Section 11 below) resulting from vesting or settlement and payment of his Vested RSUs and Section 3(d) below, the Vested RSUs shall be settled as follows:
(i) The portion of the Participants RSUs that vests as of the Initial Vesting Date or any Subsequent Vesting Date, as applicable, shall be cancelled and settled (i.e., paid by the Company or a Company-designated Affiliate that employs the Participant and has assumed the Companys payment obligation) in Settlement Interests. Payment shall be made on such date or dates following the occurrence of the Initial Vesting Date or Subsequent Vesting Date, as applicable, as are determined by the Committee in its discretion, but in no event will settlement and payment of any portion of the RSUs be made later than March 15 following the calendar year of the Initial Vesting Date or Subsequent Vesting Date applicable to such portion of the RSUs (each, a Settlement Date ).
(ii) Settlement means the issuance and delivery to the Participant on a Settlement Date of such number of Settlement Interests as is equal to the number of such RSUs that vested on the Initial Vesting Date or Subsequent Vesting Date, as applicable (i.e., one Settlement Interest for each such Vested RSU).
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(iii) The portion of the Settlement Interests relating to the issuance of Class C Common Stock on any Settlement Date shall be paid by Participant in services rendered to the Company or any Company-designated Affiliate that employs the Participant.
(iv) For greater certainty, once any Vested RSU has been settled, it shall be cancelled and no further payment shall be due with respect to such Vested RSU.
(d) Expiration . Any provision herein to the contrary notwithstanding, if the Initial Vesting Date has not occurred by the seventh (7th) anniversary of the Date of Grant, the RSUs shall automatically be forfeited and cancelled (without any right to payment) as of that seventh anniversary date.
4. EFFECT OF TERMINATION; NO RIGHT TO CONTINUING EMPLOYMENT .
(a) Upon Participants Termination for any reason prior to the Initial Vesting Date, all of Participants RSUs shall be immediately and automatically forfeited and terminated.
(b) Upon Participants Termination for any reason after the Initial Vesting Date, all then-Unvested RSUs as of the applicable Termination Date shall be immediately and automatically forfeited and terminated. Notwithstanding the foregoing, upon Participants Termination by the Company without Cause (other than due to Participants death or disability) or due to Participants resignation for Good Reason, then Participant shall be deemed as of the applicable termination date to have fully satisfied any remaining time and service-based vesting requirement with respect to any then-Unvested RSUs.
(c) Any provision in this Agreement to the contrary notwithstanding, upon Participants Termination at any time for Cause, he shall immediately and automatically forfeit without any right to further payment all of his RSUs, whether or not such RSUs are otherwise Vested RSUs or Unvested RSUs.
(d) For all purposes under this Agreement, in case of any dispute as to whether Participants Termination has occurred, the Board shall have sole discretion to determine whether Termination has occurred, the effective date of such Termination and whether such Termination was for Cause or Good Reason.
(e) Participant agrees that his or her employment or consulting relationship with the Company or its Affiliates, as applicable, is for an unspecified duration, can be terminated at any time (i.e., is at-will), and that nothing in this Agreement changes the at-will nature of that relationship. Participant acknowledges that the vesting of the RSUs pursuant to this Agreement is conditioned on Participants continuous employment or consulting service to the Company or its Affiliates through the Initial Vesting Date or a Subsequent Vesting Date, as applicable. The Companys grant of RSUs to Participants who are employees of its Affiliates (but not otherwise employees of the Company) does not create or evidence an employment relationship between the Company and such Participants or otherwise render such Participants employees of the Company.
5. MEMBER RIGHTS IN SETTLEMENT INTERESTS; NATURE OF AWARD .
(a) Unless and until such time as Settlement Interests are issued in settlement of Vested RSUs, Participant shall have no ownership of the Settlement Interests underlying and allocated to the RSUs and shall have no right to distributions with respect to such Settlement Interests or other right as a Member of the Company with respect to such Settlement Interests; provided, the Participant shall have the voting rights with respect to the RSUs (and, following settlement, the Settlement Interests) as forth in the LLC Agreement. The RSUs do not represent or constitute any actual membership or equity interest in the Company. Rather they represent a mere unfunded contingent contractual right to receive Settlement Interests or other securities or cash in the future upon settlement of the RSUs subject to certain vesting and other terms and conditions. Therefore, cash or other distributions by the Company, if any, with respect to its Settlement Interests shall not be credited to Participant with respect to his or her RSUs.
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(b) The Participant agrees and acknowledges that (i) the grant of the RSUs is voluntary and occasional and does not create any contractual or other right to receive future RSUs or benefits in lieu of RSUs; (ii) he is voluntarily participating in the Agreement; (iii) the Award of RSUs is an extraordinary item and are outside the scope of the Participants employment or other services agreement, if any; (iv) the RSUs are not intended to replace any pension rights or compensation and are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or its Affiliates; (v) the current and future values of the RSUs and underlying Settlement Interests are unknown and cannot be predicted with certainty, and neither the Company nor its Affiliates or any other person has made any representation to the Participant as to such current or future values; and (vi) neither the Company, nor any Affiliate is responsible for any foreign exchange fluctuation between local currency and the United States Dollar that may affect the value of RSUs or Settlement Interests issued in settlement of RSUs.
6. NO TRANSFER OF RSUs; REDEMPTION/EXCHANGE OF SETTLEMENT INTERESTS . The RSUs and any interest therein shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of, other than by will or by the laws of descent and distribution, and any such sale, transfer or other disposition shall be null and void. Notwithstanding the foregoing, Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of Participant and receive any property distributable with respect to the RSUs following the death of Participant. Any transferee who receives an interest in the RSUs or the underlying Settlement Interests upon the death of Participant shall acknowledge in writing that the RSUs shall continue to be subject to the restrictions set forth in this Section 6 and the restrictions in the LLC Agreement. The Settlement Interests are subject to the transfer, redemption and exchange provisions set forth in Articles X or XI of the LLC Agreement, as applicable.
7. ACKNOWLEDGEMENT . The Company and Participant agree that the RSUs are granted under and governed by this Agreement and the provisions of the LLC Agreement (which is hereby incorporated herein by reference) and that any Settlement Interests issued in settlement of the RSUs will be subject to the provisions of the Companys LLC Agreement (including, without limitations, the redemption provisions set forth in Article XI of the LLC Agreement) and certificate of formation of the Company (or if the Company becomes a corporation, such corporations articles or certificates of incorporation, bylaws and shareholders agreement if any) as amended from time to time or PubCos corporations articles or certificates of incorporation, bylaws and shareholders agreement, if any (as applicable, the Governance Documents ). Participant: (i) acknowledges being provided access to a copy of the Governance Documents, (ii) represents that Participant has carefully read and is familiar with the Governance Documents, and (iii) hereby accepts the RSUs subject to all of the terms and conditions set forth herein and in the Governance Documents.
8. AUTOMATIC REDEMPTION AND EXCHANGE ON SETTLEMENT DATE(S) . Notwithstanding anything in this Agreement to the contrary, on each Settlement Date, unless the Committee elects to satisfy obligations with respect to Tax-Related Items pursuant to the procedures outlined in Section 11(a)(i) or (iii) below, the portion of the Settlement Interests issued on that date in settlement of Vested RSUs with a Fair Market Value equal to the Tax-Related Items corresponding to such Vested RSUs shall automatically be redeemed and exchanged pursuant to Article XI of the LLC Agreement for an equivalent number of shares of Class A Common Stock and such shares of Class A Common Stock immediately shall be sold and the proceeds delivered to the Company in satisfaction of such Tax-Related Items pursuant the procedures outlined in Section 11(a)(ii) below.
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9. CHANGE IN CONTROL TRANSACTIONS .
(a) In the event of a Change in Control of the Company, any or all outstanding RSUs may be assumed, converted or replaced by the successor or acquiring entity (if any), which assumption, conversion or replacement will be binding on Participant. In the alternative, the successor or acquiring entity may substitute equivalent awards or provide substantially similar consideration to Participant as was provided to equity holders of the Company (after taking into account the existing provisions of the RSUs). In connection with any such assumption, conversion, substitution or replacement of RSUs, the Committee may in its discretion, and subject to such terms and conditions as it determines, provide for the accelerated vesting and/or payment of all or a portion of such RSU immediately prior to such assumption, replacement, conversion or substitution. Notwithstanding any provision herein to the contrary, no assumption, conversion, replacement or substitution of RSUs shall occur if such action would result in the RSUs violating any applicable requirement of Section 409A of the Code (Section 409A).
(b) 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 the RSUs, as provided in Section 9(a) above, then the vesting and/or payment of the RSUs will accelerate immediately prior to the consummation of such Change in Control event to the extent, if any, (i) that this Agreement provides for such accelerated vesting, exercisability or payment, in whole or in part; and (ii) to the extent if any (and on such additional terms and conditions) as the Committee in its discretion may determine.
(c) Any provision in this 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) Participant shall receive in full payment for his or her Vested RSUs, with respect to each Settlement Interest subject to such Vested RSUs, an amount equal to the Fair Market Value of such Settlement Interest immediately prior to the occurrence of such Change in Control (such amount to be paid in Common 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).
(d) Other Treatment . Subject to any greater rights granted to Participants under the foregoing provisions of this Section 9, in the event of the occurrence of any Change in Control transaction, any outstanding RSUs will be treated as provided in the applicable agreement or plan of sale of securities, reorganization, merger, consolidation, dissolution, liquidation or sale of assets.
10. GOVERNANCE DOCUMENTS; OTHER INSTRUMENTS .
(a) Participant agrees that he or she shall be bound by the Governance Documents with respect to all Settlement Interests issued in settlement of RSUs or otherwise acquired and held by the Participant.
(b) Upon and in connection with the issuance of Settlement Interests in settlement of the Participants RSUs, the Participant shall promptly execute and deliver to the Company such form of joinder or other instrument as the Company reasonably requests evidencing the Participants agreement to be bound as a Member by the Companys Governance Documents. Such joinder or other instrument shall be in form and on terms reasonably satisfactory to the Company.
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11. WITHHOLDING TAX .
(a) Notwithstanding anything to the contrary in this Agreement, the Company, its Affiliates or their respective agents shall be entitled to satisfy all required tax withholding and related tax items with respect to the RSUs (collectively Tax Related Items ) by one or a combination of the following as determined by the Committee: (i) withholding from the Participants wages or other cash compensation paid to the Participant by the Corporation and/or its Affiliates; (ii) withholding from proceeds of the sale of Settlement Interests or other securities acquired upon settlement of the RSUs (or any securities converted therefrom, including Class A Common Stock) through a mandatory redemption or exchange and sale arranged by the Company (without any further consent of the Participant); or (iii) withholding Settlement Interests or other securities to be issued upon settlement of the RSUs (or any securities converted therefrom, including Class A Common Stock). Unless otherwise determined by the Committee, the Tax-Related Items shall be satisfied through the method prescribed under clause (ii) of this paragraph and in accordance with Section 8 of this Agreement. If the Committee does not designate one of the above withholding tax payment methods, the Participant shall instead remit to the Company or its designated Affiliate, as applicable, cash in the amount of any required withholding taxes and other Tax Related Items.
(b) Depending on the withholding method, the Company or its Affiliates may withhold or account for Tax Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Participant will receive a refund of any over-withheld amount in cash and will have no entitlement to the Unit equivalent. If the obligation for Tax Related Items is satisfied through the mechanism described in clause (iii) in the paragraph above, for tax purposes, the Participant is deemed to have been issued the full number of Settlement Interests subject to the vested RSUs, notwithstanding that a number of Settlement Interests are held back solely for the purpose of paying the Tax Related Items.
(c) Finally, the Participant agrees to pay to the Company or its Affiliates any amount of Tax Related Items that they may be required to withhold or account for as a result of the Participants RSUs that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Settlement Interests or the proceeds of the sale of Settlement Interests (or any securities converted therefrom, including Class A Common Stock), if the Participant fails to comply with his obligations in connection with the Tax Related Items.
12. TAX CONSEQUENCES .
(a) THE PARTICIPANT REPRESENTS AND AGREES: (I) THAT THE PARTICIPANT HAS CONSULTED WITH SUCH PERSONAL TAX ADVISERS AS THE PARTICIPANT DEEMS ADVISABLE IN CONNECTION WITH THE RSUs AND SETTLEMENT INTERESTS AND (II) THAT THE PARTICIPANT IS NOT RELYING ON THE COMPANY, ITS AFFILIATES OR THEIR COUNSEL FOR ANY TAX ADVICE.
(b) The Participant further acknowledges and agrees that, regardless of any action taken by the Company or its Affiliates with respect to Tax-Related Items, Participant remains responsible for all taxes and tax-related interest, penalties and expense that may apply to Participant with respect to the RSUs and such liability may exceed the amount of tax withholding actually withheld by the Company or its Affiliates. The Participant further acknowledges that the Company and its Affiliates have made no and make no representations or undertakings regarding the tax treatment of RSUs or Settlement Interests, including, but not limited to, the tax treatment of grant, vesting or settlement of the RSUs, the subsequent sale of Settlement Interests acquired pursuant to such settlement.
(c) The Participant agrees that neither the Company, its Affiliates nor any of their members, managers, directors, officers, employees or agents shall have any obligation or liability to indemnify, reimburse, gross-up or otherwise compensate the Participant for any taxes or tax-related costs relating to or arising from the grant, vesting or settlement of RSUs or holding or disposition of Settlement Interests acquired through settlement of RSUs. Participant acknowledges that there will be tax consequences upon vesting and/or settlement of the RSUs and/or disposition of the Settlement Interests, if any, received in connection therewith, and Participant should consult a tax adviser regarding Participants tax obligations prior to such settlement or disposition.
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(d) For purposes of this Agreement, a Termination will be determined consistent with the rules relating to a separation from service as defined in Section 409A and the regulations thereunder. To the extent any payment under this Agreement may be classified as a short-term deferral within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Notwithstanding anything else provided herein, to the extent any payment provided under this Agreement in connection with Participants termination of employment (i) does not constitute a short-term deferral under (and is not otherwise exempt from) Section 409A and (ii) constitutes nonqualified deferred compensation subject to Section 409A, if Participant is deemed at the time of such termination of employment to be a specified employee under Section 409A, then such payment shall not be made or commence until the earlier of (A) the expiration of the 6-month period measured from Participants separation from service from the Company, or (B) the date of Participants death following such a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Participant including, without limitation, the additional tax for which Participant would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. The first payment thereof will include a catch-up payment covering the amount that would have otherwise been paid during the period between Participants termination of employment and the first payment date but for the application of this provision, and the balance of the installments (if any) will be payable in accordance with their original schedule. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder are exempt from or comply with Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
13. COMPLIANCE WITH LAWS . The issuance of Settlement Interests or any other securities hereunder will be subject to and conditioned upon compliance by the Company and Participant (including any written representations, warranties and agreements as the Administrator may request of Participant for compliance with Applicable Laws) with all applicable federal, state and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which Class A Common Stock may be listed or quoted at the time of such issuance or transfer.
14. LEGENDS ON CERTIFICATES . Any certificates representing Settlement Interests issued in settlement of RSUs shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under this Agreement or the rules, regulations, and other requirements of the SEC, any stock exchange upon which PubCos securities are listed, and any applicable federal, state or foreign laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Committee may also cause such certificates to contain customary or other appropriate legends referencing the restrictions on Transfer of Settlement Interests hereunder and under the Governance Documents. Without limiting the foregoing, such legends shall include:
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 ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
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THE SETTLEMENT INTERESTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, AS SET FORTH IN AN AWARD AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SETTLEMENT INTERESTS AND THE ISSUERS OR PUBCOS GOVERNANCE DOCUMENTS COPIES OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SETTLEMENT INTERSTS (OR ANY SECURITIES CONVERTED THEREFROM).
15. SUCCESSORS AND ASSIGNS . The Company may assign any of its rights and obligations under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon Participant and Participants heirs, executors, administrators, legal representatives, successors and assigns.
16. ENTIRE AGREEMENT; SEVERABILITY . The LLC Agreement is incorporated herein by reference. The LLC Agreement, this Agreement, and the Governance Documents constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof (including, without limitation, any commitment to make any other form of equity award that may have been set forth in any employment offer letter or other agreement between the parties). If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
17. GOVERNING LAW . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within Delaware. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
18. ACCEPTANCE AND CONFIDENTIALITY . Participant hereby acknowledges receipt of a copy of the LLC Agreement and this Agreement. Participant has read and understands the terms and provisions thereof, and accepts the RSUs subject to all the terms and conditions this Agreement. Participant agrees to hold in the strictest confidence and not disclose or provide to any other person (other than Participants spouse and Participants professional advisors who are under an obligation of confidentiality not to disclose such items) the terms and conditions of his or her RSU Award and this Award Agreement, the Companys Governance Documents or any summaries, financial statements or other disclosure materials made available to the Participant in connection with his or her RSUs. Intentional violation of the foregoing duty of confidentiality shall constitute grounds for Termination for Cause.
19. FURTHER ASSURANCES . The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
20. TITLES AND HEADINGS . The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to sections and exhibits will mean sections and exhibits to this Agreement.
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21. COUNTERPARTS . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
22. FACSIMILE AND ELECTRONIC SIGNATURES; CONSENT TO ELECTRONIC DELIVERY . This Agreement may be executed and delivered by facsimile or electronic mail and upon such delivery the facsimile or electronic mail signature will be deemed to have the same effect as if the original signature had been delivered to the other party. This Agreement and the Governance Documents, summaries and prospectus, and financial reports of the Company, or other communications or information related to the RSUs and Settlement Interests issued under this Agreement may be delivered to the Participant electronically. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the RSU award, the delivery of the document via e-mail or such other delivery determined at the Companys discretion. By Participants acceptance of this Agreement, Participant consents to the electronic delivery of all documents, award agreements, statements and SEC-mandated disclosures in connection with the RSUs. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail at legal@pluralsight.com. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide the Company or any designated third party with a paper copy of any documents delivered electronically by Participant or on Participants behalf on request if electronic delivery fails. Also, Participant understands that Participants consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at legal@pluralsight.com. Finally, Participant understands that Participant is not required to consent to electronic delivery.
23. DISPUTE RESOLUTION . With respect to any future claim, dispute, suit, or action connected with, relating to, or otherwise arising under or with respect to this Agreement, each of the Company and Participant expressly and irrevocably: (a) consents, submits, and subjects himself and any such claim, suit, dispute, or action to the exclusive personal and subject matter jurisdiction of the United States District Court for the District of Utah and the Utah state courts located in Salt Lake County, Utah (Utah Courts); (b) agrees that the Utah Courts shall have exclusive personal and subject matter jurisdiction over all such claims, disputes, suits, and actions and that venue properly lies in such Utah Courts as to any such claim, dispute, suit, or action; (c) waives any objection to venue, subject matter jurisdiction, and personal jurisdiction in the Utah Courts; (d) covenants and agrees not to plead or assert any such objection; and (e) consents to service of process by first class mail to his or her most recent address as set forth in the books and records of the Company or any Affiliate. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AND PARTICIPANT HEREBY IRREVOCABLY WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY LAWSUIT, CAUSE OF ACTION, OR DISPUTE ARISING UNDER THIS AGREEMENT. Each party to any dispute relating to this Agreement shall pay and bear its own attorneys fees and costs in connection with such dispute.
24. DATA PRIVACY . The Participant consents to the collection, use and transfer, in electronic or other form, of the Participants personal data described in this Agreement by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering and managing the Participants RSU award.
The Participant understands that the Company and its Affiliates may hold certain personal information about the Participant, including, but not limited to, his or her name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any equity interests or positions held in the Company or any Affiliate, details of all Awards or any other entitlement to Settlement Interests awarded, canceled, exercised, vested, unvested or outstanding in the Participants favor, for the exclusive purpose of implementing, administering and managing this Agreement ( Personal Data ).
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The Participant understands that Personal Data may be transferred to any third parties assisting in the implementation, administration and management of the RSU award, that these recipients may be located in the United States, the Participants home country, or elsewhere, and that the recipients country may have different data privacy laws and protections than the Participants country. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Personal Data by contacting the Participants local human resources representative. The Participant authorizes the recipients to receive, possess, use, retain and transfer the Personal Data, in electronic or other form, for the purposes of implementing, administering and managing the Participants RSUs, including any requisite transfer of such Personal Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Settlement Interests received upon vesting of the RSUs. The Participant understands that Personal Data will be held only as long as is necessary to implement, administer and manage the Participants RSUs. The Participant understands that he or she may, at any time, view Personal Data, request additional information about the storage and processing of Personal Data, require any necessary amendments to Personal Data or refuse or withdraw the consents herein, without cost, by contacting in writing the Participants local human resources representative. The Participant understands that refusal or withdrawal of consent may affect the Participants ability to realize benefits from the RSUs. For more information on the consequences of the Participants refusal to consent or withdrawal of consent, the Participant understands that he or she may contact his or her local human resources representative.
25. ADDITIONAL FOREIGN LAW PROVISIONS . Notwithstanding any provisions in this Agreement, the RSUs shall be subject to any special terms and conditions set forth in Appendix A attached to this Agreement (Appendix A) for the Participants country of residence. Moreover, if the Participant relocates to one of the countries included in Appendix A, the special terms and conditions for such country will apply to the Participant, to the extent Company determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the RSUs. As stated above, Appendix A constitutes part of this Agreement.
[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS .]
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IN WITNESS WHEREOF, the Company has caused this Amended and Restated Restricted Share Unit Agreement to be executed by its duly authorized representative and the Participant has executed this Amended and Restated Restricted Share Unit Agreement.
PLURALSIGHT HOLDINGS, LLC | PARTICIPANT | |||||||
By: | By: | |||||||
Name: | James Budge | |||||||
Title: |
Chief Financial Officer
|
Address: |
1547 Hidden Springs Pkwy. Fruit Heights, Utah 84037 |
|||||
Date: | Date: |
PLURALSIGHT, INC. | ||||||||
By: | ||||||||
Name: | James Budge | |||||||
Title: | Chief Financial Officer | |||||||
Date: |
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Exhibit 10.27
PLURALSIGHT HOLDINGS, LLC
FORM OF FOURTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of [], 2018
THE LIMITED LIABILITY COMPANY INTERESTS ISSUED PURSUANT TO AND GOVERNED BY THE TERMS OF THIS FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. SUCH LIMITED LIABILITY COMPANY INTERESTS MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
TABLE OF CONTENTS
Page | ||||||||
ARTICLE I. DEFINITIONS |
3 | |||||||
ARTICLE II. ORGANIZATIONAL MATTERS |
14 | |||||||
Section 2.01 |
Formation of Company | 14 | ||||||
Section 2.02 |
This Agreement | 14 | ||||||
Section 2.03 |
Name | 14 | ||||||
Section 2.04 |
Purpose | 14 | ||||||
Section 2.05 |
Principal Office; Registered Office | 14 | ||||||
Section 2.06 |
Term | 14 | ||||||
Section 2.07 |
No State-Law Partnership | 14 | ||||||
ARTICLE III. MEMBERS; UNITS; CAPITALIZATION | 15 | |||||||
Section 3.01 |
Members | 15 | ||||||
Section 3.02 |
Units | 15 | ||||||
Section 3.03 |
Recapitalization; the Corporations Capital Contribution; the Corporations Purchase of Common Units; Member Distribution | 16 | ||||||
Section 3.04 |
Authorization and Issuance of Additional Units | 17 | ||||||
Section 3.05 |
Repurchase, Redemption or Forfeiture of shares of Class A Common Stock | 18 | ||||||
Section 3.06 |
Certificates Representing Units; Lost, Stolen or Destroyed Certificates; Registration and Transfer of Units | 18 | ||||||
Section 3.07 |
Negative Capital Accounts | 19 | ||||||
Section 3.08 |
No Withdrawal | 19 | ||||||
Section 3.09 |
Loans From Members | 19 | ||||||
Section 3.10 |
Corporate Stock Option Plans and Equity Plans | 19 | ||||||
Section 3.11 |
Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan | 21 | ||||||
ARTICLE IV. DISTRIBUTIONS | 22 | |||||||
Section 4.01 |
Distributions | 22 | ||||||
ARTICLE V. CAPITAL ACCOUNTS; ALLOCATIONS; TAX MATTERS | 24 | |||||||
Section 5.01 |
Capital Accounts | 24 | ||||||
Section 5.02 |
Allocations | 25 | ||||||
Section 5.03 |
Regulatory Allocations | 25 | ||||||
Section 5.04 |
Final Allocations | 26 | ||||||
Section 5.05 |
Tax Allocations | 26 | ||||||
Section 5.06 |
Indemnification and Reimbursement for Payments on Behalf of a Member | 27 | ||||||
ARTICLE VI. MANAGEMENT | 28 | |||||||
Section 6.01 |
Authority of Manager | 28 | ||||||
Section 6.02 |
Actions of the Manager | 29 | ||||||
Section 6.03 |
Resignation; No Removal | 29 | ||||||
Section 6.04 |
Vacancies | 29 |
TABLE OF CONTENTS
(continued)
Page | ||||||||
Section 6.05 |
Transactions Between Company and Manager | 29 | ||||||
Section 6.06 |
Reimbursement for Expenses | 29 | ||||||
Section 6.07 |
Delegation of Authority | 30 | ||||||
Section 6.08 |
Limitation of Liability of Manager | 30 | ||||||
Section 6.09 |
Investment Company Act | 31 | ||||||
Section 6.10 |
Outside Activities of the Manager | 32 | ||||||
ARTICLE VII. RIGHTS AND OBLIGATIONS OF MEMBERS AND MANAGER |
32 | |||||||
Section 7.01 |
Limitation of Liability and Duties of Members | 32 | ||||||
Section 7.02 |
Lack of Authority | 33 | ||||||
Section 7.03 |
No Right of Partition | 33 | ||||||
Section 7.04 |
Indemnification | 33 | ||||||
Section 7.05 |
Members Right to Act | 35 | ||||||
Section 7.06 |
Inspection Rights | 36 | ||||||
ARTICLE VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS, AFFIRMATIVE COVENANTS |
36 | |||||||
Section 8.01 |
Records and Accounting | 36 | ||||||
Section 8.02 |
Fiscal Year | 36 | ||||||
ARTICLE IX. TAX MATTERS |
36 | |||||||
Section 9.01 |
Preparation of Tax Returns | 36 | ||||||
Section 9.02 |
Tax Elections | 37 | ||||||
Section 9.03 |
Composite Returns | 37 | ||||||
Section 9.04 |
Foreign Filings | 37 | ||||||
Section 9.05 |
Tax Controversies | 37 | ||||||
ARTICLE X. RESTRICTIONS ON TRANSFER OF UNITS; PUBCO OFFER |
39 | |||||||
Section 10.01 |
Transfers by Members | 39 | ||||||
Section 10.02 |
Permitted Transfers | 39 | ||||||
Section 10.03 |
Restricted Units Legend | 40 | ||||||
Section 10.04 |
Transfer | 40 | ||||||
Section 10.05 |
Assignees Rights | 40 | ||||||
Section 10.06 |
Assignors Rights and Obligations | 41 | ||||||
Section 10.07 |
Overriding Provisions | 41 | ||||||
Section 10.08 |
Spousal Consent | 42 | ||||||
Section 10.09 |
Tender Offers and Other Events with respect to the Corporation | 42 | ||||||
ARTICLE XI. REDEMPTION AND EXCHANGE RIGHTS |
43 | |||||||
Section 11.01 |
Redemption Right of a Member | 43 | ||||||
Section 11.02 |
Election and Contribution of the Corporation | 48 | ||||||
Section 11.03 |
Exchange Right of the Corporation | 48 | ||||||
Section 11.04 |
Reservation of shares of Class A Common Stock; Listing; Certificate of the Corporation | 49 | ||||||
Section 11.05 |
Effect of Exercise of Redemption or Exchange Right | 50 | ||||||
Section 11.06 |
Tax Treatment | 50 | ||||||
ARTICLE XII. ADMISSION OF MEMBERS |
50 | |||||||
Section 12.01 |
Substituted Members | 50 | ||||||
Section 12.02 |
Additional Members | 50 |
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TABLE OF CONTENTS
(continued)
Page | ||||||||
ARTICLE XIII. RESIGNATION; TERMINATION OF RIGHTS |
50 | |||||||
Section 13.01 |
Resignation of Members | 50 | ||||||
ARTICLE XIV. DISSOLUTION AND LIQUIDATION |
51 | |||||||
Section 14.01 |
Dissolution | 51 | ||||||
Section 14.02 |
Winding up and Termination | 51 | ||||||
Section 14.03 |
Deferment; Distribution in Kind | 52 | ||||||
Section 14.04 |
Cancellation of Certificate | 52 | ||||||
Section 14.05 |
Reasonable Time for Winding Up | 52 | ||||||
Section 14.06 |
Return of Capital | 53 | ||||||
ARTICLE XV. VALUATION |
53 | |||||||
Section 15.01 |
Determination | 53 | ||||||
Section 15.02 |
Dispute Resolution | 53 | ||||||
ARTICLE XVI. GENERAL PROVISIONS |
53 | |||||||
Section 16.01 |
Power of Attorney | 53 | ||||||
Section 16.02 |
Confidentiality | 54 | ||||||
Section 16.03 |
Amendments | 55 | ||||||
Section 16.04 |
Title to Company Assets | 56 | ||||||
Section 16.05 |
Addresses and Notices | 56 | ||||||
Section 16.06 |
Binding Effect; Intended Beneficiaries | 57 | ||||||
Section 16.07 |
Creditors | 57 | ||||||
Section 16.08 |
Waiver | 57 | ||||||
Section 16.09 |
Counterparts | 57 | ||||||
Section 16.10 |
Applicable Law | 57 | ||||||
Section 16.11 |
Severability | 58 | ||||||
Section 16.12 |
Further Action | 58 | ||||||
Section 16.13 |
Delivery by Electronic Transmission | 58 | ||||||
Section 16.14 |
Right of Offset | 58 | ||||||
Section 16.15 |
Entire Agreement | 58 | ||||||
Section 16.16 |
Remedies | 59 | ||||||
Section 16.17 |
Descriptive Headings; Interpretation | 59 | ||||||
Section 16.18 |
Approval of Agreement | 59 | ||||||
Schedules |
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Schedule 1 |
Schedule of Pre-IPO Members |
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Schedule 2 |
Schedule of Members |
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Exhibits |
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Exhibit A |
Form of Joinder Agreement |
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Exhibit B-1 |
Form of Agreement and Consent of Spouse |
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Exhibit B-2 |
Form of Spouses Confirmation of Separate Property |
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PLURALSIGHT HOLDINGS, LLC
FOURTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
This FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, this Agreement ) of Pluralsight Holdings, LLC, a Delaware limited liability company (the Company ), dated as of [], 2018 (the Effective Time ), is entered into by and among the Members (as defined herein).
RECITALS
WHEREAS, unless the context otherwise requires, capitalized terms have the respective meanings ascribed to them in Section 1.1 ;
WHEREAS, the Company was formed as a limited liability company pursuant to and in accordance with the Delaware Act by the filing of the Certificate of Formation of the Company with the Secretary of State of the State of Delaware pursuant to Section 18-201 of the Delaware Act on August 28, 2014 and the execution of that certain Limited Liability Company Agreement of the Company dated September 18, 2014 (the Initial LLC Agreement );
WHEREAS, the Company is currently governed by that certain Third Amended and Restated Limited Liability Company Agreement of the Company, dated as of September 12, 2017 (as heretofore amended, the Current LLC Agreement ), by the members of the Company party thereto (the Pre-IPO Members );
WHEREAS, the Pre-IPO Members, prior to the Effective Time, hold (i) various classes of Units (as defined in the Current LLC Agreement) of the Company, including, Class A Common Units, Class B Common Units, Class A Incentive Units, Class B Incentive Units, Series A Convertible Preferred Units, Series B Convertible Preferred Units and Series C Convertible Preferred Units (each as defined in the Current LLC Agreement, and collectively, the Original Units ) and/or (ii) Class B RSUs (as defined in the Current LLC Agreement, collectively, the Original RSUs );
WHEREAS, immediately prior to the Effective Time, certain of the Pre-IPO Members contributed to the Corporation (as defined below) all or a portion of the Units (as defined in the Current LLC Agreement) held by such Pre-IPO Members to the Corporation, in exchange for shares of Class A Common Stock (as defined below) (the Pre-IPO Exchanges ), in each case, as set forth and more fully described in Section 2.1(b)(i) of the Reorganization Agreement;
WHEREAS, immediately following the Pre-IPO Exchanges, among other things, (i) (A) certain of the Pre-IPO Members will each merge with and into a separate, wholly-owned subsidiary of the Corporation, with such Pre-IPO Member as the surviving entity of such merger, and as consideration for such merger, the stockholder(s) of such Pre-IPO Member shall receive, in the aggregate, newly issued Class A Common Stock equal to the number of Units (as defined in the Current LLC Agreement) held by such Pre-IPO Member prior to such merger and (B) such
Pre-IPO Member shall merge with and into the Corporation, in each case, with the Corporation as the surviving entity and (i) a certain Pre-IPO Member will merge with and into the Corporation, with the Corporation as the surviving entity (the transactions describe above, collectively, the Blocker Mergers ), in each case, as set forth in and more fully described in Section 2.1(b)(ii) and Section 2.1(b)(iii) of the Reorganization Agreement.
WHEREAS, the Pre-IPO Members desire to have Pluralsight, Inc., a Delaware corporation (the Corporation ), effect an initial public offering (the IPO ) of shares of its Class A common stock, par value $0.0001 (the Class A Common Stock ), and in connection therewith, to amend and restate the Current LLC Agreement as of the Effective Time to reflect (a) a recapitalization of the Company (the Recapitalization ), (b) the admission of the Corporation as an additional Member in the Company and its designation as sole Manager of the Company, and (c) the rights and obligations of the Members that are enumerated and agreed upon in the terms of this Agreement effective as of the Effective Time, at which time the Current LLC Agreement shall be superseded entirely by this Agreement;
WHEREAS, in connection with the Recapitalization and as of the Effective Time, (i) the Original Units will be converted into Common Units as set forth herein, and (ii) the Original RSUs will be converted into Skonnard RSUs as set forth herein;
WHEREAS, the parties listed on the Schedule of Members attached hereto as Schedule 2 are the Members as of the Effective Time and after giving effect to the Recapitalization and completion of the Blocker Mergers (as defined below) and Pre-IPO Exchanges (as defined below);
WHEREAS, the Corporation will sell shares of its Class A Common Stock to public investors in the IPO and will use the net proceeds received from the IPO (the IPO Net Proceeds ) to purchase newly issued Common Units from the Company pursuant to Section 2.2(c)(i) of the Reorganization Agreement;
WHEREAS, the Corporation may issue additional shares of Class A Common Stock in connection with the IPO as a result of the exercise by the underwriters of their over-allotment option (the Over-Allotment Option ) and, if the Over-Allotment Option is exercised in whole or in part, any additional net proceeds (the Over-Allotment Option Net Proceeds ) shall be used by the Corporation to purchase additional newly issued Common Units from the Company pursuant to Section 2.2(c)(i) of the Reorganization Agreement; and
WHEREAS, promptly following the Effective Time, the Company will purchase from the Corporation shares of Class B Common Stock (as defined below) and shares of Class C Common Stock (as defined below) pursuant to the Stock Subscription Agreement, which Class B Common Stock and Class C Common Stock will be distributed to certain of the Members as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members, intending to be legally bound, hereby amend and restate the Current LLC Agreement in its entirety and otherwise agree as follows:
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ARTICLE I.
DEFINITIONS
The following definitions shall be applied to the terms used in this Agreement for all purposes, unless otherwise clearly indicated to the contrary.
Additional Member has the meaning set forth in Section 12.02 .
Adjusted Capital Account Deficit means with respect to the Capital Account of any Member as of the end of any Taxable Year, the amount by which the balance in such Capital Account is less than zero. For this purpose, such Members Capital Account balance shall be:
(a) reduced for any items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6); and
(b) increased for any amount such Member is obligated to contribute or is treated as being obligated to contribute to the Company pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (relating to partner liabilities to a partnership) or 1.704-2(g)(1) and 1.704-2(i) (relating to minimum gain).
Admission Date has the meaning set forth in Section 10.06 .
Affiliate (and, with a correlative meaning, Affiliated ) means, with respect to a specified Person, each other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. As used in this definition, control (including with correlative meanings, controlled by and under common control with) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities or by contract or other agreement).
Agreement has the meaning set forth in the preamble to this Agreement.
Assignee means a Person to whom a Company Interest has been transferred but who has not been admitted as a Member pursuant to Article XII .
Assumed Tax Liability means, with respect to any Member, an amount equal to the excess of (i) the product of (A) the Distribution Tax Rate multiplied by (B) the estimated or actual cumulative taxable income or gain of the Company, as determined for federal income tax purposes, allocated to such Member for full or partial Fiscal Years commencing on or after the closing date of the IPO, less prior losses of the Company allocated to such Member for full or partial Fiscal Years commencing on or after the closing date of the IPO, in each case, as determined by the Manager over (ii) the cumulative Tax Distributions made to such Member after the closing date of the IPO pursuant to Sections 4.01(b)(i) , 4.01(b)(ii) and 4.01(b)(iii) ; provided that, such Assumed Tax Liability (x) shall be computed without regard to any adjustments to the tax basis of the Companys property pursuant to Section 743(b) of the Code and (y) in the case of the Corporation, shall in no event be less than an amount that will enable the Corporation to meet both its tax obligations and its obligations pursuant to the Tax Receivable Agreement for the relevant Taxable Year; provided further that, in the case of each
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Member, such Assumed Tax Liability shall take into account any Code Section 704(c) allocations (including reverse 704(c) allocations) to the Member; and provided , further , that no Members calculation of the amount described in clause (B) above shall take into account any guaranteed payment, salary, bonus or other compensation for services paid to such Member.
Base Rate means, on any date, a variable rate per annum equal to the rate of interest most recently published by The Wall Street Journal as the prime rate at large U.S. money center banks.
Black-Out Period means any black-out or similar period under the Corporations policies covering trading in the Corporations securities to which the applicable Redeeming Member is subject (or will be subject at such time as it owns Class A Common Stock), which period restricts the ability of such Redeeming Member to immediately resell shares of Class A Common Stock to be delivered to such Redeeming Member in connection with a Share Settlement.
Blocker Mergers has the meaning set forth in the recitals to this Agreement.
Book Value means, with respect to any Company property, the Companys adjusted basis for U.S. federal income tax purposes, adjusted from time to time to reflect the adjustments required or permitted by Treasury Regulation Section 1.704-1(b)(2)(iv)(d)-(g).
Business Day means any day other than a Saturday or a Sunday or a day on which banks located in New York City, New York generally are authorized or required by Law to close.
Capital Account means the capital account maintained for a Member in accordance with Section 5.01 .
Capital Contribution means, with respect to any Member, the amount of any cash, cash equivalents, promissory obligations or the Fair Market Value of other property that such Member (or such Members predecessor) contributes (or is deemed to contribute) to the Company pursuant to Article III hereof.
Cash Settlement means immediately available funds in U.S. dollars in an amount equal to the Redeemed Units Equivalent.
Certificate means the Companys Certificate of Formation as filed with the Secretary of State of the State of Delaware, as amended or amended and restated from time to time.
Class A Common Stock has the meaning set forth in the recitals to this Agreement.
Class A Stock Option has the meaning set forth in Section 3.10(a) of this Agreement.
Class B Common Stock means the shares of Class B Common Stock, par value $0.0001 per share, of the Corporation.
Class C Common Stock means the shares of Class C Common Stock, par value $0.0001 per share, of the Corporation.
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Code means the United States Internal Revenue Code of 1986, as amended.
Common Unit means a Unit representing a fractional part of the Company Interests of the Members and having the rights and obligations specified with respect to the Common Units in this Agreement.
Common Unit Redemption Price means the arithmetic average of the volume weighted average prices for a share of Class A Common Stock (or any class of stock into which it has been converted) on the principal U.S. securities exchange or automated or electronic quotation system on which the Class A Common Stock trades, as reported by Bloomberg, L.P., or its successor, for each of the five (5) consecutive full Trading Days ending on and including the last full Trading Day immediately prior to the Redemption Date, subject to appropriate and equitable adjustment for any stock splits, reverse splits, stock dividends or similar events affecting the Class A Common Stock. If the Class A Common Stock no longer trades on a securities exchange or automated or electronic quotation system, then the Manager (through its board of directors, including a majority of the independent directors (within the meaning of the rules of the Stock Exchange)) shall determine the Common Unit Redemption Price in good faith.
Common Unitholder means a Member who is the registered holder of Common Units.
Company has the meaning set forth in the preamble to this Agreement.
Company Interest means the limited liability company interest of a Member, including its interests in Profits, Losses and Distributions.
Contribution Notice has the meaning set forth in Section 11.01(b) .
Corporate Board means the Board of Directors of the Corporation.
Corporate Incentive Award Plan means the 2017 Equity Incentive Plan of the Corporation, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time.
Corporation has the meaning set forth in the recitals to this Agreement, together with its successors and assigns.
Credit Agreements means any promissory note, mortgage, loan agreement, indenture or similar instrument or agreement to which the Company or any of its Subsidiaries is or becomes a borrower, as such instruments or agreements may be amended, restated, supplemented or otherwise modified from time to time and including any one or more refinancing or replacements thereof, in whole or in part, with any other debt facility or debt obligation, for as long as the payee or creditor to whom the Company or any of its Subsidiaries owes such obligation is not an Affiliate of the Company, including the Senior Secured Credit Facilities.
Current LLC Agreement has the meaning set forth in the recitals to this Agreement.
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Delaware Act means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq. , as it may be amended from time to time, and any successor thereto.
Direct Exchange has the meaning set forth in Section 11.03(a) .
Distributable Cash means, as of any relevant date on which a determination is being made by the Manager regarding a potential distribution pursuant to Section 4.01(a) , the amount of cash that could be distributed by the Company for such purposes in accordance with the Credit Agreements (and without otherwise violating any applicable provisions of any of the Credit Agreements).
Distribution (and, with a correlative meaning, Distribute ) means each distribution made by the Company to a Member with respect to such Members Units, whether in cash, property or securities of the Company and whether by liquidating distribution or otherwise; provided, however , that none of the following shall be a Distribution: (a) any recapitalization that does not result in the distribution of cash or property to Members or any exchange of securities of the Company, and any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Units or (b) any other payment made by the Company to a Member that is not properly treated as a distribution for purposes of Sections 731, 732, or 733 or other applicable provisions of the Code.
Distribution Tax Rate means a rate equal to the highest effective marginal combined federal, state and local income tax rate for a Fiscal Year applicable to corporate or individual taxpayers that may potentially apply to any Member for such Fiscal Year, taking into account the character of the relevant tax items ( e.g. , ordinary or capital), the deductibility of state and local income taxes for federal income tax purposes (but only to the extent such taxes are deductible under the Code) and including deductions pursuant to Section 199A of the Code, as reasonably determined by the Manager. For the avoidance of doubt, the Company shall use the same Distribution Tax Rate for determining the Assumed Tax Liability for each Member with respect to any particular item of income or gain, regardless of whether the Member is a corporation, individual, partnership, trust, estate or other juridical entity.
Effective Time has the meaning set forth in the preamble to this Agreement.
Equity Plan means any stock or equity purchase plan, restricted stock or equity plan or other similar equity compensation plan now or hereafter adopted by the Company or the Corporation.
Equity Securities means (a) Units or other equity interests in the Company (including other classes or groups thereof having such relative rights, powers and duties as may from time to time be established by the Manager pursuant to the provisions of this Agreement, including rights, powers and/or duties senior to existing classes and groups of Units and other equity interests in the Company or any Subsidiary of the Company), (b) obligations, evidences of indebtedness or other securities or interests convertible or exchangeable into Units or other equity interests in the Company or any Subsidiary of the Company, (c) Skonnard RSUs, and (d) warrants, options or other rights to purchase or otherwise acquire Units or other equity interests in the Company or any Subsidiary of the Company.
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Event of Withdrawal means the expulsion, bankruptcy or dissolution of a Member or the occurrence of any other event that terminates the continued membership of a Member in the Company. Event of Withdrawal shall not include an event that (a) terminates the existence of a Member for income tax purposes (including, without limitation, (i) a change in entity classification of a Member under Treasury Regulations Section 301.7701-3, (ii) a sale of assets by, or liquidation of, a Member pursuant to an election under Code Sections 336 or 338, or (iii) merger, severance, or allocation within a trust or among sub-trusts of a trust that is a Member) but that (b) does not terminate the existence of such Member under applicable state law (or, in the case of a trust that is a Member, does not terminate the trusteeship of the fiduciaries under such trust with respect to all the Company Interests of such trust that is a Member).
Exchange Election Notice has the meaning set forth in Section 11.03(b) .
Fair Market Value means, with respect to any asset, its fair market value determined according to Article XV .
Fiscal Period means any interim accounting period within a Taxable Year established by the Manager and which is permitted or required by Section 706 of the Code.
Fiscal Year means the Companys annual accounting period established pursuant to Section 8.02 .
Governmental Entity means (a) the United States of America, (b) any other sovereign nation, (c) any state, province, district, territory or other political subdivision of (a) or (b) of this definition, including any county, municipal or other local subdivision of the foregoing, or (d) any entity exercising executive, legislative, judicial, regulatory or administrative functions of government on behalf of (a), (b) or (c) of this definition.
Indemnified Person has the meaning set forth in Section 7.04(a) .
Initial LLC Agreement has the meaning set forth in the recitals to this Agreement.
Investment Company Act means the U.S. Investment Company Act of 1940, as amended from time to time.
IPO has the meaning set forth in the recitals to this Agreement.
IPO Common Unit Purchase has the meaning set forth in Section 3.03(b) .
IPO Net Proceeds has the meaning set forth in the recitals to this Agreement.
Joinder means a joinder to this Agreement, in form and substance substantially similar to Exhibit A to this Agreement.
Law means all laws, statutes, ordinances, rules and regulations of the United States, any foreign country and each state, commonwealth, city, county, municipality, regulatory body, agency or other political subdivision thereof.
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liquidator has the meaning set forth in Section 14.02 .
LLC Employee means a current or former employee of, or other service provider (including, without limitation, any management member whether or not treated as an employee for the purposes of U.S. federal income tax) to, the Company or any of its Subsidiaries, in each case acting in such capacity.
Losses means items of Company loss or deduction determined according to Section 5.01(b) .
Manager has the meaning set forth in Section 6.01 .
Market Price means, with respect to a share of Class A Common Stock as of a specified date, the last sale price per share of Class A Common Stock, regular way, or if no such sale took place on such day, the average of the closing bid and asked prices per share of Class A Common Stock, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the Stock Exchange or, if the Class A Common Stock is not listed or admitted to trading on the Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Class A Common Stock is listed or admitted to trading or, if the Class A Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use or, if the Class A Common Stock is not quoted by any such system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in shares of Class A Common Stock selected by the Corporate Board or, in the event that no trading price is available for the shares of Class A Common Stock, the fair market value of a share of Class A Common Stock, as determined in good faith by the Corporate Board, including a majority of its independent directors (within the meaning of the rules of the Stock Exchange).
Member means, as of any date of determination, (a) each of the members named on the Schedule of Members and (b) any Person admitted to the Company as a Substituted Member or Additional Member in accordance with Article XII , but in each case only so long as such Person is shown on the Companys books and records as the owner of one or more Units, each in its capacity as a member of the Company. The Members shall constitute a single class or group of members for purposes of the Delaware Act.
Minimum Gain means partnership minimum gain determined pursuant to Treasury Regulation Section 1.704-2(d).
Minimum Exchange Requirement means, with respect to a Member, the lesser of (a) 100 Common Units and (b) the total number of Common Units then held by such Member.
Net Loss means, with respect to a Fiscal Year, the excess if any, of Losses for such Fiscal Year over Profits for such Fiscal Year (excluding Profits and Losses specially allocated pursuant to Section 5.03 and Section 5.04 ).
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Net Profit means, with respect to a Fiscal Year, the excess if any, of Profits for such Fiscal Year over Losses for such Fiscal Year (excluding Profits and Losses specially allocated pursuant to Section 5.03 and Section 5.04 ).
Officer has the meaning set forth in Section 6.01(b) .
Optionee means a Person to whom a stock option is granted under any Equity Plan.
Original RSUs has the meaning set forth in the recitals to this Agreement.
Original Units has the meaning set forth in the recitals to this Agreement.
Other Agreements has the meaning set forth in Section 10.04 .
Over-Allotment Option has the meaning set forth in the recitals to this Agreement.
Over-Allotment Option Net Proceeds has the meaning set forth in the recitals to this Agreement.
Partnership Representative has the meaning set forth in Section 9.05(b) .
Percentage Interest means such Members percentage interest in the Company determined by dividing such Members Units by the total Units of all Members at such time. The Percentage Interest of each Member shall be calculated to the 4 th decimal place.
Permitted Redemption Event means any of the following events, which has or is occurring, or is otherwise satisfied, as of the Redemption Date:
(a) The Redemption is part of one or more Redemptions by a Member and any related persons (within the meaning of Section 267(b) or 707(b)(1) of the Code) during any 30 calendar day period representing in the aggregate more than 2% of all outstanding Common Units (excluding any Common Units held by the Corporation, so long as the Corporation is the Manager and owns more than 10% of all outstanding Common Units at any point during the taxable year during which such Redemption or Redemptions occurs or occur determined pursuant to Treasury Regulations Section 1.7704-1(k)(1)),
(b) The Redemption is in connection with a Pubco Offer; provided that any such Redemption pursuant to this clause (b) shall be effective immediately prior to the consummation of the closing of the Pubco Offer (and, for the avoidance of doubt, shall not be effective if such Pubco Offer is not consummated), or
(c) The Redemption is permitted by the Manager, in its sole discretion, in connection with circumstances not otherwise set forth herein, if the Manager determines, after consultation with its outside legal counsel and tax advisor, that the Company would not be treated as a publicly traded partnership under Section 7704 of the Code (or any successor or similar provision) as a result of or in connection with such Redemption.
Permitted Transfer has the meaning set forth in Section 10.02 .
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Permitted Transferee has the meaning set forth in Section 10.02 .
Person means an individual or any corporation, partnership, limited liability company, trust, unincorporated organization, association, joint venture or any other organization or entity, whether or not a legal entity.
Pre-IPO Exchanges has the meaning set forth in the recitals to this Agreement
Pre-IPO Members has the meaning set forth in the recitals to this Agreement.
Private Placement Safe Harbor means the private placement safe harbor set forth in Treasury Regulations Section 1.7704-1(h)(1).
Pro rata , pro rata portion , according to their interests , ratably , proportionately , proportional , in proportion to , based on the number of Units held , based upon the percentage of Units held , based upon the number of Units outstanding , and other terms with similar meanings, when used in the context of a number of Units of the Company relative to other Units, means as amongst an individual class of Units, pro rata based upon the number of such Units within such class of Units.
Profits means items of Company income and gain determined according to Section 5.01(b) .
Pubco Offer has the meaning set forth in Section 10.09(a) .
Quarterly Exchange Date means, either (x) for each fiscal quarter, the first (1 st ) Business Day occurring after the sixtieth (60 th ) day after the expiration of the applicable Quarterly Exchange Notice Period or (y) such other date as the Manager shall determine in its sole discretion; provided that such date is at least sixty (60) days after the expiration of the Quarterly Exchange Notice Period.
Quarterly Exchange Notice Period means, for each fiscal quarter, the period commencing on the third (3 rd ) Business Day after the day on which the Company releases its earnings for the prior fiscal period, beginning with the first such date that falls on or after the waiver or expiration of any contractual lock-up period relating to the shares of the Corporation that may be applicable to a Member (or such other date within such quarter as the Manager shall determine in its sole discretion) and ending five (5) Business Days thereafter. Notwithstanding the foregoing, the Manager may change the definition of Quarterly Exchange Notice Period with respect to any Quarterly Exchange Notice Period scheduled to occur in a calendar quarter subsequent to the then-current calendar quarter if (x) the revised definition provides for a Quarterly Exchange Notice Period occurring at least once in each calendar quarter, (y) the first Quarterly Exchange Notice Period pursuant to the revised definition will occur no less than 10 Business Days from the date written notice of such change is sent to each Member (other than the Corporation) and (z) the revised definition, together with the revised Quarterly Exchange Date resulting therefrom, do not materially adversely affect the ability of the Members to exercise their Redemption Rights pursuant to this Agreement.
Quarterly Tax Distribution has the meaning set forth in Section 4.01(b)(i) .
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Recapitalization has the meaning set forth in the recitals to this Agreement.
Redeemed Units has the meaning set forth in Section 11.01(a) .
Redeemed Units Equivalent means the product of (a) the applicable number of Redeemed Units, times (b) the Common Unit Redemption Price.
Redeeming Member has the meaning set forth in Section 11.01(a) .
Redemption has the meaning set forth in Section 11.01(a) .
Redemption Date has the meaning set forth in Section 11.01(a) .
Redemption Notice has the meaning set forth in Section 11.01(a) .
Redemption Right has the meaning set forth in Section 11.01(a) .
Registration Rights Agreement means that certain Amended and Restated Registration Rights Agreement, dated as of the date of this Agreement, by and among the Corporation, certain of the Members as of the Effective Time and certain other persons whose signatures are affixed thereto (together with any joinder thereto from time to time by any successor or assign to any party to such agreement).
Reorganization Agreement means that certain Reorganization Agreement, dated as of the date of this Agreement, by and between the Corporation, the Company and certain Members as specified therein.
Retraction Notice has the meaning set forth in Section 11.01(c) .
Revised Partnership Audit Provisions means Section 1101 of Title XI (Revenue Provisions Related to Tax Compliance) of the Bipartisan Budget Act of 2015, H.R. 1314, Public Law Number 114-74.
Schedule of Members has the meaning set forth in Section 3.01(b) .
SEC means the U.S. Securities and Exchange Commission, including any governmental body or agency succeeding to the functions thereof.
Secondary Offering has the meaning set forth in Section 11.01(a) .
Securities Act means the U.S. Securities Act of 1933, as amended, and applicable rules and regulations thereunder, and any successor to such statute, rules or regulations. Any reference herein to a specific section, rule or regulation of the Securities Act shall be deemed to include any corresponding provisions of future Law.
Senior Secured Credit Facilities means the Credit Agreement, dated as of June 12, 2017, by and among the LLC, Pluralsight, LLC (as borrower), the lenders party thereto and Guggenheim Corporate Funding, LLC, as administrative agent and as collateral agent, as amended by that First Amendment to Credit Agreement, dated as of February 5, 2018, and as may be amended, restated, modified or otherwise supplemented from time to time, or any replacement or refinancing thereof, as amended, restated, modified or otherwise supplemented from time to time.
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Share Settlement means a number of shares of Class A Common Stock equal to the number of Redeemed Units.
Skonnard Award Agreement means that certain Amended and Restated Restricted Share Unit Agreement, dated as of the date of this Agreement, among Mr. Aaron Skonnard, the Company and the Corporation.
Skonnard Entities means (a) Skonnard Consulting, Inc., (b) Skonnard Family GRAT 2018, (c) Skonnard Family GRAT 2021, (d) Aaron & Monica Skonnard Revocable Trust, (e) the True Nord Trust dated December 5, 2014 and (f) the Aaron and Monica Skonnard Legacy Trust dated December 5, 2014.
Skonnard RSUs means Restricted Share Units in the Company that are subject to the terms and conditions of the Skonnard Award Agreement.
Sponsor Person has the meaning set forth in Section 7.04(d) .
Stock Exchange means the NASDAQ.
Stock Subscription Agreement means that certain Subscription Agreement, dated as of the date of this Agreement, by and between the Corporation and the Company.
Subsidiary means, with respect to any Person, any corporation, limited liability company, partnership, association or business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of the voting interests thereof are at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, references to a Subsidiary of the Company shall be given effect only at such times that the Company has one or more Subsidiaries, and, unless otherwise indicated, the term Subsidiary refers to a Subsidiary of the Company.
Substituted Member means a Person that is admitted as a Member to the Company pursuant to Section 12.01 .
Tax Distributions has the meaning set forth in Section 4.01(b)(i) .
Tax Matters Partner has the meaning set forth in Section 9.05(a) .
Tax Receivable Agreement means that certain Tax Receivable Agreement, dated as the date of this Agreement, by and among the Corporation, on the one hand, and the Members as of the Effective Time, on the other hand (together with any joinder thereto from time to time by any successor or assign to any party to such agreement).
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Taxable Year means the Companys accounting period for U.S. federal income tax purposes determined pursuant to Section 9.02 .
Trading Day means a day on which the Stock Exchange or such other principal United States securities exchange on which the Class A Common Stock is listed or admitted to trading is open for the transaction of business (unless such trading shall have been suspended for the entire day).
Transfer (and, with a correlative meaning, Transferring ) means any sale, transfer, assignment, redemption, pledge, encumbrance or other disposition of (whether directly or indirectly, whether with or without consideration and whether voluntarily or involuntarily or by operation of Law) (a) any interest (legal or beneficial) in any Equity Securities or (b) any equity or other interest (legal or beneficial) in any Member if substantially all of the assets of such Member consist solely of Units.
Treasury Regulations means the final and temporary tax regulations promulgated under the Code and any corresponding provisions of succeeding regulations.
Underlying Class A Shares means all shares of Class A Common Stock issuable upon redemption of Common Units, assuming all such Common Units are redeemed for Class A Common Stock on a one-for-one basis.
Underwriting Agreement means the Underwriting Agreement, dated as of the date of this Agreement, by and among the Corporation, the Company and Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, as representative of the several underwriters named therein.
Unit means a Company Interest of a Member or a permitted Assignee in the Company representing a fractional part of the Company Interests of all Members and Assignees as may be established by the Manager from time to time in accordance with Section 3.02 ; provided, however , that any class or group of Units issued shall have the relative rights, powers and duties set forth in this Agreement, and the Company Interest represented by such class or group of Units shall be determined in accordance with such relative rights, powers and duties.
Unitholder means a Common Unitholder and any Member who is the registered holder of any other class of Units, if any.
Unrestricted Redemption has the meaning set forth in Section 11.01 .
Value means (a) for any stock option granted under an Equity Plan, the Market Price for the Trading Day immediately preceding the date of exercise of a stock option under such Equity Plan and (b) for any other equity security granted under an Equity Plan, the Market Price for the Trading Day immediately preceding the Vesting Date
Vesting Date has the meaning set forth in Section 3.10(c)(ii) .
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ARTICLE II.
ORGANIZATIONAL MATTERS
Section 2.01 Formation of Company . The Company was formed pursuant to the provisions of the Delaware Act by the execution of the Initial LLC Agreement and the execution and filing of the Certificate of Formation by an authorized person of the Company within the meaning of the Delaware Act, such filing being hereby ratified, approved and confirmed in all respects.
Section 2.02 This Agreement . The Members hereby execute this Agreement for the purpose of establishing the affairs of the Company and the conduct of its business in accordance with the provisions of the Delaware Act. The Members hereby agree that during the term of the Company set forth in Section 2.06 the rights and obligations of the Members with respect to the Company will be determined in accordance with the terms and conditions of this Agreement and the Delaware Act. No provision of this Agreement shall be in violation of the Delaware Act and to the extent any provision of this Agreement is in violation of the Delaware Act, such provision shall be void and of no effect to the extent of such violation without affecting the validity of the other provisions of this Agreement. Neither any Member nor the Manager nor any other Person shall have appraisal rights with respect to any Company Interests (including any Units).
Section 2.03 Name . The name of the Company shall be Pluralsight Holdings, LLC. The Manager in its sole discretion may change the name of the Company at any time and from time to time. Notification of any such change shall be given to all of the Members and, to the extent practicable, to all of the holders of any Equity Securities then outstanding. The Companys business may be conducted under its name and/or any other name or names deemed advisable by the Manager.
Section 2.04 Purpose . The primary business and purpose of the Company shall be to engage in such activities as are permitted under the Delaware Act and determined from time to time by the Manager in accordance with the terms and conditions of this Agreement.
Section 2.05 Principal Office; Registered Office . The principal office of the Company shall be at such location as the Manager may from time to time designate. The address of the registered office of the Company in the State of Delaware and the registered agent for service of process on the Company in the State of Delaware shall each be set forth in the Certificate, as the same may be amended from time to time by the Manager.
Section 2.06 Term . The term of the Company commenced upon the filing of the Certificate in accordance with the Delaware Act and shall continue in existence until dissolution of the Company in accordance with the provisions of Article XIV .
Section 2.07 No State-Law Partnership . The Members intend that the Company not be a partnership (including, without limitation, a limited partnership) or joint venture, and that no Member be a partner or joint venturer of any other Member by virtue of this Agreement, for any purposes other than as set forth in the last sentence of this Section 2.07 , and neither this Agreement nor any other document entered into by the Company or any Member relating to the subject matter hereof shall be construed to suggest otherwise. The Members intend that the
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Company shall be treated as a partnership for U.S. federal and, if applicable, state or local income tax purposes, and that each Member and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment.
ARTICLE III.
MEMBERS; UNITS; CAPITALIZATION
Section 3.01 Members .
(a) At the Effective Time and concurrently with the IPO Common Unit Purchase and completion of the Blocker Mergers and the Pre-IPO Exchanges, the Corporation shall be automatically admitted to the Company as a Member.
(b) The Company shall maintain a schedule setting forth: (i) the name and address of each Member; (ii) the aggregate number of outstanding Units and the number and class of Units held by each Member; (iii) the aggregate amount of cash Capital Contributions that has been made by the Members with respect to their Units; and (iv) the Fair Market Value of any property other than cash contributed by the Members with respect to their Units (including, if applicable, a description and the amount of any liability assumed by the Company or to which contributed property is subject) (such schedule, the Schedule of Members ). The applicable Schedule of Members in effect as of the Effective Time (after the consummation of the IPO Common Unit Purchase) is set forth as Schedule 2 attached to this Agreement. The Schedule of Members shall be the definitive record of ownership of each Unit of the Company and all relevant information with respect to each Member. The Company shall be entitled to recognize the exclusive right of a Person registered on its records as the owner of Units for all purposes and shall not be bound to recognize any equitable or other claim to or interest in Units on the part of any other Person, whether or not it shall have express or other notice thereof, except as otherwise provided by the Delaware Act.
(c) No Member shall be required or, except as approved by the Manager pursuant to Section 6.01 and in accordance with the other provisions of this Agreement, permitted to (i) loan any money or property to the Company, (ii) borrow any money or property from the Company or (iii) make any additional Capital Contributions.
Section 3.02 Units .
(a) Interests in the Company shall be represented by Units, or such other securities of the Company, in each case as the Manager may establish in its discretion in accordance with the terms and subject to the restrictions hereof. At the Effective Time, the Units will be comprised of a single class of Common Units.
(b) Subject to Section 3.04(a) , the Manager may (i) issue additional Common Units at any time in its sole discretion and (ii) create one or more classes or series of Units or preferred Units solely to the extent such new class or series of Units or preferred Units are substantially equivalent to a class of common stock of the Corporation or class or series of preferred stock of the Corporation; provided, that as long as there are any Members (other than the Corporation) (i) no such new class or series of Units may deprive such Members of, or dilute
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or reduce, the allocations and distributions they would have received, and the other rights and benefits to which they would have been entitled, in respect of their Company Interest if such new class or series of Units had not been created and (ii) no such new class or series of Units may be issued, in each case, except to the extent (and solely to the extent) the Company actually receives cash in an aggregate amount, or other property with a Fair Market Value in an aggregate amount, equal to the aggregate distributions that would be made in respect of such new class or series of Units if the Company were liquidated immediately after the issuance of such new class or series of Units. Notwithstanding the foregoing, to the extent the Company has one hundred (100) or fewer partners within the meaning of Treasury Regulations Section 1.7704-1(h)(1), the Company shall use commercially reasonable efforts to restrict issuances of Units in an amount sufficient for the Company to be eligible for the Private Placement Safe Harbor (within the meaning of Treasury Regulations Section 1.7704-1(h).
(c) To the extent required pursuant to Section 3.04(a) or Section 3.10 , as applicable, the Manager may amend this Agreement, without the consent of any Member or any other Person, in connection with the creation and issuance of such classes or series of Units, subject to Section 16.03(b) and Section 16.03(d) hereof.
Section 3.03 Recapitalization; the Corporation s Capital Contribution; the Corporation s Purchase of Common Units; Member Distribution .
(a) Recapitalization . In connection with the Recapitalization, (i) the number of Original Units that were issued and outstanding and held by the Pre-IPO Members prior to the Effective Time as set forth opposite to the respective Pre-IPO Member in Schedule 1 are hereby converted, as of the Effective Time, into the number of Common Units set forth opposite the name of the respective Member on the Schedule of Members attached hereto as Schedule 2 , and such Common Units are hereby issued and outstanding as of the Effective Time and the holders of such Common Units hereby continue as Members and (ii) the number of Original RSUs that were issued and outstanding and held by Mr. Aaron Skonnard prior to the Effective Time are hereby converted, as of the Effective Time, into the number of Skonnard RSUs set forth in the Skonnard Award Agreement, and such Skonnard RSUs are hereby issued and outstanding as of the Effective Time.
(b) The Corporation s Common Unit Agreement . Following the Recapitalization, the Corporation will acquire newly issued Common Units in exchange for a portion of the IPO Net Proceeds payable to the Company upon consummation of the IPO pursuant to Section 2.2(c)(i) of the Reorganization Agreement (the IPO Common Unit Purchase ). The IPO Common Unit Purchase shall be reflected on the Schedule of Members. In addition, to the extent the underwriters in the IPO exercise the Over-Allotment Option in whole or in part, upon the exercise of the Over-Allotment Option, the Corporation will contribute the Over-Allotment Option Net Proceeds to the Company in exchange for a number of newly issued Common Units equal to the number of shares of Class A Common Stock issued by the Corporation in such exercise of the Over-Allotment Option pursuant to Section 2.2(c)(i) of the Reorganization Agreement, and such issuance of additional Common Units shall be reflected on the Schedule of Members. For the avoidance of doubt, the Corporation shall be admitted as a Member with respect to all Common Units it holds from time to time.
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Section 3.04 Authorization and Issuance of Additional Units .
(a) The Company shall undertake all actions, including, without limitation, an issuance, reclassification, distribution, division or recapitalization, with respect to the Common Units, to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation, directly or indirectly, and the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, (i) options, rights or securities of the Corporation authorized under the Companys existing equity incentive plan that are convertible into or exercisable or exchangeable for Class A Common Stock (except to the extent the net proceeds from such other securities, including any exercise or purchase price payable upon conversion, exercise or exchange thereof, has been contributed by the Corporation to the equity capital of the Company), (ii) treasury stock or (iii) preferred stock or other debt or equity securities (including without limitation warrants, options or rights) issued by the Corporation that are convertible into or exercisable or exchangeable for Class A Common Stock (except to the extent the net proceeds from such other securities, including any exercise or purchase price payable upon conversion, exercise or exchange thereof, has been contributed by the Corporation to the equity capital of the Company). In the event the Corporation issues, transfers or delivers from treasury stock or repurchases Class A Common Stock in a transaction not contemplated in this Agreement, the Manager shall take all actions such that, after giving effect to all such issuances, transfers, deliveries or repurchases, the number of outstanding Common Units owned by the Corporation will equal on a one-for-one basis the number of outstanding shares of Class A Common Stock. In the event the Corporation issues, transfers or delivers from treasury stock or repurchases or redeems the Corporations preferred stock in a transaction not contemplated in this Agreement, the Manager shall have the authority to take all actions such that, after giving effect to all such issuances, transfers, deliveries, repurchases or redemptions, the Corporation holds (in the case of any issuance, transfer or delivery) or ceases to hold (in the case of any repurchase or redemption) equity interests in the Company which (in the good faith determination by the Manager) are in the aggregate substantially equivalent to the outstanding preferred stock of the Corporation so issued, transferred, delivered, repurchased or redeemed. The Company shall not undertake any subdivision (by any Common Unit split, Common Unit distribution, reclassification, recapitalization or similar event) or combination (by reverse Common Unit split, reclassification, recapitalization or similar event) of the Common Units that is not accompanied by an identical subdivision or combination of Class A Common Stock to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock, unless such action is necessary to maintain at all times a one-to-one ratio between the number of Common Units owned by the Corporation and the number of outstanding shares of Class A Common Stock as contemplated by the first sentence of this Section 3.04(a) .
(b) The Company shall only be permitted to issue additional Common Units, and/or establish other classes of Units or other Equity Securities in the Company to the Persons and on the terms and conditions provided for in Section 3.02 , this Section 3.04 , Section 3.10, Section 3.11 and the Skonnard Award Agreement. Subject to the foregoing, the Manager may cause the Company to issue additional Common Units authorized under this Agreement and/or establish other classes of Units or other Equity Securities in the Company at such times and upon such terms as the Manager shall determine and the Manager shall amend this Agreement as necessary in connection with the issuance of additional Common Units and admission of additional Members under this Section 3.04 without the requirement of any consent or acknowledgement of any other Member.
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Section 3.05 Repurchase, Redemption or Forfeiture of shares of Class A Common Stock . If, at any time, any shares of Class A Common Stock are repurchased or redeemed (whether by exercise of a put or call, automatically or by means of another arrangement) by the Corporation for cash or are forfeited to the Corporation due to failure to vest, then the Manager shall cause the Company, immediately prior to such repurchase, redemption or forfeiture of Class A Common Stock, to redeem a corresponding number of Common Units held (directly or indirectly) by the Corporation, at an aggregate redemption price equal to the aggregate purchase or redemption price of the shares of Class A Common Stock being repurchased or redeemed by, or forfeited to, the Corporation (plus any expenses related thereto) and upon such other terms as are the same for the shares of Class A Common Stock being repurchased or redeemed by, or forfeited to, the Corporation. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make any repurchase or redemption, and no shares of Class A Common Stock shall be forfeited to the Corporation, in all cases, if such action would violate any applicable Law.
Section 3.06 Certificates Representing Units; Lost, Stolen or Destroyed Certificates; Registration and Transfer of Units .
(a) Units shall not be certificated unless otherwise determined by the Manager. If the Manager determines that one or more Units shall be certificated, each such certificate shall be signed by or in the name of the Company, by the Chief Executive Officer, Chief Financial Officer, General Counsel or any other officer designated by the Manager, representing the number of Units held by such holder. Such certificate shall be in such form (and shall contain such legends) as the Manager may determine. Any or all of such signatures on any certificate representing one or more Units may be a facsimile, engraved or printed, to the extent permitted by applicable Law. The Manager agrees that it shall not elect to treat any Unit as a security within the meaning of Article 8 of the Uniform Commercial Code unless thereafter all Units then outstanding are represented by one or more certificates.
(b) If Units are certificated, the Manager may direct that a new certificate representing one or more Units be issued in place of any certificate theretofore issued by the Company alleged to have been lost, stolen or destroyed, upon delivery to the Manager of an affidavit of the owner or owners of such certificate, setting forth such allegation. The Manager may require the owner of such 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 any such new certificate.
(c) Upon surrender to the Company or the transfer agent of the Company, if any, of a certificate for one or more Units, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, in compliance with the provisions hereof, the Company shall issue a new certificate representing one or more Units to the Person entitled thereto, cancel the old certificate and record the transaction upon its books. Subject to the provisions of this Agreement, the Manager may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, Transfer and registration of Units.
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Section 3.07 Negative Capital Accounts . No Member shall be required to pay to any other Member or the Company any deficit or negative balance which may exist from time to time in such Members Capital Account (including upon and after dissolution of the Company).
Section 3.08 No Withdrawal . No Person shall be entitled to withdraw any part of such Persons Capital Contribution or Capital Account or to receive any Distribution from the Company, except as expressly provided in this Agreement.
Section 3.09 Loans From Members . Loans by Members to the Company shall not be considered Capital Contributions. Subject to the provisions of Section 3.01(c) , the amount of any such advances shall be a debt of the Company to such Member and shall be payable or collectible in accordance with the terms and conditions upon which such advances are made.
Section 3.10 Corporate Stock Option Plans and Equity Plans .
(a) Options Granted to Persons other than LLC Employees . If at any time or from time to time, in connection with any Equity Plan, a stock option granted with respect to shares of Class A Common Stock (a Class A Stock Option ) to a Person other than an LLC Employee is duly exercised:
(i) The Corporation shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to the aggregate exercise price paid to the Corporation by such exercising Person (or his or her Permitted Transferee, if applicable) in connection with the exercise of such Class A Stock Option.
(ii) Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 3.10(a)(i) , the Corporation shall be deemed to have contributed to the Company as a Capital Contribution, in lieu of the Capital Contribution actually made and in consideration of additional Common Units, an amount equal to the Value of a share of Class A Common Stock as of the date of such exercise multiplied by the number of shares of Class A Common Stock then being issued by the Corporation in connection with the exercise of such Class A Stock Option.
(iii) The Corporation shall receive in exchange for such Capital Contributions (as deemed made under Section 3.10(a)(ii) ), a number of Common Units equal to the number of shares of Class A Common Stock for which such Class A Stock Option was exercised.
(b) Options Granted to LLC Employees . If at any time or from time to time, in connection with any Equity Plan, a Class A Stock Option granted to an LLC Employee is duly exercised:
(i) The Corporation shall sell to the Optionee (or his or her Permitted Transferee, if applicable), and the Optionee (or his or her Permitted Transferee, if applicable) shall purchase from the Corporation the number of shares of Class A Common Stock equal to the
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quotient of (x) the aggregate exercise price payable by the Optionee in connection with the exercise of such Class A Stock Option divided by (y) the Value of a share of Class A Common Stock. The purchase price per share of Class A Common Stock for such sale of shares of Class A Common Stock to the Corporation shall be the Value of a share of Class A Common Stock with respect to each share of Class A Common Stock being sold pursuant to the preceding sentence.
(ii) The Corporation shall sell to the Company (or if the Optionee is or was an employee of, or other service provider to, a Subsidiary, the Corporation shall sell to such Subsidiary), and the Company (or such Subsidiary, as applicable) shall purchase from the Corporation, a number of shares of Class A Common Stock equal to the excess of (x) the number of shares of Class A Common Stock as to which such Class A Stock Option is being exercised over (y) the number of shares of Class A Common Stock sold pursuant to Section 3.10(b)(i) hereof. The purchase price per share of Class A Common Stock for such sale of shares of Class A Common Stock to the Company (or such Subsidiary) shall be the Value of a share of Class A Common Stock as of the date of exercise of such Class A Stock Option with respect to each shares of Class A Common Stock being sold pursuant to the preceding sentence.
(iii) The Company shall transfer (or if the Optionee is or was an employee of, or other service provider to, a Subsidiary, the Subsidiary shall transfer) to the Optionee at no additional cost to such Optionee (or his or her Permitted Transferee, if applicable) and as additional compensation (and not a distribution) to such Optionee, the number of shares of Class A Common Stock described in Section 3.10(b)(ii) .
(iv) The Corporation shall, as soon as practicable after such exercise, make a Capital Contribution to the Company in an amount equal to all proceeds received (from whatever source, but excluding any payment in respect of payroll taxes or other tax withholdings) by the Corporation in connection with the exercise of such Class A Stock Option, including any shares of Class A Common Stock sold pursuant to Section 3.10(b)(i) . The Corporation shall receive for such Capital Contribution, a number of Common Units equal to the number of shares of Class A Common Stock for which such Class A Common Stock Option was exercised. In the case where such Optionee is or was an employee of, or other service provider to, a Subsidiary, the Company shall be deemed to have contributed the amount of such Capital Contribution to the capital of the Subsidiary employing or receiving the services from such Optionee.
(c) Stock Issued to LLC Employees . If, other than as contemplated by Section 3.10(a) or Section 3.10(b) at any time or from time to time, in connection with any Equity Plan, any shares of Class A Common Stock are issued to an LLC Employee (or his or her Permitted Transferee, if applicable) (and including any shares of Class A Common Stock that are subject to forfeiture in the event such LLC Employee terminates his or her employment or service with the Company or any Subsidiary) in consideration for services such LLC Employee performed for the Company or any Subsidiary:
(i) The Corporation shall issue such number of shares of Class A Common Stock as are to be issued to such LLC Employee (or his or her Permitted Transferee, if applicable) in accordance with the applicable Equity Plan;
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(ii) On the date of issuance (such date, the Vesting Date ) on or following the date that such shares vest and is no longer subject to a right of repurchase or a risk of forfeiture, the following events will be deemed to have occurred: (1) the Corporation shall be deemed to have sold such shares of Class A Common Stock to the Company (or if such LLC Employee is or was an employee of, or other service provider to, a Subsidiary, to such Subsidiary employing or receiving services from the LLC Employee) for a purchase price equal to the Value of such shares of Class A Common Stock, (2) the Company (or such Subsidiary) shall be deemed to have delivered such shares of Class A Common Stock to such LLC Employee (or his or her Permitted Transferee, if applicable), (3) the Corporation shall be deemed to have contributed the purchase price for such shares of Class A Common Stock (if any) to the Company as a Capital Contribution, and (4) in the case where such LLC Employee is or was an employee of a Subsidiary, the Company shall be deemed to have contributed such amount to the capital of the Subsidiary employing such LLC Employee; and
(iii) The Company shall issue to the Corporation on the Vesting Date a number of Common Units (of any) equal to the number of shares of Class A Common Stock issued under Section 3.10(c)(i) in consideration for a Capital Contribution that the Corporation is deemed to make to the Company pursuant to clause (3) of Section 3.10(c)(ii) above.
(d) Future Equity Plans . Nothing in this Agreement shall be construed or applied to preclude or restrain the Corporation from adopting, modifying or terminating stock incentive plans for the benefit of employees, directors or other business associates of the Corporation, the Company or any of their respective Affiliates. The Members acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the Corporation, amendments to this Section 3.10 may become necessary or advisable and that any approval or consent to any such amendments requested by the Corporation shall be deemed granted by the Manager and the Members, as applicable, without the requirement of any further consent or acknowledgement of any other Member.
(e) Anti-dilution adjustments. For all purposes of this Section 3.10 , the number of shares of Class A Common Stock and the corresponding number of Common Units shall be determined after giving effect to all anti-dilution or similar adjustments that are applicable, as of the date of exercise or vesting, to the option, warrant, restricted stock or other equity interest that is being exercised or becomes vested under the applicable Equity Plan and applicable award or grant documentation.
Section 3.11 Dividend Reinvestment Plan, Cash Option Purchase Plan, Stock Incentive Plan or Other Plan . Except as may otherwise be provided in this Article III , all amounts received or deemed received by the Corporation in respect of any dividend reinvestment plan, cash option purchase plan, stock incentive or other stock or subscription plan or agreement, either (a) shall be utilized by the Corporation to effect open market purchases of shares of Class A Common Stock, or (b) if the Corporation elects instead to issue new shares of Class A Common Stock with respect to such amounts, shall be contributed by the Corporation to the Company in exchange for additional Units. Upon such contribution, the Company will issue to the Corporation a number of Units equal to the number of new shares of Class A Common Stock so issued.
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ARTICLE IV.
DISTRIBUTIONS
Section 4.01 Distributions .
(a) Distributable Cash; Other Distributions . To the extent permitted by applicable Law and hereunder, Distributions to Members may be declared by the Manager out of Distributable Cash or other funds or property legally available therefor (to the extent such distribution would not violate any applicable provisions of the Credit Agreements) in such amounts, at such time and on such terms (including the payment dates of such Distributions) as the Manager shall determine using such record date as the Manager may designate. All Distributions made under this Section 4.01 (other than Section 4.01(c) ) shall be made to the Members as of the close of business on such record date on a pro rata basis in accordance with each Members Percentage Interest as of the close of business on such record date; provided, however , that the Manager shall have the obligation to make Distributions as set forth in Sections 4.01(b) , 4.01(c) and 14.02 ; provided , further , that notwithstanding any other provision herein to the contrary, no Distributions shall be made to any Member to the extent such Distribution would render the Company insolvent or violate the Delaware Act. For purposes of the foregoing sentence, insolvency means the inability of the Company to meet its payment obligations when due. Promptly following the designation of a record date and the declaration of a Distribution pursuant to this Section 4.01(a) , the Manager shall give notice to each Member of the record date, the amount and the terms of the Distribution and the payment date thereof. In furtherance of the foregoing, it is intended that the Manager shall, to the extent permitted by applicable Law and hereunder, have the right in its sole discretion to make Distributions pro rata to the Members pursuant to this Section 4.01(a) in such amounts as shall enable the Corporation to meet its obligations, including its obligations pursuant to the Tax Receivable Agreement (to the extent such obligations are not otherwise able to be satisfied as a result of Tax Distributions required to be made pursuant to Section 4.01(b) ).
(b) Tax Distributions .
(i) With respect to each Fiscal Year, the Company shall, to the extent permitted by applicable Law, make cash distributions out of Distributable Cash ( Tax Distributions ) pro rata to the Members in an amount sufficient so that each Member receives Tax Distributions in an amount no less than the Members Assumed Tax Liability. Tax Distributions pursuant to this Section 4.01(b)(i) shall be estimated by the Company on a quarterly basis and, to the extent feasible, shall be distributed to the Members (together with a statement showing the calculation of such Tax Distribution and an estimate of the Companys net taxable income allocable to each Member for such period) on a quarterly basis on April 15 th , June 15 th , September 15 th and January 15 th (of the succeeding year) (or such other dates for which individuals are required to make quarterly estimated tax payments for U.S. federal income tax purposes) (each, a Quarterly Tax Distribution ); provided , that the foregoing shall not restrict the Company from making a Tax Distribution on any other date. Quarterly Tax Distributions shall take into account the estimated taxable income or loss of the Company for the Fiscal Year through the end of the relevant quarterly period. A final accounting for Tax Distributions shall be made for each Fiscal Year after the allocation of the Companys actual net taxable income or loss has been determined and any shortfall in the amount of Tax Distributions
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a Member received for such Fiscal Year based on such final accounting shall promptly be distributed to such Member. For the avoidance of doubt, any excess Tax Distributions a Member receives with respect to any Fiscal Year shall reduce future Tax Distributions otherwise required to be made to such Member with respect to any subsequent Fiscal Year, provided, however, that this sentence shall nonetheless be subject to Section 4.01(b)(ii). For the avoidance of doubt, no Tax Distribution shall be made with respect to any salary, bonuses, compensation for personal services or guaranteed payments made to any Member or in connection with the dissolution of the Company.
(ii) To the extent a Member otherwise would be entitled to receive less than its Percentage Interest of the aggregate Tax Distributions to be paid pursuant to this Section 4.01(b) (including, for the avoidance of doubt, Section 4.01(b)(iii)) on any given date, the Tax Distributions to such Member shall be increased to ensure that all Distributions made pursuant to this Section 4.01(b) are made pro rata in accordance with the Members respective Percentage Interests. If, on a Tax Distribution Date, there are insufficient funds on hand to distribute to the Members the full amount of the Tax Distributions to which such Members are otherwise entitled, Distributions pursuant to this Section 4.01(b) shall be made to the Members to the extent of available funds in accordance with their Percentage Interests and the Company shall make future Tax Distributions as soon as funds become available sufficient to pay the remaining portion of the Tax Distributions to which such Members are otherwise entitled.
(iii) In the event of any audit by, or similar event with, a taxing authority that affects the calculation of any Members Assumed Tax Liability for any taxable year (other than an audit conducted pursuant to the Revised Partnership Audit Provisions for which no election is made pursuant to Section 6226 thereof), or in the event the Company files an amended tax return, each Members Assumed Tax Liability with respect to such year shall be recalculated by giving effect to such event (for the avoidance of doubt, taking into account interest or penalties). In the event of any shortfall in the amount of Tax Distributions any Member or former Member received for the relevant taxable years based on such recalculated Assumed Tax Liability, the Company shall promptly make additional Tax Distributions pro rata until such Member or the successors of such former Member, as applicable, has received such shortfall, except, for the avoidance of doubt, to the extent Distributions were made to such Members and former Members pursuant to Section 4.01(a) and this Section 4.01(b) in the relevant taxable years sufficient to cover such shortfall.
(iv) Notwithstanding the foregoing, Tax Distributions pursuant to this Section 4.01(b) , if any, shall be made to a Member only to the extent all previous Tax Distributions to such Member pursuant to Section 4.01(b) with respect to the Fiscal Year are less than the Tax Distributions such Member otherwise would have been entitled to receive with respect to such Fiscal Year pursuant to this Section 4.01(b) .
(v) For the avoidance of doubt, Tax Distributions shall not be treated as advances of other distributions and shall not reduce distributions pursuant to the other provisions of this Agreement.
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(c) Distribution of Class B Common Stock and Class C Common Stock . Immediately following the consummation of the transactions contemplated by the Stock Subscription Agreement, the Company shall, and the Manager shall cause the Company to:
(i) Distribute to the Members (other than the Corporation, the Skonnard Entities and Mr. Aaron Skonnard) the Class B Common Stock purchased by the Corporation pursuant to the Stock Subscription Agreement, pro rata based on the number of Common Units held by such Members; and
(ii) Distribute to the Skonnard Entities and Mr. Aaron Skonnard the Class C Common Stock purchased by the Corporation pursuant to the Stock Subscription Agreement, pro rata based on the number of Common Units held by the Skonnard Entities and Mr. Aaron Skonnard.
ARTICLE V.
CAPITAL ACCOUNTS; ALLOCATIONS; TAX MATTERS
Section 5.01 Capital Accounts .
(a) The Company shall maintain a separate Capital Account for each Member according to the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). For this purpose, the Company may (in the discretion of the Manager), upon the occurrence of the events specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), increase or decrease the Capital Accounts in accordance with the rules of such Treasury Regulation and Treasury Regulation Section 1.704-1(b)(2)(iv)(g) to reflect a revaluation of Company property.
(b) For purposes of computing the amount of any item of Company income, gain, loss or deduction to be allocated pursuant to this Article V and to be reflected in the Capital Accounts of the Members, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for U.S. federal income tax purposes (including any method of depreciation, cost recovery or amortization used for this purpose); provided, however , that:
(i) The computation of all items of income, gain, loss and deduction shall include those items described in Code Section 705(a)(l)(B) or Code Section 705(a)(2)(B) and Treasury Regulation Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such items are not includable in gross income or are not deductible for U.S. federal income tax purposes.
(ii) If the Book Value of any Company property is adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(e) or (f), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such property.
(iii) Items of income, gain, loss or deduction attributable to the disposition of Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the Book Value of such property.
(iv) Items of depreciation, amortization and other cost recovery deductions with respect to Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the propertys Book Value in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
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(v) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis).
Section 5.02 Allocations . Except as otherwise provided in Section 5.03 and Section 5.04 , Net Profits and Net Losses for any Fiscal Year or Fiscal Period shall be allocated among the Capital Accounts of the Members pro rata in accordance with their respective Percentage Interests.
Section 5.03 Regulatory Allocations .
(a) Losses attributable to partner nonrecourse debt (as defined in Treasury Regulation Section 1.704-2(b)(4)) shall be allocated in the manner required by Treasury Regulation Section 1.704-2(i). If there is a net decrease during a Taxable Year in partner nonrecourse debt minimum gain (as defined in Treasury Regulation Section 1.704-2(i)(3)), Profits for such Taxable Year (and, if necessary, for subsequent Taxable Years) shall be allocated to the Members in the amounts and of such character as determined according to Treasury Regulation Section 1.704-2(i)(4).
(b) Nonrecourse deductions (as determined according to Treasury Regulation Section 1.704-2(b)(1)) for any Taxable Year shall be allocated pro rata among the Members in accordance with their Percentage Interests. Except as otherwise provided in Section 5.03(a) , if there is a net decrease in the Minimum Gain during any Taxable Year, each Member shall be allocated Profits for such Taxable Year (and, if necessary, for subsequent Taxable Years) in the amounts and of such character as determined according to Treasury Regulation Section 1.704-2(f). This Section 5.03(b) is intended to be a minimum gain chargeback provision that complies with the requirements of Treasury Regulation Section 1.704-2(f), and shall be interpreted in a manner consistent therewith.
(c) If any Member that unexpectedly receives an adjustment, allocation or Distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) has an Adjusted Capital Account Deficit as of the end of any Taxable Year, computed after the application of Sections 5.03(a) and 5.03(b) but before the application of any other provision of this Article V , then Profits for such Taxable Year shall be allocated to such Member in proportion to, and to the extent of, such Adjusted Capital Account Deficit. This Section 5.03(c) is intended to be a qualified income offset provision as described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith.
(d) If the allocation of Net Losses to a Member as provided in Section 5.02 would create or increase an Adjusted Capital Account Deficit, there shall be allocated to such Member only that amount of Losses as will not create or increase an Adjusted Capital Account Deficit. The Net Losses that would, absent the application of the preceding sentence, otherwise be allocated to such Member shall be allocated to the other Members in accordance with their relative Percentage Interests, subject to this Section 5.03(d) .
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(e) Profits and Losses described in Section 5.01(b)(v) shall be allocated in a manner consistent with the manner that the adjustments to the Capital Accounts are required to be made pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(j), (k) and (m).
(f) The allocations set forth in Section 5.03(a) through and including Section 5.03(e) (the Regulatory Allocations ) are intended to comply with certain requirements of Sections 1.704-1(b) and 1.704-2 of the Treasury Regulations. The Regulatory Allocations may not be consistent with the manner in which the Members intend to allocate Profit and Loss of the Company or make Distributions. Accordingly, notwithstanding the other provisions of this Article V , but subject to the Regulatory Allocations, income, gain, deduction and loss shall be reallocated among the Members so as to eliminate the effect of the Regulatory Allocations and thereby cause the respective Capital Accounts of the Members to be in the amounts (or as close thereto as possible) they would have been if Profit and Loss (and such other items of income, gain, deduction and loss) had been allocated without reference to the Regulatory Allocations. In general, the Members anticipate that this will be accomplished by specially allocating other Profit and Loss (and such other items of income, gain, deduction and loss) among the Members so that the net amount of the Regulatory Allocations and such special allocations to each such Member is zero. In addition, if in any Fiscal Year or Fiscal Period there is a decrease in partnership minimum gain, or in partner nonrecourse debt minimum gain, and application of the minimum gain chargeback requirements set forth in Section 5.03(a) or Section 5.03(b) would cause a distortion in the economic arrangement among the Members, the Members may, if they do not expect that the Company will have sufficient other income to correct such distortion, request the Internal Revenue Service to waive either or both of such minimum gain chargeback requirements. If such request is granted, this Agreement shall be applied in such instance as if it did not contain such minimum gain chargeback requirement.
Section 5.04 Final Allocations . Notwithstanding any contrary provision in this Agreement except Section 5.03 , the Manager shall make appropriate adjustments to allocations of Profits and Losses to (or, if necessary, allocate items of gross income, gain, loss or deduction of the Company among) the Members upon the liquidation of the Company (within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations), the transfer of substantially all the Units (whether by sale or exchange or merger) or sale of all or substantially all the assets of the Company, such that, to the maximum extent possible, the Capital Accounts of the Members are proportionate to their Percentage Interests. In each case, such adjustments or allocations shall occur, to the maximum extent possible, in the Fiscal Year of the event requiring such adjustments or allocations.
Section 5.05 Tax Allocations .
(a) The income, gains, losses, deductions and credits of the Company will be allocated, for federal, state and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses, deductions and credits among the Members for computing their Capital Accounts; provided that if any such allocation is not permitted by the Code or other applicable Law, the Companys subsequent income, gains, losses, deductions and credits will be allocated among the Members so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts.
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(b) Except as otherwise agreed by the Company and the affected Member (or, in the case of a reverse 704(c) allocation, all affected Members), items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall be allocated among the Members in accordance with Code Section 704(c) so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Book Value using the traditional method (without curative allocations) set forth in Treasury Regulations Section 1.704-3(b).
(c) Except as otherwise agreed by the Company and the affected Member (or, in the case of a reverse 704(c) allocation, all affected Members), if the Book Value of any Company asset is adjusted pursuant to Section 5.01(b) , including adjustments to the Book Value of any Company asset in connection with the execution of this Agreement, subsequent allocations of items of taxable income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Book Value using the traditional method (without curative allocations) set forth in Treasury Regulations Section 1.704-3(b).
(d) Allocations of tax credits, tax credit recapture, and any items related thereto shall be allocated to the Members as determined by the Manager taking into account the principles of Treasury Regulation Section 1.704-1(b)(4)(ii).
(e) For purposes of determining a Members share of the Companys excess nonrecourse liabilities within the meaning of Treasury Regulation Section 1.752-3(a)(3), each Members interest in income and gain shall be determined based on their Percentage Interests.
(f) Allocations pursuant to this Section 5.05 (other than Section 5.05(e) ) are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Members Capital Account or share of Profits, Losses, Distributions or other Company items pursuant to any provision of this Agreement.
Section 5.06 Indemnification and Reimbursement for Payments on Behalf of a Member . If the Company is obligated to pay any amount to a Governmental Entity (or otherwise makes a payment to a Governmental Entity) that is reasonably determined by the Manager to be specifically attributable to a Member or a Members status (including federal income taxes as a result of Company obligations pursuant to the Revised Partnership Audit Provisions, federal withholding taxes, state personal property taxes and state unincorporated business taxes, but excluding payments such as payroll taxes, withholding taxes, benefits or professional association fees and the like required to be made or made voluntarily by the Company on behalf of any Member based upon such Members status as an employee of the Company), then such Person shall indemnify the Company in full for the entire amount paid (including interest, penalties and related expenses). The Manager may offset Distributions to which a Person is otherwise entitled under this Agreement against such Persons obligation to indemnify the Company under this Section 5.06 . In addition, notwithstanding anything to the contrary, each Member agrees that
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any Cash Settlement such Member is entitled to receive pursuant to Article XI may be offset by an amount equal to such Members obligation to indemnify the Company under this Section 5.06 and that such Member shall be treated as receiving the full amount of such Cash Settlement and paying to the Company an amount equal to such obligation. A Members obligation to make payments to the Company under this Section 5.06 shall survive the termination, dissolution, liquidation and winding up of the Company. In the event that the Company has been terminated prior to the date such payment is due, such Member shall make such payment to the Manager (or its designee), which shall distribute such funds in accordance with this Agreement. The Company may pursue and enforce all rights and remedies it may have against each Member under this Section 5.06 , including instituting a lawsuit to collect such contribution with interest calculated at a rate per annum equal to the sum of the Base Rate plus 300 basis points (but not in excess of the highest rate per annum permitted by Law). Each Member hereby agrees to furnish to the Company such information and forms as required or reasonably requested in order to comply with any Laws and regulations governing withholding of tax or in order to claim any reduced rate of, or exemption from, withholding to which the Member is legally entitled.
ARTICLE VI.
MANAGEMENT
Section 6.01 Authority of Manager .
(a) Except for situations in which the approval of any Member(s) is specifically required by this Agreement, (i) all management powers over the business and affairs of the Company shall be exclusively vested in the Corporation, as the sole managing member of the Company (the Corporation, in such capacity, the Manager ) and (ii) the Manager shall conduct, direct and exercise full control over all activities of the Company. The Manager shall be the manager of the Company for the purposes of the Delaware Act. Except as otherwise expressly provided for herein and subject to the other provisions of this Agreement, the Members hereby consent to the exercise by the Manager of all such powers and rights conferred on the Members by the Delaware Act with respect to the management and control of the Company. Any vacancies in the position of Manager shall be filled in accordance with Section 6.04 .
(b) The day-to-day business and operations of the Company shall be overseen and implemented by officers of the Company (each, an Officer and collectively, the Officers ), subject to the limitations imposed by the Manager. An Officer may, but need not, be a Member. Each Officer shall be appointed by the Manager and shall hold office until his or her successor shall be duly designated and shall qualify or until his or her death or until he shall resign or shall have been removed in the manner hereinafter provided. Any one Person may hold more than one office. Subject to the other provisions in this Agreement (including in Section 6.07 below), the salaries or other compensation, if any, of the Officers of the Company shall be fixed from time to time by the Manager. The authority and responsibility of the Officers shall include, but not be limited to, such duties as the Manager may, from time to time, delegate to them and the carrying out of the Companys business and affairs on a day-to-day basis. To the fullest extent permitted by law, unless the Manager decides otherwise, if the title of an Officer is one commonly used for officers of a business corporation formed under the Delaware General Corporation Law, the assignment of such title shall constitute the delegation to such person of the authorities and duties that are normally associated with that office. The existing Officers of
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the Company as of the Effective Time shall remain in their respective positions and shall be deemed to have been appointed by the Manager. All Officers shall be, and shall be deemed to be, officers and employees of the Company. An Officer may also perform one or more roles as an officer of the Manager. Any Officer may be removed at any time, with or without cause, by the Manager.
(c) The Manager shall have the power and authority to effectuate the sale, lease, transfer, exchange or other disposition of any, all or substantially all of the assets of the Company (including the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Company) or the merger, consolidation, reorganization or other combination of the Company with or into another entity, for the avoidance of doubt, without the prior consent of any Member or any other Person being required.
Section 6.02 Actions of the Manager . The Manager may act through any Officer or through any other Person or Persons to whom authority and duties have been delegated pursuant to Section 6.07 .
Section 6.03 Resignation; No Removal . The Manager may resign at any time by giving written notice to the Members. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Members, and the acceptance of the resignation shall not be necessary to make it effective. For the avoidance of doubt, the Members have no right under this Agreement to remove or replace the Manager.
Section 6.04 Vacancies . Vacancies in the position of Manager occurring for any reason shall be filled by the Corporation (or, if the Corporation has ceased to exist without any successor or assign, then by the holders of a majority in interest of the voting capital stock of the Corporation immediately prior to such cessation). For the avoidance of doubt, the Members have no right under this Agreement to fill any vacancy in the position of Manager.
Section 6.05 Transactions Between Company and Manager . The Manager may cause the Company to contract and deal with the Manager, or any Affiliate of the Manager, provided , that such contracts and dealings (other than contracts and dealings between the Company and its Subsidiaries) are on terms comparable to and competitive with those available to the Company from others dealing at arms length or are approved by the Members and otherwise are permitted by the Credit Agreements. The Members hereby approve each of the contracts or agreements between or among the Manager, the Company and their respective Affiliates entered into on or prior to the date of this Agreement in accordance with the Current LLC Agreement or that the prior board of managers of the Company has approved in connection with the IPO as of the date of this Agreement, including the Reorganization Agreement and the Stock Subscription Agreement.
Section 6.06 Reimbursement for Expenses . The Manager shall not be compensated for its services as Manager of the Company except as expressly provided in this Agreement. The Members acknowledge and agree that, upon consummation of the IPO, the Managers Class A Common Stock will be publicly traded and therefore the Manager will have access to the public capital markets and that such status and the services performed by the Manager will inure to the
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benefit of the Company and all Members; therefore, the Manager shall be reimbursed by the Company for any reasonable out-of-pocket expenses incurred on behalf of the Company, including without limitation all fees, expenses and costs associated with the IPO and all fees, expenses and costs of being a public company (including without limitation public reporting obligations, proxy statements, stockholder meetings, stock exchange fees, transfer agent fees, legal fees, SEC and FINRA filing fees and offering expenses) and maintaining its corporate existence. For the avoidance of doubt, the Manager shall not be reimbursed for any federal, state or local taxes imposed on the Manager or any subsidiary of the Manager (other than taxes paid by the Manager on behalf of the Company and any subsidiary of the Company but only if the taxes paid were the legal liability of the Company and/or any subsidiary of the Company). In the event that shares of Class A Common Stock are sold to underwriters in the IPO (or in any subsequent public offering) at a price per share that is lower than the price per share for which such shares of Class A Common Stock are sold to the public in the IPO (or in such subsequent public offering, as applicable) after taking into account underwriters discounts or commissions and brokers fees or commissions (such difference, the Discount ) (i) the Manager shall be deemed to have contributed to the Company in exchange for newly issued Common Units the full amount for which such shares of Class A Common Stock were sold to the public and (ii) the Company shall be deemed to have paid the Discount as an expense. To the extent practicable, expenses incurred by the Manager on behalf of or for the benefit of the Company shall be billed directly to and paid by the Company and, if and to the extent any reimbursements to the Manager or any of its Affiliates by the Company pursuant to this Section 6.06 constitute gross income to such Person (as opposed to the repayment of advances made by such Person on behalf of the Company), such amounts shall be treated as guaranteed payments within the meaning of Code Section 707(c) and shall not be treated as distributions for purposes of computing the Members Capital Accounts.
Section 6.07 Delegation of Authority . The Manager (a) may, from time to time, delegate to one or more Persons such authority and duties as the Manager may deem advisable, including to Officers, as described in Section 6.01(b ) and (b) may assign titles (including, without limitation, chief executive officer, president, chief financial officer, chief operating officer, general counsel, senior vice president, vice president, secretary, assistant secretary, treasurer or assistant treasurer) and delegate certain authority and duties to such Persons as the same may be amended, restated or otherwise modified from time to time. Any number of titles may be held by the same individual. The salaries or other compensation, if any, of such agents of the Company shall be fixed from time to time by the Manager, subject to the other provisions in this Agreement.
Section 6.08 Limitation of Liability of Manager .
(a) Except as otherwise provided herein or in an agreement entered into by such Person and the Company, neither the Manager nor any of the Managers Affiliates or Managers officers, employees or other agents shall be liable to the Company, to any Member that is not the Manager or to any other Person bound by this Agreement for any act or omission performed or omitted by the Manager in its capacity as the sole managing member of the Company pursuant to authority granted to the Manager by this Agreement; provided, however , that, except as otherwise provided herein, such limitation of liability shall not apply to the extent the act or omission was attributable to the Managers gross negligence, willful misconduct or
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knowing violation of Law or for any present or future breaches of any representations, warranties or covenants by the Manager or its Affiliates contained herein or in the other agreements with the Company. The Manager may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and shall not be responsible for any misconduct or negligence on the part of any such agent (so long as such agent was selected in good faith and with reasonable care). The Manager shall be entitled to rely upon the advice of legal counsel, independent public accountants and other experts, including financial advisors, and any act of or failure to act by the Manager in good faith reliance on such advice shall in no event subject the Manager to liability to the Company or any Member that is not the Manager.
(b) Whenever this Agreement or any other agreement contemplated herein provides that the Manager shall act in a manner which is, or provide terms which are, fair and reasonable to the Company or any Member that is not the Manager, the Manager shall determine such appropriate action or provide such terms considering, in each case, the relative interests of each party to such agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable United States generally accepted accounting practices or principles, notwithstanding any other provision of this Agreement or any duty otherwise existing at Law or in equity.
(c) Whenever in this Agreement or any other agreement contemplated herein, the Manager is permitted or required to take any action or to make a decision in its sole discretion or discretion, with complete discretion or under a grant of similar authority or latitude, the Manager shall be entitled to consider such interests and factors as it desires, including its own interests, and shall, to the fullest extent permitted by applicable Law and notwithstanding any duty otherwise existing at Law or in equity, have no duty or obligation to give any consideration to any interest of or factors affecting the Company, other Members or any other Person.
(d) Whenever in this Agreement the Manager is permitted or required to take any action or to make a decision in its good faith or under another express standard, the Manager shall act under such express standard and, to the extent permitted by applicable Law, shall not be subject to any other or different standards imposed by this Agreement or any other agreement contemplated herein, notwithstanding any provision of this Agreement or duty otherwise, existing at Law or in equity, and, notwithstanding anything contained herein to the contrary, so long as the Manager acts in good faith, the resolution, action or terms so made, taken or provided by the Manager shall not constitute a breach of this Agreement or impose liability upon the Manager or any of the Managers Affiliates and shall be deemed approved by all Members.
Section 6.09 Investment Company Act . The Manager shall use its best efforts to ensure that the Company shall not be subject to registration as an investment company pursuant to the Investment Company Act.
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Section 6.10 Outside Activities of the Manager . The Manager shall not, directly or indirectly, enter into or conduct any business or operations, other than in connection with (a) the ownership, acquisition and disposition of Common Units, (b) the management of the business and affairs of the Company and its Subsidiaries, (c) the operation of the Manager as a reporting company with a class (or classes) of securities registered under Section 12 of the Exchange Act and listed on a securities exchange, (d) the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests of the Corporation or the Company or any of its Subsidiaries, (e) financing or refinancing of any type related to the Corporation or the Company, its Subsidiaries or their assets or activities, (f) treasury and treasury management, (g) stock repurchases, (h) the declaration and payment of distributions or dividends with respect to any class of securities and (i) such activities as are incidental to the foregoing; provided, however , that, except as otherwise provided herein, the net proceeds of any financing raised by the Manager pursuant to the preceding clauses (d) and (e) shall be made available to the Company, whether as Capital Contributions, loans or otherwise, as appropriate; provided , further , that the Manager may, in its sole and absolute discretion, from time to time hold or acquire assets in its own name or otherwise other than through the Company and its Subsidiaries so long as the Manager takes commercially reasonable measures to ensure that the economic benefits and burdens of such assets are otherwise vested in the Company or its Subsidiaries, through assignment, mortgage, loan or otherwise or, if it is not commercially reasonable to vest such economic interests in the Company or any of its Subsidiaries, the Members shall negotiate in good faith to amend this Agreement to reflect such activities and the direct ownership of assets by the Manager. Nothing contained herein shall be deemed to prohibit the Manager from executing any guarantee of indebtedness of the Company or its Subsidiaries.
ARTICLE VII.
RIGHTS AND OBLIGATIONS OF MEMBERS AND MANAGER
Section 7.01 Limitation of Liability and Duties of Members .
(a) Except as provided in this Agreement or in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and no Member (including without limitation, the Corporation in its capacity as a member of the Company) shall be obligated personally for any such debts, obligations, contracts or liabilities of the Company solely by reason of being a Member or the Manager. Notwithstanding anything contained herein to the contrary, to the fullest extent permitted by applicable Law, the failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business and affairs under this Agreement or the Delaware Act shall not be grounds for imposing personal liability on the Members for liabilities of the Company.
(b) In accordance with the Delaware Act and the laws of the State of Delaware, a Member may, under certain circumstances, be required to return amounts previously distributed to such Member. It is the intent of the Members that no Distribution to any Member pursuant to Articles IV or XIV shall be deemed a return of money or other property paid or distributed in violation of the Delaware Act. The payment of any such money or Distribution of any such property to a Member shall be deemed to be a compromise within the meaning of Section 18-502(b) of the Delaware Act, and, to the fullest extent permitted by Law, any Member receiving any such money or property shall not be required to return any such money or property to the Company or any other Person, unless such distribution was made by the Company to its Members in clerical error. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to make any such payment, such obligation shall be the obligation of such Member and not of any other Member.
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(c) Notwithstanding any other provision of this Agreement (but subject, and without limitation, to Section 6.08 with respect to the Manager), to the extent that, at Law or in equity, any Member (other than the Corporation in its capacity as such) (or any Members Affiliate or any manager, managing member, general partner, director, officer, employee, agent, fiduciary or trustee of any Member or of any Affiliate of a Member) has duties (including fiduciary duties) to the Company, to the Manager, to another Member, to any Person who acquires an interest in a Company Interest or to any other Person bound by this Agreement, all such duties (including fiduciary duties) are hereby eliminated, to the fullest extent permitted by law, including Section 18-1101(c) of the Delaware Act, and replaced with the duties or standards expressly set forth herein, if any; provided, however, that the foregoing shall not eliminate the duty to comply with the implied contractual covenant of good faith and fair dealing. The elimination of duties (including fiduciary duties) to the Company, the Manager, each of the Members, each other Person who acquires an interest in a Company Interest and each other Person bound by this Agreement and replacement thereof with the duties or standards expressly set forth herein, if any, are approved by the Company, the Manager, each of the Members, each other Person who acquires an interest in a Company Interest and each other Person bound by this Agreement.
Section 7.02 Lack of Authority . No Member, other than the Corporation in its capacity as the Manager or a duly appointed Officer, in each case in its capacity as such, has the authority or power to act for or on behalf of the Company, to do any act that would be binding on the Company or to make any expenditure on behalf of the Company. The Members hereby consent to the exercise by the Manager of the powers conferred on them by Law and this Agreement.
Section 7.03 No Right of Partition . No Member, other than the Manager, shall have the right to seek or obtain partition by court decree or operation of Law of any Company property, or the right to own or use particular or individual assets of the Company.
Section 7.04 Indemnification .
(a) Subject to Section 5.06 , the Company hereby agrees to indemnify and hold harmless any Person (each an Indemnified Person ) to the fullest extent permitted under applicable Law, as the same now exists or may hereafter be amended, substituted or replaced (but, in the case of any such amendment, substitution or replacement only to the extent that such amendment, substitution or replacement permits the Company to provide broader indemnification rights than the Company is providing immediately prior to such amendment), against all expenses, liabilities and losses (including attorneys fees, judgments, fines, excise taxes or penalties) reasonably incurred or suffered by such Person (or one or more of such Persons Affiliates) by reason of the fact that such Person is or was a Member or an Affiliate thereof (other than as a result of an ownership interest in the Corporation) or is or was serving as the Manager or a director, officer, employee or other agent of the Manager, or a director, manager, Officer, employee or other agent of the Company or is or was serving at the request of the Company as a manager, officer, director, principal, member, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise;
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provided, however , that no Indemnified Person shall be indemnified for any expenses, liabilities and losses suffered that are attributable to such Indemnified Persons or its Affiliates gross negligence, willful misconduct or knowing violation of Law or for any present or future breaches of any representations, warranties or covenants by such Indemnified Person or its Affiliates contained herein or in the other agreements with the Company. Reasonable expenses, including attorneys fees, incurred by any such Indemnified Person in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that such Indemnified Person is not entitled to be indemnified by the Company.
(b) The right to indemnification and the advancement of expenses conferred in this Section 7.04 shall not be exclusive of any other right which any Person may have or hereafter acquire under any statute, agreement, bylaw, action by the Manager or otherwise.
(c) The Company shall maintain directors and officers liability insurance, or substantially equivalent insurance, at its expense, to protect any Indemnified Person (and the investment funds, if any, they represent) against any expense, liability or loss described in Section 7.04(a) whether or not the Company would have the power to indemnify such Indemnified Person against such expense, liability or loss under the provisions of this Section 7.04 . The Company shall use its commercially reasonable efforts to purchase and maintain property, casualty and liability insurance in types and at levels customary for companies of similar size engaged in similar lines of business, as determined in good faith by the Manager, and the Company shall use its commercially reasonable efforts to purchase directors and officers liability insurance (including employment practices coverage) with a carrier and in an amount determined necessary or desirable as determined in good faith by the Manager.
(d) Notwithstanding anything contained herein to the contrary (including in this Section 7.04 ), the Company agrees that any indemnification and advancement of expenses available to any current or former Indemnified Person from any investment fund that is an Affiliate of the Company, who was appointed to serve as a director of the Company or served as a Member of the Company by virtue of such Persons service as a member, director, partner or employee of any such fund prior to or following the Effective Time (any such Person, a Sponsor Person ) shall be secondary to the indemnification and advancement of expenses to be provided by the Company pursuant to this Section 7.04 . Such indemnification and advancement of expenses shall be provided out of and to the extent of Company assets only. No Member (unless such Member otherwise agrees in writing or is found in a non-appealable decision by a court of competent jurisdiction to have personal liability on account thereof) shall have personal liability on account thereof or shall be required to make additional Capital Contributions to help satisfy such indemnity of the Company. The Company (i) shall be the primary indemnitor of first resort for such Sponsor Person pursuant to this Section 7.04 and (ii) shall be fully responsible for the advancement of all expenses and the payment of all damages or liabilities with respect to such Sponsor Person which are addressed by this Section 7.04 .
(e) If this Section 7.04 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Indemnified Person pursuant to this Section 7.04 to the fullest extent permitted by any applicable portion of this Section 7.04 that shall not have been invalidated and to the fullest extent permitted by applicable Law.
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(f) From the Effective Time through December 31, 2021, neither the Company nor the Manager shall, and shall not permit their respective Subsidiaries to, amend, repeal or otherwise modify any provision in any such Subsidiarys certificate or articles of incorporation or formation or bylaws or operating agreement relating to the exculpation or indemnification (including fee advancement) of any officers and/or directors (unless required by Law). The Company and the Manager shall cause each Subsidiary to honor and perform under all indemnification obligations owed to any of the individuals who were officers and/or directors of such Subsidiary prior to the Effective Time.
Section 7.05 Members Right to Act . For matters that require the approval of the Members, the Members shall act through meetings and written consents as described in paragraphs (a) and (b) below:
(a) Except as otherwise expressly provided by this Agreement, acts by the Members holding a majority of the Units, voting together as a single class, shall be the acts of the Members. Any Member entitled to vote at a meeting of Members or to express consent or dissent to Company action in writing without a meeting may authorize another person or persons to act for it by proxy. An electronic mail, telegram, telex, cablegram or similar transmission by the Member, or a photographic, photostatic, facsimile or similar reproduction of a writing executed by the Member shall (if stated thereon) be treated as a proxy executed in writing for purposes of this Section 7.05(a) . No proxy shall be voted or acted upon after eleven (11) months from the date thereof, unless the proxy provides for a longer period. A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and that the proxy is coupled with an interest. Should a proxy designate two or more Persons to act as proxies, unless that instrument shall provide to the contrary, a majority of such Persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or, if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, the Company shall not be required to recognize such proxy with respect to such issue if such proxy does not specify how the votes that are the subject of such proxy are to be voted with respect to such issue.
(b) The actions by the Members permitted hereunder may be taken at a meeting called by the Manager or by the Members holding a majority of the Units entitled to vote on such matter on at least five (5) Business Days prior written notice to the other Members entitled to vote, which notice shall state the purpose or purposes for which such meeting is being called. The actions taken by the Members entitled to vote or consent at any meeting (as opposed to by written consent), however called and noticed, shall be as valid as though taken at a meeting duly held after regular call and notice if (but not until), either before, at or after the meeting, the Members entitled to vote or consent as to whom it was improperly held signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. The actions by the Members entitled to vote or consent may be taken by vote of the Members entitled to vote or consent at a meeting or by written consent (without the requirement of prior notice), so long as such consent (x) is signed by Members having not less than the minimum number of
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Units that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted and (y) such request for consent in writing was distributed to all Members entitled to vote thereon simultaneously. Prompt notice of the action so taken, which shall state the purpose or purposes for which such consent is required and may be delivered via email, without a meeting shall be given to those Members entitled to vote or consent who have not consented in writing; provided, however , that the failure to give any such notice shall not affect the validity of the action taken by such written consent. Any action taken pursuant to such written consent of the Members shall have the same force and effect as if taken by the Members at a meeting thereof.
Section 7.06 Inspection Rights . The Company shall permit each Member and each of its designated representatives to examine the books and records of the Company or any of its Subsidiaries at the principal office of the Company or such other location as the Manager shall reasonably approve during reasonable business hours for any purpose reasonably related to such Members Company Interest; provided , that Manager has a right to keep confidential from the Members certain information in accordance with Section 18-305 of the Delaware Act.
ARTICLE VIII.
BOOKS, RECORDS, ACCOUNTING AND REPORTS, AFFIRMATIVE COVENANTS
Section 8.01 Records and Accounting . The Company shall keep, or cause to be kept, appropriate books and records with respect to the Companys business, including all books and records necessary to provide any information, lists and copies of documents required pursuant to applicable Laws. Subject to Section 9.01, all matters concerning (a) the determination of the relative amount of allocations and Distributions among the Members pursuant to Articles IV and V and (b) accounting procedures and determinations, and other determinations not specifically and expressly provided for by the terms of this Agreement, shall be determined by the Manager, whose determination shall be final and conclusive as to all of the Members absent manifest clerical error, gross negligence or bad faith.
Section 8.02 Fiscal Year . The Fiscal Year of the Company shall be the Taxable Year or such other date as may be established by the Manager.
ARTICLE IX.
TAX MATTERS
Section 9.01 Preparation of Tax Returns . The Manager shall arrange for the preparation and timely filing of all tax returns required to be filed by the Company. On or before April 15, June 15, September 15, and December 15 of each Fiscal Year, the Company shall send to each Person who was a Member at any time during the prior quarter, an estimate of such Members state tax apportionment information and allocations to the Members of taxable income, gains, losses, deductions and credits for the prior quarter, which estimate shall have been reviewed by the Companys outside tax accountants. In addition, no later than (i) sixty (60) days following the end of the prior Fiscal Year, the Company shall provide to each Person that was a Member at any time during such Fiscal Year a statement showing an estimate of such Members state tax apportionment information and such Members estimated allocations of taxable income, gains, losses, deductions and credits for such Fiscal Year and (ii) two hundred ten (210) days
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following the end of the prior Fiscal Year, the Company shall send to each Person who was a Member at any time during such Fiscal Year, a statement showing such Members final state tax apportionment information and allocations to the Members of taxable income, gains, losses, deductions and credits for such Fiscal Year and a completed IRS Schedule K-1. The Company shall notify the Members upon receipt of any notice of any material income tax examination of the Company by federal, state or local authorities. Subject to the terms and conditions of this Agreement and except as otherwise provided in this Agreement, the Corporation shall have the authority to prepare the tax returns of the Company using such permissible methods and elections as it determines in its reasonable discretion, including without limitation the use of any permissible method under Section 706 of the Code for purposes of determining the varying Company Interests of its Members.
Section 9.02 Tax Elections . The Taxable Year shall end on December 31 of each year, except as otherwise required by applicable law, or such other date as may be established by the Manager and permitted by applicable law. The Company and any eligible Subsidiary shall have in effect an election pursuant to Section 754 of the Code and shall not thereafter revoke such election. Each Member will upon request supply any information reasonably necessary to give proper effect to any such elections.
Section 9.03 Composite Returns . The Company shall (i) to the extent permitted by applicable law and to the extent that compliance with this Section 9.03 does not create an unreasonable burden on the Company (as determined in good faith by the Manager), offer to prepare a composite tax return for all eligible Members (and their direct or indirect equityholders) in each state, local or other appropriate jurisdiction (as reasonably determined by the Companys tax advisors) for each tax year in which taxable income is reported in such jurisdiction, (ii) deliver to each Member, simultaneously with the delivery of a Schedule K-1 pursuant to Section 9.02, a statement setting forth (A) each jurisdiction in which the Company intends to make available a composite return, and the amount of tax payments expected to be made by the Company with respect to such Member, and (B) each jurisdiction in which the Company intends to pay applicable withholding taxes, and the expected amount of such withholding taxes in each such jurisdiction, and (iii) cooperate with the Members to maximize the number of jurisdictions in which the Company files composite returns.
Section 9.04 Foreign Filings . The Company shall take such action as may be necessary to ensure that no Member has any tax filing obligation in any foreign jurisdiction, including, to the extent necessary or advisable (as reasonably determined by the Company tax advisors and consented to by the Pre-IPO Members representing a majority of all Units held by Pre-IPO Members), by forming foreign subsidiaries to hold any foreign assets or operations.
Section 9.05 Tax Controversies .
(a) With respect to any Tax Year beginning on or before December 31, 2017, the Corporation is hereby designated the Tax Matters Partner of the Company within the meaning given to such term in Section 6231 of the Code (the Corporation, in such capacity, the Tax Matters Partner ) and is authorized and required to represent the Company (at the Companys expense) in connection with all examinations of the Companys affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company
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funds for professional services reasonably incurred in connection therewith. Each Member agrees to cooperate with the Company and the Corporation and to do or refrain from doing any or all things reasonably requested by the Company and the Corporation with respect to this Section 9.05 and the conduct of the proceedings described herein. The Tax Matters Partner shall keep Members reasonably informed of the progress of any material income tax examinations, audits or other proceedings and all Members shall have the right to observe and participate at their sole expense in any such tax proceedings to the extent permitted by applicable law. Nothing set forth in this Agreement shall diminish, limit or restrict the rights of any Member under Subchapter C, Chapter 63, Subtitle F of the Code (Code Sections 6221 et seq.).
(b) With respect to the Tax Year that includes the date of the IPO and any subsequent Tax Year, pursuant to the Revised Partnership Audit Provisions, the Corporation shall be designated and may, on behalf of the Company, at any time, and without further notice to or consent from any Member, act as the partnership representative of the Company (within the meaning given to such term in Section 6223 of the Code) (the Partnership Representative ) for purposes of the Code. The Partnership Representative shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Partnership Representative and is authorized and required to represent the Company (at the Companys expense) in connection with all examinations of the Companys affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services reasonably incurred in connection therewith. In the event of an audit by the Internal Revenue Service (or a state or local taxing authority, as applicable), unless otherwise approved by (i) for so long as Members other than the Corporation hold more than one third (1/3) of the Common Units, Members (other than the Corporation) holding a majority of the Common Units (calculated without taking into account the Common Units held by the Corporation), and (ii) if the Members other than the Corporation do not hold more than one third (1/3) of the Common Units, the Members holding a majority of the Common Units, the Partnership Representative shall make on a timely basis, to the extent permissible under applicable law, the election provided by Section 6226(a) of the Code (and, to the extent available, any corresponding provision of state or local law) to treat a partnership adjustment as an adjustment to be taken into account by each Member in accordance with Section 6226(b) of the Code (or a corresponding provision of state or local law, as applicable). If the election under Section 6226(a) of the Code (or a corresponding provision under state or local law, as applicable) is made, the Partnership Representative will furnish to each Member for the year under audit a statement reflecting such Members share of the adjusted items as determined in the notice of final partnership adjustment, and each such Member shall take such adjustment into account as required under Section 6226(b) of the Code (or such state or local law, as applicable) and shall be liable for any related tax, interest, penalty, addition to tax or additional amounts. Each Member agrees to cooperate with the Company and to do or refrain from doing any or all things reasonably requested by the Company with respect to the conduct of such proceedings. The Partnership Representative shall keep Members reasonably informed regarding any material income tax proceedings, and the Members shall have the right to observe and participate through representatives of their own choosing (at their sole expense) in any such tax proceedings to the extent permitted by applicable law. Nothing herein shall diminish, limit or restrict the rights of any Member under the Revised Partnership Audit Provisions.
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ARTICLE X.
RESTRICTIONS ON TRANSFER OF UNITS; PUBCO OFFER
Section 10.01 Transfers by Members . No holder of Units shall Transfer any interest in any Units, except Transfers (a) pursuant to and in accordance with Sections 10.02 and 10.09 or (b) approved in writing by the Manager, in the case of Transfers by any Member other than the Corporation, or (c) in the case of Transfers by the Corporation or any successor to the Corporation in its capacity as a Member, to any Person who succeeds to the Manager in accordance with Section 6.04 . Notwithstanding the foregoing, Transfer shall not include an event that terminates the existence of a Member for income tax purposes (including, without limitation, a change in entity classification of a Member under Treasury Regulations Section 301.7701-3, a sale of assets by, or liquidation of, a Member pursuant to an election under Code Sections 336 or 338, or merger, severance, or allocation within a trust or among sub-trusts of a trust that is a Member), but that does not terminate the existence of such Member under applicable state Law (or, in the case of a trust that is a Member, does not terminate the trusteeship of the fiduciaries under such trust with respect to all the Company Interests of such trust that is a Member).
Section 10.02 Permitted Transfers . The restrictions contained in Section 10.01 shall not apply to any of the following (each, a Permitted Transfer and each transferee, a Permitted Transferee ): (i)(A) a Transfer pursuant to a Redemption or Exchange in accordance with Article XI hereof or (B) a Transfer by a Member to the Corporation or any of its Subsidiaries, (ii) a Transfer by any Member to such Members spouse, any lineal ascendants or descendants or trusts or other entities in which such Member or Members spouse, lineal ascendants or descendants hold (and continue to hold while such trusts or other entities hold Units) 50% or more of such entitys beneficial interests, (iii) a Transfer pursuant to the Laws of descent and distribution, (iv) a Transfer to a partner, shareholder, member or Affiliated investment fund of such Member (which may include special purpose investment vehicles wholly owned by one or more Affiliated investment funds but shall not include portfolio companies), (v) any Transfer as shall be necessary to effectuate the Blocker Mergers and (vi) any Transfer as shall be necessary to effectuate the Pre-IPO Exchanges; provided, however , that (x) the restrictions contained in this Agreement will continue to apply to Units after any Permitted Transfer of such Units, and (y) in the case of the foregoing clauses (ii), (iii), (iv), (v) and (vi), the Permitted Transferees of the Units so Transferred shall agree in writing to be bound by the provisions of this Agreement and, except with respect to the Transfers contemplated by the foregoing clauses (v) and (vi), the transferor will deliver a written notice to the Company and the Members, which notice will disclose in reasonable detail the identity of the proposed Permitted Transferee. In the case of a Permitted Transfer of any Common Units by any Member that is authorized to hold Class B Common Stock or Class C Common Stock, as the case may be, in accordance with the Corporations certificate of incorporation to a Permitted Transferee in accordance with this Section 10.02 , such Member (or any subsequent Permitted Transferee of such Member) shall be required to also transfer an equal number of shares of Class B Common Stock or Class C Common Stock, as the case may be, corresponding to the proportion of such Members (or subsequent Permitted Transferees) Common Units that were transferred in the transaction to such Permitted Transferee. All Permitted Transfers are subject to the additional limitations set forth in Section 10.07(b) .
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Section 10.03 Restricted Units Legend . The Units have not been registered under the Securities Act and, therefore, in addition to the other restrictions on Transfer contained in this Agreement, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is then available. To the extent such Units have been certificated, each certificate evidencing Units and each certificate issued in exchange for or upon the Transfer of any Units (if such securities remain Units as defined herein after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED ON [], 20__, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THE FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF PLURALSIGHT HOLDINGS, LLC, AS MAY BE AMENDED AND MODIFIED FROM TIME TO TIME, AND PLURALSIGHT HOLDINGS, LLC RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO ANY TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY PLURALSIGHT HOLDINGS, LLC TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
The Company shall imprint such legend on certificates (if any) evidencing Units. The legend set forth above shall be removed from the certificates (if any) evidencing any units which cease to be Units in accordance with the definition thereof.
Section 10.04 Transfer . Prior to Transferring any Units, the Transferring holder of Units shall cause the prospective Permitted Transferee to be bound by this Agreement and any other agreements executed by the holders of Units and relating to such Units in the aggregate to which the transferor was a party (collectively, the Other Agreements ) by executing and delivering to the Company counterparts of this Agreement and any applicable Other Agreements.
Section 10.05 Assignee s Rights .
(a) The Transfer of a Company Interest in accordance with this Agreement shall be effective as of the date of its assignment (assuming compliance with all of the conditions to such Transfer set forth herein), and such Transfer shall be shown on the books and records of the Company. Profits, Losses and other Company items shall be allocated between the Transferor and the Assignee according to Code Section 706, using any permissible method as determined in the reasonable discretion of the Manager. Distributions made before the effective date of such Transfer shall be paid to the Transferor, and Distributions made on or after such date shall be paid to the Assignee.
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(b) Unless and until an Assignee becomes a Member pursuant to Article XII , the Assignee shall not be entitled to any of the rights granted to a Member hereunder or under applicable Law, other than the rights granted specifically to Assignees pursuant to this Agreement; provided, however , that, without relieving the Transferring Member from any such limitations or obligations as more fully described in Section 10.06 , such Assignee shall be bound by any limitations and obligations of a Member contained herein that a Member would be bound on account of the Assignees Company Interest (including the obligation to make Capital Contributions on account of such Company Interest).
Section 10.06 Assignor s Rights and Obligations . Any Member who shall Transfer any Company Interest in a manner in accordance with this Agreement shall cease to be a Member with respect to such Units or other interest and shall no longer have any rights or privileges, or, except as set forth in this Section 10.06 , duties, liabilities or obligations, of a Member with respect to such Units or other interest (it being understood, however, that the applicable provisions of Sections 6.08 and 7.04 shall continue to inure to such Persons benefit), except that unless and until the Assignee (if not already a Member) is admitted as a Substituted Member in accordance with the provisions of Article XII (the Admission Date ), (i) such assigning Member shall retain all of the duties, liabilities and obligations of a Member with respect to such Units or other interest, and (ii) the Manager may, in its sole discretion, reinstate all or any portion of the rights and privileges of such Member with respect to such Units or other interest for any period of time prior to the Admission Date. Nothing contained herein shall relieve any Member who Transfers any Units or other interest in the Company from any liability of such Member to the Company with respect to such Company Interest that may exist on the Admission Date or that is otherwise specified in the Delaware Act or for any liability to the Company or any other Person for any materially false statement made by such Member (in its capacity as such) or for any present or future breaches of any representations, warranties or covenants by such Member (in its capacity as such) contained herein or in the other agreements with the Company.
Section 10.07 Overriding Provisions .
(a) Any Transfer or attempted Transfer of any Units in violation of this Agreement (including any prohibited indirect Transfers) shall, to the fullest extent permitted by Law, be null and void ab initio , and the provisions of Sections 10.05 and 10.06 shall not apply to any such Transfers. For the avoidance of doubt, any Person to whom a Transfer is made or attempted in violation of this Agreement shall not become a Member, shall not be entitled to vote on any matters coming before the Members and shall not have any other rights in or with respect to any rights of a Member of the Company. The approval of any Transfer in any one or more instances shall not limit or waive the requirement for such approval in any other or future instance. The Manager shall promptly amend the Schedule of Members to reflect any Permitted Transfer pursuant to this Article X .
(b) Notwithstanding anything contained herein to the contrary (including, for the avoidance of doubt, the provisions of Section 10.01 and Article XI and Article XII ), in no event shall any Member Transfer any Units to the extent such Transfer would:
(i) result in the violation of the Securities Act, or any other applicable federal, state or foreign Laws;
(ii) cause an assignment under the Investment Company Act;
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(iii) in the reasonable determination of the Manager, be a violation of or a default (or an event that, with notice or the lapse of time or both, would constitute a default) under, or result in an acceleration of any Credit Agreements which the Company or the Manager is a party; provided that (x) the payee or creditor to whom the Company or the Manager owes such obligation is not an Affiliate of the Company or the Manager and (y) such Credit Agreements, individually or in the aggregate, has an aggregate principal amount of loans or revolving commitments then outstanding that is equal to or greater than $20,000,000.00;
(iv) be a Transfer to a Person who is not legally competent or who has not achieved his or her majority of age under applicable Law (excluding trusts for the benefit of minors);
(v) cause the Company to be treated as a publicly traded partnership taxed as a corporation pursuant to Section 7704 of the Code or successor provision of the Code; or
(vi) to the extent the Company has one hundred (100) or fewer partners, within the meaning of Treasury Regulations Section 1.7704-1(h)(1), cause the number of partners to exceed one hundred (100), determined pursuant to the rules of Treasury Regulations Section 1.7704-1(h)(3); or, if the number of partners exceeds one hundred (100) prior to such transfer, materially increase the possibility of the Company becoming a publicly traded partnership within the meaning of Section 7704 of the Code (it being understood that a transfer by a Member whose Percentage Interest prior to such transfer is 10% or greater that increases such excess by 2 or fewer shall be deemed not to materially increase such possibility).
Section 10.08 Spousal Consent . In connection with the execution and delivery of this Agreement, any Member who is a natural person will deliver to the Company an executed consent from such Members spouse (if any) in the form of Exhibit B-1 attached hereto or a Members spouse confirmation of separate property in the form of Exhibit B-2 attached hereto. If, at any time subsequent to the date of this Agreement such Member becomes legally married (whether in the first instance or to a different spouse), such Member shall cause his or her spouse to execute and deliver to the Company a consent in the form of Exhibit B attached hereto. Such Members non-delivery to the Company of an executed consent in the form of Exhibit B at any time shall constitute such Members continuing representation and warranty that such Member is not legally married as of such date.
Section 10.09 Tender Offers and Other Events with respect to the Corporation .
(a) In the event that a tender offer, share exchange offer, issuer bid, take-over bid, recapitalization or similar transaction with respect to Class A Common Stock (a Pubco Offer ) is proposed by the Corporation or is proposed to the Corporation or its stockholders and approved by the Corporate Board or is otherwise effected or to be effected with the consent or approval of the Corporate Board, the Common Unitholders shall be permitted to participate in such Pubco Offer by delivery of a Redemption Notice (which Redemption Notice shall be effective immediately prior to the consummation of such Pubco Offer (and, for the avoidance of doubt, shall be contingent upon such Pubco Offer and not be effective if such Pubco Offer is not consummated)). In the case of a Pubco Offer proposed by the Corporation, the Corporation will
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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 Common Unitholders to participate in such Pubco Offer to the same extent or on an economically equivalent basis as the holders of shares of Class A Common Stock without discrimination; provided, that without limiting the generality of this sentence (and without limiting the ability of any Member holding Common Units to consummate a Redemption at any time pursuant to the terms of this Agreement), the Manager will use its reasonable best efforts expeditiously and in good faith to ensure that such Common Unitholders may participate in such Pubco Offer without being required to have their Common Units and shares of Class B Common Stock or Class C Common Stock, as the case may be, redeemed (or, if so required, to ensure that any such redemption shall be effective only upon, and shall be conditional upon, the closing of the transactions contemplated by the Pubco Offer). For the avoidance of doubt, in no event shall Common Unitholders be entitled to receive in such Pubco Offer aggregate consideration for each Common Unit that is greater than the consideration payable in respect of each share of Class A Common Stock in connection with a Pubco Offer (it being understood that payments under or in respect of the Tax Receivable Agreement shall not be considered part of any such consideration).
(b) The Corporation shall send written notice to the Company and the Common Unitholders at least thirty (30) days prior to the closing of the transactions contemplated by the Pubco Offer notifying them of their rights pursuant to this Section 10.09 , and setting forth (i) a copy of the written proposal or agreement pursuant to which the Pubco Offer will be effected, (ii) the consideration payable in connection therewith, (iii) the terms and conditions of transfer and payment and (iv) the date and location of and procedures for selling Common Units. In the event that the information set forth in such notice changes from that set forth in the initial notice, a subsequent notice shall be delivered by the Corporation no less than seven (7) days prior to the closing of the Pubco Offer.
ARTICLE XI.
REDEMPTION AND EXCHANGE RIGHTS
Section 11.01 Redemption Right of a Member .
(a) Each Member (other than the Corporation) shall be entitled to cause the Company to redeem (a Redemption ) its Common Units (excluding, for the avoidance of doubt, any Common Units that are subject to vesting conditions or rights of repurchase or risk of forfeiture, or are subject to Transfer limitations pursuant to this Agreement or any other agreement) in whole or in part (the Redemption Right ) from time to time following the waiver or expiration of any contractual lock-up period relating to the shares of the Corporation that may be applicable to such Member. A Member desiring to exercise its Redemption Right (each, a Redeeming Member ) shall exercise such right by giving written notice (the Redemption Notice ) to the Company with a copy to the Corporation, which Redemption Notice may be submitted on any Business Day that is not during a Black-Out Period (if applicable to such Redeeming Member), if (A) the applicable Redemption is in connection with a Permitted Redemption Event or (B) the Company meets the requirements of the Private Placement Safe Harbor (each of (A) and (B), an Unrestricted Redemption ), or, in any case other than an Unrestricted Redemption, during the Quarterly Exchange Notice Period preceding the desired Redemption Date. The Redemption Notice shall specify the number of Common Units (subject,
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in the case of a Redemption that is not an Unrestricted Redemption, to the Minimum Exchange Requirement, it being understood that a Member may specify in its Redemption Notice a number of Common Units in excess of the Minimum Exchange Requirement) (the Redeemed Units ) that the Redeeming Member intends to have the Company redeem and either (X) with respect to any Unrestricted Redemption, a date not less than three (3) Business Days nor more than ten (10) Business Days after the delivery of such Redemption Notice (unless, and to the extent, that the Manager in its sole discretion agrees in writing to waive such time periods), or (Y) in any other case, the Quarterly Exchange Date, which date in each case shall be the date on which the exercise of the Redemption Right shall be completed (as applicable, the Redemption Date ); provided, that solely with respect to Unrestricted Redemptions, the Company, the Corporation and the Redeeming Member may change the number of Redeemed Units and/or the Redemption Date specified in such Redemption Notice to another number and/or date by mutual agreement signed in writing by each of them; provided , further , that the Company and the Corporation shall not be required to comply with a Redemption Notice delivered in connection with a Redemption that is not an Unrestricted Redemption if such Redemption Notice does not comply with the Minimum Exchange Requirement (and such Redemption Notice shall be deemed null and void ab initio and ineffective with respect to the Redemption specified therein); provided, further , that any Redemption that is an Unrestricted Redemption may be conditioned (including as to timing) by the Redeeming Member (in the Redeeming Members sole discretion) on (i) the Corporation and/or the Redeeming Member having entered into a valid and binding agreement with a third party for the sale of shares of Class A Common Stock that may be issued in connection with such proposed Redemption (whether in a tender or exchange offer, private sale or otherwise) and such agreement is subject to customary closing conditions for agreements of this kind and the delivery of the Class A Common Stock by the Corporation or the Redeeming Member, as applicable, to such third party, (ii) the closing of an announced merger, consolidation or other transaction or event in which the shares of Class A Common Stock that may be issued in connection with such proposed Redemption would be exchanged or converted or become exchangeable or convertible into cash or other securities or property and/or (iii) the closing of an underwritten distribution of the shares of Class A Common Stock that may be issued in connection with such proposed Redemption; provided, further , that if the Corporation closes an underwritten distribution of the shares of Class A Common Stock and the Members (other than, or in addition to, the Corporation) were entitled to resell shares of Class A Common Stock in connection therewith (by the exercise by such Members of the Redemption Right in connection with a Share Settlement or otherwise) (a Secondary Offering ), then, except as provided in the following proviso, the immediately succeeding Quarterly Exchange Date shall be automatically cancelled and of no force or effect (and no Member shall be entitled to exercise its Redemption Right or deliver a Quarterly Exchange Date Notice with respect to a Redemption that is not an Unrestricted Redemption in respect of such Quarterly Exchange Date); provided , further , however , that the next Quarterly Exchange Date in the Tax Year ending December 31, 2018 shall not automatically be cancelled if there have been, in the aggregate, no more than three Quarterly Exchange Dates and Secondary Offerings in such Tax Year; provided , further that the Company may effect a Redemption if the Manager determines (in its sole and absolute discretion), after consultation with its legal counsel and tax advisors, that such Redemption, together with any other Redemptions that have occurred or are expected to occur, would not be reasonably likely to result in the Company being treated as a publicly traded partnership within the meaning of Section 7704 of the Code. Notwithstanding anything to the contrary in this Agreement or the
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Registration Rights Agreement, (a) for so long as the Company does not meet the requirements of the Private Placement Safe Harbor, any such Secondary Offering (other than that pursuant to which all Redemptions are Unrestricted Redemptions) shall only be undertaken if, during the applicable Tax Year, the total number of Quarterly Exchange Dates and prior Secondary Offerings (other than any pursuant to which all Redemptions are Unrestricted Redemptions) on which Redemptions occur is three (3) or fewer and (b) the Company and the Corporation shall not be deemed to have failed to comply with their respective obligations under the Registration Rights Agreement if a Secondary Offering cannot be undertaken due to the restriction set forth in the preceding clause (a). Subject to Section 11.03 and unless the Redeeming Member timely has delivered a Retraction Notice as provided in Section 11.01(c) or Section 11.01(e) or has revoked or delayed a Redemption as provided in Section 11.01(d) , on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date):
(i) the Redeeming Member shall transfer and surrender, free and clear of all liens and encumbrances (x) the Redeemed Units to the Company, and (y) a number of shares of Class B Common Stock or Class C Common Stock, as the case may be, equal to the number of Redeemed Units to the Corporation to the extent applicable;
(ii) the Company shall (x) cancel the Redeemed Units, (y) transfer to the Redeeming Member the consideration to which the Redeeming Member is entitled under Section 11.01(b) , and (z) if the Units are certificated, issue to the Redeeming Member a certificate for a number of Common Units equal to the difference (if any) between the number of Common Units evidenced by the certificate surrendered by the Redeeming Member pursuant to clause (i) of this Section 11.01(a) and the Redeemed Units; and
(iii) the Corporation shall cancel for no consideration the shares of Class B Common Stock or Class C Common Stock, as the case may be (and the Corporation shall take all actions necessary to retire such shares transferred to the Corporation and such shares shall not be re-issued by the Corporation) upon a transfer of such shares of Class B Common Stock or Class C Common Stock, as the case may be, that were Transferred pursuant to Section 11.01(a)(i)(y) above.
(b) In exercising its Redemption Right, a Redeeming Member shall, to the fullest extent permitted by applicable Law, be entitled to receive the Share Settlement or the Cash Settlement; provided, that the Corporation shall have the option as provided in Section 11.02 and subject to Section 11.01(f) to select whether the redemption payment is made by means of a Share Settlement or a Cash Settlement. Within three (3) Business Days of delivery of the Redemption Notice, the Corporation shall give written notice (the Contribution Notice ) to the Company (with a copy to the Redeeming Member) of its intended settlement method; provided , that if the Corporation does not timely deliver a Contribution Notice, the Corporation shall be deemed to have elected the Share Settlement method (subject to the limitations set forth above).
(c) In the event the Corporation elects the Cash Settlement in connection with a Redemption that is an Unrestricted Redemption, the Redeeming Member may retract its Redemption Notice with respect to such Redemption by giving written notice (the Retraction Notice ) to the Company (with a copy to the Corporation) within three (3) Business Days of delivery of the Contribution Notice. The timely delivery of a Retraction Notice under this Section 11.01(c) shall terminate all of the Redeeming Members, Companys and the Corporations rights and obligations under this Section 11.01 arising from the Redemption Notice.
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(d) In the event the Corporation elects a Share Settlement in connection with a Redemption that is an Unrestricted Redemption, a Redeeming Member shall be entitled to revoke its Redemption Notice by delivering a Retraction Notice to the Company (with a copy to the Corporation) or delay the consummation of such Redemption by giving written notice to the Company (with a copy to the Corporation), in either case, within three (3) Business Days of delivery of the Contribution Notice (or, if the Corporation does not timely deliver a Contribution Notice, within three (3) Business Days after the delivery period therefor shall have lapsed), if any of the following conditions exists:
(i) any registration statement pursuant to which the resale of the Class A Common Stock to be registered for such Redeeming Member at or immediately following the consummation of the Redemption shall have ceased to be effective pursuant to any action or inaction by the SEC or no such resale registration statement has yet become effective;
(ii) the Corporation shall have failed to cause any related prospectus to be supplemented by any required prospectus supplement necessary to effect such Redemption;
(iii) the Corporation shall have exercised its right to defer, delay or suspend the filing or effectiveness of a registration statement and such deferral, delay or suspension shall affect the ability of such Redeeming Member to have its Class A Common Stock registered at or immediately following the consummation of the Redemption;
(iv) the Corporation shall have disclosed in good faith to such Redeeming Member any material non-public information concerning the Corporation, the receipt of which results in such Redeeming Member being prohibited or restricted from selling Class A Common Stock at or immediately following the Redemption without disclosure of such information (and the Corporation does not permit disclosure);
(v) any stop order relating to the registration statement pursuant to which the Class A Common Stock was to be registered by such Redeeming Member at or immediately following the Redemption shall have been issued by the SEC;
(vi) there shall have occurred a material disruption in the securities markets generally or in the market or markets in which the Class A Common Stock is then traded;
(vii) there shall be in effect an injunction, a restraining order or a decree of any nature of any Governmental Entity that restrains or prohibits the Redemption;
(viii) the Corporation shall have failed to comply in all material respects with its obligations under the Registration Rights Agreement, and such failure shall have affected the ability of such Redeeming Member to consummate the resale of Class A Common Stock to be received upon such redemption pursuant to an effective registration statement; or
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(ix) the Redemption Date would occur three (3) Business Days or less prior to, or during, a Black-Out Period;
If a Redeeming Member delays the consummation of a Redemption pursuant to this Section 11.01(d) , the Redemption Date shall occur on the fifth (5 th ) Business Day following the date on which the conditions giving rise to such delay cease to exist (or such earlier day as the Corporation, the Company and such Redeeming Member may agree in writing).
(e) Subject to the last two sentences of this Section 11.01(e) , if, in the case of a Redemption that is not an Unrestricted Redemption, the Common Unit Redemption Price on a date (determined treating such date as Redemption Date) decreases by more than 10% following the delivery of a Redemption Notice by a Redeeming Member, such Redeeming Member may revoke its Redemption Notice by delivering a Retraction Notice to the Company (with a copy to the Corporation) no later than three (3) Business Days prior to the Redemption Date. The timely delivery of a Retraction Notice under this Section 11.01(e) shall terminate all of the Redeeming Members, Companys and the Corporations rights and obligations under this Section 11.01 arising from the Redemption Notice. A Redeeming Member may only revoke a Redemption under this Section 11.01(e) once in every twelve (12)-month period (and any additional Retraction Notice delivered by a Redeeming Member within such twelve-month period shall be deemed null and void ab initio and ineffective with respect to the revocation of the Redemption specified therein). A Redeeming Member who revokes a Redemption under this Section 11.01(e) may not participate in the Redemption to occur on the next Quarterly Exchange Date immediately following the Quarterly Exchange Date with respect to which the Retraction Notice pertains.
(f) The number of shares of Class A Common Stock or the Redeemed Units Equivalent that a Redeeming Member is entitled to receive under Section 11.01(b) (whether through a Share Settlement or Cash Settlement) shall not be adjusted on account of any Distributions previously made with respect to the Redeemed Units or dividends previously paid with respect to Class A Common Stock; provided, however , that if a Redeeming Member causes the Company to redeem Redeemed Units and the Redemption Date occurs subsequent to the record date for any Distribution with respect to the Redeemed Units but prior to payment of such Distribution, the Redeeming Member shall be entitled to receive such Distribution with respect to the Redeemed Units on the date that it is made notwithstanding that the Redeeming Member transferred and surrendered the Redeemed Units to the Company prior to such date; provided , further , however , that a Redeeming Member shall be entitled to receive any and all Tax Distributions that such Redeeming Member otherwise would have received in respect of income allocated to such Member for the portion of any Fiscal Year irrespective of whether such Tax Distribution(s) are declared or made after the Redemption Date.
(g) In the case of a Share Settlement, in the event of a reclassification or other similar transaction as a result of which the shares of Class A Common Stock are converted into another security, then in exercising its Redemption Right a Redeeming Member shall be entitled to receive the amount of such security that the Redeeming Member would have received if such Redemption Right had been exercised and the Redemption Date had occurred immediately prior to the record date of such reclassification or other similar transaction.
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Section 11.02 Election and Contribution of the Corporation . In connection with the exercise of a Redeeming Members Redemption Rights under Section 11.01(a) , the Corporation shall contribute to the Company the consideration the Redeeming Member is entitled to receive under Section 11.01(b) . The Corporation, at its option, subject to the succeeding sentence and to the limitations set forth in Section 11.01(b) , shall determine whether to contribute, pursuant to Section 11.01(b) , the Share Settlement or the Cash Settlement. The Corporations election to contribute pursuant to the Cash Settlement shall be made by a majority of the Corporate Board, excluding Mr. Aaron Skonnard. Unless the Redeeming Member has timely delivered a Retraction Notice as provided in Section 11.01(c) , (d) or (e) , or has delayed a Redemption as provided in Section 11.01(d) , on the Redemption Date (to be effective immediately prior to the close of business on the Redemption Date) (i) the Corporation shall make its Capital Contribution to the Company (in the form of the Share Settlement or the Cash Settlement) required under this Section 11.02 , and (ii) in the event of a Share Settlement, the Company shall issue to the Corporation a number of Common Units equal to the number of Redeemed Units surrendered by the Redeeming Member. Notwithstanding any other provisions of this Agreement to the contrary, in the event that the Corporation elects a Cash Settlement, the Corporation shall only be obligated to contribute to the Company an amount in respect of such Cash Settlement equal to the net proceeds (after deduction of any Discounts) from the sale by the Corporation of a number of shares of Class A Common Stock equal to the number of Redeemed Units to be redeemed with such Cash Settlement, which in no event shall exceed the amount paid by the Company to the Redeeming Member as Cash Settlement; provided , that (i) the Discount shall be an expense of the Company as described in Section 6.06 and (ii) for the avoidance of doubt, if the Cash Settlement to which the Redeeming Member is entitled exceeds the amount that is contributed to the Company by the Corporation, the Company shall still be required to pay the Redeeming Member the full amount of the Cash Settlement. The timely delivery of a Retraction Notice shall terminate all of the Companys and the Corporations rights and obligations under this Section 11.02 arising from the Redemption Notice.
Section 11.03 Exchange Right of the Corporation .
(a) Notwithstanding anything to the contrary in this Article XI (save for the limitations set forth in Section 11.01(b) regarding the option to select the Share Settlement or the Cash Settlement, and without limitation to the rights of the Members under Section 11.01 , including the right to revoke a Redemption Notice), the Corporation may, in its sole and absolute discretion (subject to the limitations set forth on such discretion in Section 11.01(b) ), elect to effect on the Redemption Date the exchange of Redeemed Units for the Share Settlement or Cash Settlement, as the case may be, through a direct exchange of such Redeemed Units and such consideration between the Redeeming Member and the Corporation (a Direct Exchange ). Upon such Direct Exchange pursuant to this Section 11.03(b) , the Corporation shall acquire the Redeemed Units and shall be treated for all purposes of this Agreement as the owner of such Units.
(b) The Corporation may, at any time prior to a Redemption Date, deliver written notice (an Exchange Election Notice ) to the Company and the Redeeming Member setting forth its election to exercise its right to consummate a Direct Exchange; provided , that such election is subject to the limitations set forth in Section 11.01(b) and does not prejudice the ability of the parties to consummate a Redemption or Direct Exchange on the Redemption Date.
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An Exchange Election Notice may be revoked by the Corporation at any time; provided , that any such revocation does not prejudice the ability of the parties to consummate a Redemption or Direct Exchange on the Redemption Date. The right to consummate a Direct Exchange in all events shall be exercisable for all the Redeemed Units that would have otherwise been subject to a Redemption.
(c) Except as otherwise provided by this Section 11.03 , a Direct Exchange shall be consummated pursuant to the same timeframe as the relevant Redemption would have been consummated if the Corporation had not delivered an Exchange Election Notice and as follows:
(i) the Redeeming Member shall transfer and surrender, free and clear of all liens and encumbrances (x) the Redeemed Units, and (y) a number of shares of Class B Common Stock or Class C Common Stock, as the case may be, equal to the number of Redeemed Units, to the extent applicable, in each case, to the Corporation;
(ii) the Corporation shall (x) pay to the Redeeming Member the consideration to which the Redeeming Member is entitled under Section 11.01(b) , and (y) cancel for no consideration the shares of Class B Common Stock or Class C Common Stock, as the case may be, (and the Corporation shall take all actions necessary to retire such shares transferred to the Corporation and such shares shall not be re-issued by the Corporation) upon a transfer of such shares of Class B Common Stock or Class C Common Stock, as the case may be, that were Transferred pursuant to Section 11.03(c)(i)(y) above; and
(iii) the Company shall (x) register the Corporation as the owner of the Redeemed Units and (y) if the Units are certificated, issue to the Redeeming Member a certificate for a number of Common Units equal to the difference (if any) between the number of Common Units evidenced by the certificate surrendered by the Redeeming Member pursuant to Section 11.03(c)(i)(x) and the Redeemed Units, and issue to the Corporation a certificate for the number of Redeemed Units.
Section 11.04 Reservation of shares of Class A Common Stock; Listing; Certificate of the Corporation . At all times the Corporation shall reserve and keep available out of its authorized but unissued Class A Common Stock, solely for the purpose of issuance upon a Redemption or Direct Exchange, such number of shares of Class A Common Stock as shall be issuable upon any such Redemption or Direct Exchange pursuant to Share Settlements; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of any such Redemption or Direct Exchange by delivery of purchased Class A Common Stock (which may or may not be held in the treasury of the Corporation) or the delivery of cash pursuant to a Cash Settlement. The Corporation shall deliver Class A Common Stock that has been registered under the Securities Act with respect to any Redemption or Direct Exchange to the extent a registration statement is effective and available for such shares. The Corporation shall use its commercially reasonable efforts to list the Class A Common Stock required to be delivered upon any such Redemption or Direct Exchange prior to such delivery upon each national securities exchange upon which the outstanding shares of Class A Common Stock are listed at the time of such Redemption or Direct Exchange (it being understood that any such shares may be subject to transfer restrictions under applicable securities Laws). The
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Corporation covenants that all Class A Common Stock issued upon a Redemption or Direct Exchange will, upon issuance, be validly issued, fully paid and non-assessable. The provisions of this Article XI shall be interpreted and applied in a manner consistent with the corresponding provisions of the Corporations certificate of incorporation.
Section 11.05 Effect of Exercise of Redemption or Exchange Right . This Agreement shall continue notwithstanding the consummation of a Redemption or Direct Exchange and all governance or other rights set forth herein shall be exercised by the remaining Members and the Redeeming Member (to the extent of such Redeeming Members remaining interest in the Company). No Redemption or Direct Exchange shall relieve such Redeeming Member of any prior breach of this Agreement.
Section 11.06 Tax Treatment . Unless otherwise required by applicable Law, the parties hereto acknowledge and agree a Redemption or a Direct Exchange, as the case may be, shall be treated as a direct exchange between the Corporation and the Redeeming Member for U.S. federal and applicable state and local income tax purposes.
ARTICLE XII.
ADMISSION OF MEMBERS
Section 12.01 Substituted Members . Subject to the provisions of Article X hereof, in connection with the Permitted Transfer of a Company Interest hereunder, the Permitted Transferee shall be admitted as a Substituted Member on the effective date of such Transfer, which effective date shall not be earlier than the date of compliance with the conditions to such Transfer, and such admission shall be shown on the books and records of the Company, including the Schedule of Members.
Section 12.02 Additional Members . Subject to the provisions of Article X hereof, any Person that is not a Member as of the Effective Time may be admitted to the Company as an additional Member (any such Person, an Additional Member ) only upon furnishing to the Manager (a) duly executed Joinder and counterparts to any applicable Other Agreements and (b) such other documents or instruments as may be reasonably necessary or appropriate to effect such Persons admission as a Member (including entering into such documents as may reasonably be requested by the Manager). Such admission shall become effective on the date on which the Manager determines in its sole discretion that such conditions have been satisfied and when any such admission is shown on the books and records of the Company, including the Schedule of Members.
ARTICLE XIII.
RESIGNATION; TERMINATION OF RIGHTS
Section 13.01 Resignation of Members . Except in the event of Transfers pursuant to Section 10.06 , no Member shall have the power or right to resign as a Member from the Company prior to the dissolution and winding up of the Company pursuant to Article XIV . Any Member, however, that attempts to resign as a Member from the Company without the prior written consent of the Manager upon or following the dissolution and winding up of the Company pursuant to Article XIV , but prior to such Member receiving the full amount of
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Distributions from the Company to which such Member is entitled pursuant to Article XIV , shall be liable to the Company for all damages (including all lost profits and special, indirect and consequential damages) directly or indirectly caused by the resignation of such Member. Upon a Transfer of all of a Members Units in a Transfer permitted by this Agreement, subject to the provisions of Section 10.06 , such Member shall cease to be a Member.
ARTICLE XIV.
DISSOLUTION AND LIQUIDATION
Section 14.01 Dissolution . The Company shall not be dissolved by the admission of Additional Members or Substituted Members or the attempted removal, dissolution, bankruptcy or resignation of a Member. The Company shall dissolve, and its affairs shall be wound up, upon:
(a) the decision of the Manager together with holders of a majority of the Common Units entitled to vote then outstanding to dissolve the Company (excluding for purposes of such calculation the Corporation and all Common Units held directly or indirectly by the Corporation);
(b) such time that there are no members of the Company, unless the Company is continued in accordance with the Delaware Act; or
(c) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Delaware Act.
Except as otherwise set forth in this Article XIV , the Company is intended to have perpetual existence. An Event of Withdrawal shall not in and of itself cause a dissolution of the Company and the Company shall continue in existence subject to the terms and conditions of this Agreement.
Section 14.02 Winding up and Termination . Subject to Section 14.05 , on dissolution of the Company, the Manager shall act as liquidating trustee or may appoint one or more Persons as liquidating trustee (each such Person, a liquidator ). The liquidators shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Delaware Act. The costs of liquidation shall be borne as a Company expense. Until final distribution, the liquidators shall continue to operate the Company properties with all of the power and authority of the Manager. The steps to be accomplished by the liquidators are as follows:
(a) as promptly as possible after dissolution and again after final liquidation, the liquidators shall cause a proper accounting to be made by a recognized firm of certified public accountants of the Companys assets, liabilities and operations through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable;
(b) the liquidators shall pay, satisfy or discharge from Company funds, or otherwise make adequate provision for payment and discharge thereof (including, without limitation, the establishment of a cash fund for contingent, conditional and unmatured liabilities in such amount and for such term as the liquidators may reasonably determine) all of the debts, liabilities and obligations of the Company; and
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(c) all remaining assets of the Company shall be distributed to the Members in accordance with Article IV by the end of the Taxable Year during which the liquidation of the Company occurs (or, if later, by ninety (90) days after the date of the liquidation).
The distribution of cash and/or property to the Members in accordance with the provisions of this Section 14.02 and Section 14.03 below constitutes a complete return to the Members of their Capital Contributions, a complete distribution to the Members of their interest in the Company and all the Companys property and constitutes a compromise to which all Members have consented within the meaning of the Delaware Act. To the extent that a Member returns funds to the Company, it has no claim against any other Member for those funds.
Section 14.03 Deferment; Distribution in Kind . Notwithstanding the provisions of Section 14.02, but subject to the order of priorities set forth therein, if upon dissolution of the Company the liquidators determine that an immediate sale of part or all of the Companys assets would be impractical or would cause undue loss (or would otherwise not be beneficial) to the Members, the liquidators may, in their sole discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy Company liabilities (other than loans to the Company by Members) and reserves. Subject to the order of priorities set forth in Section 14.02 , the liquidators may, in their sole discretion, distribute to the Members, in lieu of cash, either (a) all or any portion of such remaining Company assets in-kind in accordance with the provisions of Section 14.02(c) , (b) as tenants in common and in accordance with the provisions of Section 14.02(c) , undivided interests in all or any portion of such Company assets or (c) a combination of the foregoing. Any such Distributions in kind shall be subject to (y) such conditions relating to the disposition and management of such assets as the liquidators deem reasonable and equitable and (z) the terms and conditions of any agreements governing such assets (or the operation thereof or the holders thereof) at such time. Any Company assets distributed in kind will first be written up or down to their Fair Market Value, thus creating Profit or Loss (if any), which shall be allocated in accordance with Article V . The liquidators shall determine the Fair Market Value of any property distributed in accordance with the valuation procedures set forth in Article XV .
Section 14.04 Cancellation of Certificate . On completion of the winding up of the Company as provided herein, the Manager (or such other Person or Persons as the Delaware Act may require or permit) shall file a certificate of cancellation of the Certificate with the Secretary of State of Delaware, cancel any other filings made pursuant to this Agreement that are or should be canceled and take such other actions as may be necessary to terminate the Company. The Company shall continue in existence for all purposes of this Agreement until it is terminated pursuant to this Section 14.04 .
Section 14.05 Reasonable Time for Winding Up . A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets pursuant to Sections 14.02 and 14.03 in order to minimize any losses otherwise attendant upon such winding up.
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Section 14.06 Return of Capital . The liquidators shall not be personally liable for the return of Capital Contributions or any portion thereof to the Members (it being understood that any such return shall be made solely from Company assets).
ARTICLE XV.
VALUATION
Section 15.01 Determination . Fair Market Value of a specific Company asset will mean the amount which the Company would receive in an all-cash sale of such asset in an arms-length transaction with a willing unaffiliated third party, with neither party having any compulsion to buy or sell, consummated on the day immediately preceding the date on which the event occurred which necessitated the determination of the Fair Market Value (and after giving effect to any transfer taxes payable in connection with such sale), as such amount is determined by the Manager (or, if pursuant to Section 14.02 , the liquidators) in its (or, if applicable, the liquidators) good faith judgment using all factors, information and data it (or, if applicable, the liquidators) deems to be pertinent.
Section 15.02 Dispute Resolution . If any Member or Members dispute the accuracy of any determination of Fair Market Value in accordance with Section 15.01 , and the Manager and such Member(s) are unable to agree on the determination of the Fair Market Value of any asset of the Company, the Manager and such Member(s) shall each select a nationally recognized investment banking firm experienced in valuing securities of closely-held companies such as the Company in the Companys industry (the Appraisers ), who shall each determine the Fair Market Value of the asset or the Company (as applicable) in accordance with the provisions of Section 15.01 . The Appraisers shall be instructed to give written notice of their determination of the Fair Market Value of the asset or the Company (as applicable) within thirty (30) days of their appointment as Appraisers. If Fair Market Value as determined by an Appraiser is higher than Fair Market Value as determined by the other Appraiser by 10% or more, and the Manager and such Member (s) do not otherwise agree on a Fair Market Value, the original Appraisers shall designate a third Appraiser meeting the same criteria used to select the original two. If Fair Market Value as determined by an Appraiser is within 10% of the Fair Market Value as determined by the other Appraiser (but not identical), and the Manager and such Member(s) do not otherwise agree on a Fair Market Value, the Manager shall select the Fair Market Value of one of the Appraisers. The fees and expenses of the Appraisers shall be borne by the Company.
ARTICLE XVI.
GENERAL PROVISIONS
Section 16.01 Power of Attorney .
(a) Each Member who is a natural person hereby constitutes and appoints the Manager (or the liquidator, if applicable) with full power of substitution, as his or her true and lawful agent and attorney-in-fact, with full power and authority in his or her name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) this Agreement, all certificates and other instruments and all
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amendments thereof which the Manager deems appropriate or necessary to form, qualify, or continue the qualification of, the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property; (B) all instruments which the Manager deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (C) all conveyances and other instruments or documents which the Manager deems appropriate or necessary to reflect the dissolution and winding up of the Company pursuant to the terms of this Agreement, including a certificate of cancellation; and (D) all instruments relating to the admission, substitution or withdrawal of any Member pursuant to Article XII or XIII ; and
(ii) sign, execute, swear to and acknowledge all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the reasonable judgment of the Manager, to evidence, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Members hereunder or is consistent with the terms of this Agreement, in the reasonable judgment of the Manager, to effectuate the terms of this Agreement.
(b) The foregoing power of attorney is irrevocable and coupled with an interest, and shall survive the death, disability, incapacity, dissolution, bankruptcy, insolvency or termination of any Member and the transfer of all or any portion of his or her Company Interest and shall extend to such Members heirs, successors, assigns and personal representatives.
Section 16.02 Confidentiality .
(a) Each of the Members agrees to hold the Companys Confidential Information in confidence and may not disclose such information except as otherwise authorized separately in writing by the Manager. Confidential Information as used herein includes all information concerning the Company or its Subsidiaries in the possession of or furnished to any Member, including but not limited to, ideas, financial product structuring, business strategies, innovations and materials, all aspects of the Companys business plan, proposed operation and products, corporate structure, financial and organizational information, analyses, proposed partners, software code and system and product designs, employees and their identities, equity ownership, the methods and means by which the Company plans to conduct its business, all trade secrets, trademarks, tradenames and all intellectual property associated with the Companys business. With respect to each Member, Confidential Information does not include information or material that: (a) is rightfully in the possession of such Member at the time of disclosure by the Company; (b) before or after it has been disclosed to such Member by the Company, becomes part of public knowledge, not as a result of any action or inaction of such Member in violation of this Agreement; (c) is approved for release by written authorization of the Chief Executive Officer, Chief Financial Officer or Senior Vice President, General Counsel and Secretary of the Company or of the Corporation, or any other officer designated by the Manager; (d) is disclosed to such Member or their representatives by a third party not, to the knowledge of such Member in violation of any obligation of confidentiality owed to the Company with respect to such information; or (e) is or becomes independently developed by such Member or their respective representatives without use or reference to the Confidential Information.
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(b) Each of the Members may disclose Confidential Information to its Subsidiaries, Affiliates, partners, directors, officers, managers, employees, counsel, advisers, consultants, outside contractors and other agents, on the condition that such Persons keep the Confidential Information confidential to the same extent as such disclosing party is required to keep the Confidential Information confidential, solely to the extent it is reasonably necessary or appropriate to fulfill its obligations or to exercise its rights under this Agreement; provided , that the disclosing party shall remain liable with respect to any breach of this Section 16.02 by any such Subsidiaries, Affiliates, partners, directors, officers, managers, employees, counsel, advisers, consultants, outside contractors and other agents.
(c) Notwithstanding Section 16.02(a) or Section 16.02(b) , each of the Members may disclose Confidential Information (i) to the extent that such party is legally compelled (by oral questions, interrogatories, request for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Confidential Information, (ii) for purposes of reporting to its stockholders and direct and indirect equity holders the performance of the Company and its Subsidiaries and for purposes of including applicable information in its financial statements to the extent required by applicable Law or applicable accounting standards; (iii) to any bona fide prospective purchaser of the equity or assets of a Member, or the Common Units held by such Member, or a prospective merger partner of such Member ( provided , that (i) such Persons will be informed by such Member of the confidential nature of such information and shall agree in writing to keep such information confidential in accordance with the contents of this Agreement and (ii) each Member will be liable for any breaches of this Section 16.02 by any such Persons), or (iv) to the extent required to be disclosed by applicable Law. Notwithstanding any of the foregoing, nothing in this Section 16.02 will restrict in any manner the ability of the Corporation to comply with its disclosure obligations under Law, and the extent to which any Confidential Information is necessary or desirable to disclose.
Section 16.03 Amendments . This Agreement may be amended or modified upon the consent of the Manager and, if the Corporation is not the sole Member of the Company, a majority of the Common Units entitled to vote then outstanding (excluding for purposes of such all Common Units held directly or indirectly by the Corporation). Notwithstanding the foregoing, no amendment or modification:
(a) to this Section 16.03 may be made without the prior written consent of the Manager and each of the Members;
(b) to any of the terms and conditions of this Agreement which terms and conditions expressly require the approval or action of certain Persons may be made without obtaining the consent of the requisite number or specified percentage of such Persons who are entitled to approve or take action on such matter;
(c) to any of the terms and conditions of Article VI (and related definitions as used directly or indirectly therein) may be made without the prior written consent of the Manager; and
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(d) to any of the terms and conditions of this Agreement which would (A) reduce the amounts distributable to a Member pursuant to Articles IV and XIV in a manner that is not pro rata with respect to all Members, (B) increase the liabilities of such Member hereunder, (C) otherwise materially and adversely affect a holder of Units in a manner materially different than any other holder of Units of the same class or series (other than amendments, modifications and waivers necessary to implement the provisions of Article XII ) or (D) materially and adversely affect the rights of any Member under Article XI , shall be effective against such affected Member or holder of Units, as the case may be, without the prior written consent of such Member or holder of Units, as the case may be.
Notwithstanding any of the foregoing, the Manager may make any amendment (i) of an administrative nature that is necessary in order to implement or effectuate the substantive provisions hereof (including, without limitation, the last proviso of the third to last sentence of Section 11.01(a) ), without the consent of any other Member; provided , that any such amendment does not adversely change the rights of the Members hereunder in any respect, or (ii) to reflect any changes to the Class A Common Stock.
Section 16.04 Title to Company Assets . Company assets shall be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. The Company shall hold title to all of its property in the name of the Company and not in the name of any Member. All Company assets shall be recorded as the property of the Company on its books and records, irrespective of the name in which legal title to such Company assets is held. The Companys credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be transferred or encumbered for, or in payment of, any individual obligation of any Member.
Section 16.05 Addresses and Notices . Any notice, request, demand or instruction specified or permitted by this Agreement will be in writing and will be either personally delivered, or received by certified mail, return receipt requested, or sent by reputable overnight courier service (charges prepaid) to the Company or by electronic mail at the address set forth below and to any other recipient and to any Member at such address as indicated by the Companys records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder when delivered personally or sent by telecopier ( provided confirmation of transmission is received), three (3) days after deposit in the U.S. mail and one (1) day after deposit with a reputable overnight courier service or if sent by electronic mail, upon confirmed receipt. Whenever any notice is required to be given by Law or this Agreement, a written waiver thereof signed by the Person entitled to such notice, whether before or after the time stated at which such notice is required to be given, shall be deemed equivalent to the giving of such notice.
To the Company:
Pluralsight Holdings, LLC
182 North Union Avenue
Farmington, Utah 84025
Attn: Aaron Skonnard and Matthew Forkner
E-mail: aaron-skonnard@pluralsight.com; matthew-forkner@pluralsight.com
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with a copy (which copy shall not constitute notice) to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Rezwan Pavri, Esq.
Facsimile: (650) 493-6811
E-mail: rpavri@wsgr.com
Section 16.06 Binding Effect; Intended Beneficiaries . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.
Section 16.07 Creditors . None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company or any of its Affiliates, and no creditor who makes a loan to the Company or any of its Affiliates may have or acquire (except pursuant to the terms of a separate agreement executed by the Company in favor of such creditor) at any time as a result of making the loan any direct or indirect interest in Company Profits, Losses, Distributions, capital or property other than as a secured creditor.
Section 16.08 Waiver . No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition.
Section 16.09 Counterparts . This Agreement may be executed in separate counterparts, each of which will be an original and all of which together shall constitute one and the same agreement binding on all the parties hereto.
Section 16.10 Applicable Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any suit, dispute, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement shall be heard in the state or federal courts of the State of Delaware, and the parties hereby consent to the exclusive jurisdiction of such court (and of the appropriate appellate courts) in any such suit, action or proceeding and waives any objection to venue laid therein. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE SERVED ON ANY PARTY ANYWHERE IN THE WORLD, WHETHER WITHIN OR WITHOUT THE JURISDICTION OF ANY SUCH COURT (INCLUDING BY PREPAID CERTIFIED MAIL WITH A VALIDATED PROOF OF MAILING RECEIPT) AND SHALL HAVE THE SAME LEGAL FORCE AND EFFECT AS IF SERVED UPON SUCH PARTY PERSONALLY WITHIN THE STATE OF DELAWARE. WITHOUT LIMITING THE FOREGOING, TO THE FULLEST EXTENT PERMITTED BY LAW, THE PARTIES AGREE
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THAT SERVICE OF PROCESS UPON SUCH PARTY AT THE ADDRESS REFERRED TO IN SECTION 16.05 (INCLUDING BY PREPAID CERTIFIED MAIL WITH A VALIDATED PROOF OF MAILING RECEIPT), TOGETHER WITH WRITTEN NOTICE OF SUCH SERVICE TO SUCH PARTY, SHALL BE DEEMED EFFECTIVE SERVICE OF PROCESS UPON SUCH PARTY.
Section 16.11 Severability . Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
Section 16.12 Further Action . The parties shall execute and deliver all documents, provide all information and take or refrain from taking such actions as may be necessary or appropriate to achieve the purposes of this Agreement.
Section 16.13 Delivery by Electronic Transmission . This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of an electronic transmission, including by a facsimile machine or via email, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of electronic transmission by a facsimile machine or via email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through such electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.
Section 16.14 Right of Offset . Whenever the Company is to pay any sum (other than pursuant to Article IV ) to any Member, any amounts that such Member owes to the Company which are not the subject of a good faith dispute may be deducted from that sum before payment. For the avoidance of doubt, the distribution of Units to the Corporation shall not be subject to this Section 16.14 .
Section 16.15 Entire Agreement . This Agreement, those documents expressly referred to herein (including the Registration Rights Agreement and the Tax Receivable Agreement), any indemnity agreements entered into in connection with the Current LLC Agreement with any member of the board of directors at that time and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. For the avoidance of doubt, the Current LLC Agreement is superseded by this Agreement as of the Effective Time and shall be of no further force and effect thereafter.
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Section 16.16 Remedies . Each Member shall have all rights and remedies set forth in this Agreement and all rights and remedies which such Person has been granted at any time under any other agreement or contract and all of the rights which such Person has under any Law. Any Person having any rights under any provision of this Agreement or any other agreements contemplated hereby shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by Law.
Section 16.17 Descriptive Headings; Interpretation . The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. The use of the word including in this Agreement shall be by way of example rather than by limitation. Reference to any agreement, document or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof. Without limiting the generality of the immediately preceding sentence, no amendment or other modification to any agreement, document or instrument that requires the consent of any Person pursuant to the terms of this Agreement or any other agreement will be given effect hereunder unless such Person has consented in writing to such amendment or modification. Wherever required by the context, references to a Fiscal Year shall refer to a portion thereof. The use of the words or, either and any shall not be exclusive. The parties hereto 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 shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
Section 16.18 Approval of Agreement . By signing below, each of the signatories to this Agreement (a) approves and authorizes this Agreement and agrees that the Current LLC Agreement is, and shall be deemed, amended and restated to read in its entirety as set forth in this Agreement, (b) approves, authorizes and consents to the issuance of (i) Class A Common Stock by the Corporation in the IPO, (ii) Class B Common Stock and Class C Common Stock by the Corporation to the Company and the Distribution thereof by the Company pursuant to this Agreement and (iii) the issuance of Common Units to the Corporation pursuant to the Reorganization Agreement and (c) waives any preemptive rights arising under Section 8.2 of the Current LLC Agreement with respect to the issuance of any of the foregoing.
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IN WITNESS WHEREOF, the undersigned have executed or caused to be executed on their behalf this Fourth Amended and Restated Limited Liability Company Agreement as of the date first written above.
MANAGER/MEMBER: |
PLURALSIGHT, INC. |
By: |
Name: | ||||
Title: |
MEMBERS: |
[] |
By: |
Name: | ||||
Title: |
[] |
By: |
Name: | ||||
Title: |
[] |
[] |
[Signature Page to the Fourth Amended and Restated LLC Agreement]
SCHEDULE 1
SCHEDULE OF PRE-IPO MEMBERS
Member |
[Class of Units] |
[Class of Units] |
[Class of Units] |
[Class of Units] |
||||
[] | ||||||||
[] | ||||||||
[] | ||||||||
[] | ||||||||
[] | ||||||||
[] | ||||||||
[] | ||||||||
Total |
Schedule 1-1
SCHEDULE 2 *
SCHEDULE OF MEMBERS
Member |
Common Units |
Contact Information for Notice |
||
1. | ||||
2. | ||||
3. | ||||
4. | ||||
5. | ||||
6. | ||||
7. | ||||
8. | ||||
9. | ||||
10. | ||||
Total |
* | This Schedule of Members shall be updated from time to time to reflect any adjustment with respect to any subdivision (by Unit split or otherwise) or any combination (by reverse Unit split or otherwise) of any outstanding Common Units, or to reflect any additional issuances of Common Units pursuant to this Agreement. |
Schedule 2-1
Exhibit A
FORM OF JOINDER AGREEMENT
This JOINDER AGREEMENT, dated as of __________, 20__ (this Joinder ), is delivered pursuant to that certain Fourth Amended and Restated Limited Liability Company Agreement, dated as of [], 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the LLC Agreement ) by and among Pluralsight Holdings, LLC, a Delaware limited liability company (the Company ), Pluralsight, Inc., a Delaware corporation and the manager of the Company ( Holdings ), and each of the Members from time to time party thereto. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the LLC Agreement.
1. Joinder to the LLC Agreement . Upon the execution of this Joinder by the undersigned and delivery hereof to Holdings, the undersigned hereby is and hereafter will be a Member under the LLC Agreement and a party thereto, with all the rights, privileges and responsibilities of a Member thereunder. The undersigned hereby agrees that it shall comply with and be fully bound by the terms of the LLC Agreement as if it had been a signatory thereto as of the date thereof.
2. Incorporation by Reference . All terms and conditions of the LLC Agreement are hereby incorporated by reference in this Joinder as if set forth herein in full.
3. Address . All notices under the LLC Agreement to the undersigned shall be directed to:
[Name]
[Address]
[City, State, Zip Code]
Attn:
Facsimile:
E-mail:
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Joinder as of the day and year first above written.
[NAME OF NEW MEMBER] |
By: |
Name: | ||
Title: |
A-1
Acknowledged and agreed
as of the date first set forth above:
PLURALSIGHT HOLDINGS, LLC |
By: | PLURALSIGHT, INC., its Manager |
By: |
Name: | ||
Title: |
A-2
Exhibit B-1
FORM OF AGREEMENT AND CONSENT OF SPOUSE
The undersigned spouse of _____________ (the Member ), a party to that certain Fourth Amended and Restated Limited Liability Company Agreement, dated as of [], 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Agreement ) of Pluralsight Holdings, LLC, a Delaware limited liability company (the Company ), by and among Pluralsight, Inc., a Delaware corporation and the manager of the Company ( Holdings ), and each of the Members from time to time party thereto (capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Agreement), acknowledges on her own behalf that:
I have read the Agreement and understand its contents. I acknowledge and understand that under the Agreement, any interest I may have, community property or otherwise, in the Units owned by the Member is subject to the terms of the Agreement which include certain restrictions on transfer.
I hereby consent to and approve the Agreement. I agree that said Units and any interest I may have, community property or otherwise, in such Units are subject to the provisions of the Agreement and that I will take no action at any time to hinder operation of the Agreement on said Units or any interest I may have, community property or otherwise, in said Units.
I hereby acknowledge that the meaning and legal consequences of the Agreement have been explained fully to me and are understood by me, and that I am signing this Agreement and consent without any duress and of free will.
Dated: |
[NAME OF SPOUSE] |
By: | ||
Name: |
B-1-1
Exhibit B-2
FORM OF SPOUSES CONFIRMATION OF SEPARATE PROPERTY
The undersigned spouse of ____________ (the Member ), a party to that certain Fourth Amended and Restated Limited Liability Company Agreement, dated as of [], 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Agreement ) of Pluralsight Holdings, LLC, a Delaware limited liability company (the Company ), by and among Pluralsight, Inc., a Delaware corporation and the manager of the Company ( Holdings ), and each of the Members from time to time party thereto (capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Agreement), acknowledges and confirms on his or her own behalf that the Units owned by said Member are the sole and separate property of said Member, and I hereby disclaim any interest in same.
I hereby acknowledge that the meaning and legal consequences of this Members spouses confirmation of separate property have been fully explained to me and are understood by me, and that I am signing this Members spouses confirmation of separate property without any duress and of free will.
Dated: |
[NAME OF SPOUSE] |
By: | ||
Name: |
C-1
Exhibit 10.28
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
[ ], 2018
among
Pluralsight, Inc.
and each of the other signatories hereto
Page
-i-
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is entered into as of [____________], 2018 (the Agreement ) among (i) PLURALSIGHT, INC. , a Delaware corporation (and any successor Person, collectively, the Company ) and (ii) the INVESTORS (as herein defined).
WHEREAS , pursuant to that certain Assignment, Assumption and Amendment Agreement, dated October __, 2014, Pluralsight, LLC assigned to Pluralsight Holdings, LLC, a Delaware limited liability company ( Holdings ) all of its obligations under the Registration Rights Agreement, dated as of December 20, 2012, among Pluralsight, LLC and the Investors (the Prior Agreement ).
WHEREAS , in connection with the proposed IPO of the Companys Class A common stock, the Company, Holdings, and certain other parties thereto are entering into various Reorganization Transactions (as defined in the Reorganization Agreement).
WHEREAS , the Company, Holdings, and the Investors deem it to be in their respective best interests to set forth their rights in connection with public offerings and to amend and restate the Prior Agreement into this Agreement in connection with the Reorganization Transactions contemplated by the IPO.
NOW, THEREFORE , in consideration of the premises and mutual covenants and obligations hereinafter set forth, each of the parties hereto hereby amends and restates the Prior Agreement in its entirety and otherwise agrees as follows:
As used in this Agreement, the following terms shall have the following meanings. Unless the context otherwise requires, the singular shall include the plural and the masculine gender shall include the feminine and neuter, and vice versa, and the word or shall be inclusive.
Affiliate means, with respect to any Person, any (a) manager, director, officer, limited or general partner, member or stockholder holding 5% or more of the outstanding capital stock or other equity interests of such Person, (b) any spouse, parent, sibling or descendant of such Person (or a spouse, parent, sibling or descendant of a Person specified in clause (a) above relating to such Person) and (c) other Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. The term control includes, without limitation, the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of voting interests, by contract or otherwise.
Agreement has the meaning ascribed to such term in the Preamble.
Board means the Board of Directors of the Company.
Commission means the Securities and Exchange Commission or any other agency at the time administering the Securities Act.
Common Stock means the Class A common stock of the Company (or any successor of the Company by combination of shares, recapitalization, merger, consolidation, or other reorganization) and any stock into which any such Class A common stock shall have been changed or any stock resulting from any reclassification of any such Class A common stock.
Company has the meaning ascribed to such term in the Preamble.
Demand Registration has the meaning ascribed to such term in Section 2(a).
Exchange Act means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time.
Excluded Registration means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; or (iii) a registration in which the only Securities being registered are Securities issuable upon conversion of debt securities that are also being registered.
FINRA means the Financial Industry Regulatory Authority, Inc.
Free Writing Prospectus means a free writing prospectus as defined in Rule 405 under the Securities Act.
Investors means holders of Registrable Shares identified under the heading Investors on Annex I hereto and includes any successor to, or assignee or transferee of, any such Person who or which agrees in writing to be treated as an Investor hereunder and to be bound by the terms and comply with all applicable provisions hereof
IPO shall mean the first commitment underwritten public offering and sale of equity securities of the Company pursuant to a registration statement filed under the Securities Act.
Issuer Free Writing Prospectus means an issuer free writing prospectus as defined in Rule 133 under the Securities Act.
LLC Agreement means the Fourth Amended and Restated Limited Liability Company Agreement of Holdings, in effect as of the date hereof, as the same may be amended, modified, or supplemented after the date hereof.
Members has the meaning ascribed to such term in the LLC Agreement.
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Organizational Documents means the Companys Amended and Restated Certificate of Incorporation and the Companys Amended and Restated Bylaws.
Other Shares means at any time those shares of Common Stock which do not constitute Primary Shares or Registrable Shares hereunder.
Person shall be construed in the broadest sense and means and includes a natural person, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and any other entity and any federal, state, municipal, foreign or other government, governmental department, commission, board, bureau, agency or instrumentality, or any private or public court or tribunal.
Primary Shares means at any time authorized but unissued shares of Common Stock.
Registrable Shares means (i) shares of Common Stock held by Investors including any Common Stock issued or issuable upon conversion or exchange of other securities of the Company or its subsidiaries (including, for the avoidance of doubt, any shares of Common Stock issuable in connection with a Share Settlement (as defined, and subject to the limitations set forth in, the LLC Agreement)) and (ii) any equity securities of the Company issued or issuable with respect to the securities referred to in clause (i) above by way of dividend, distribution, split or combination of securities, or any recapitalization, merger, consolidation or other reorganization; provided, however, that any particular Registrable Shares shall cease to be Registrable Shares when (x) they have been registered for sale under the Securities Act, the registration statement in connection therewith has been declared effective and they have been disposed of pursuant to such effective registration statement, (y) they have been sold in compliance with Rule 144 following the consummation of the IPO, or (z) they are able to be sold under Rule 144 of the Securities Act (or any successor rule) in any and all three-month periods without volume limitations or other restrictions.
Reorganization Agreement means that certain Reorganization Agreement, dated as of the date of this Agreement, by and between the Company, Holdings and certain Members as specified therein.
Requisite Investors means Investors holding at least a majority of all Registrable Shares then outstanding.
Rule 144 means Rule 144 promulgated under the Securities Act or any successor rule thereto or any complementary rule thereto (such as Rule 144A).
Securities means, with respect to any Person, all equity interests of such Person, all securities convertible into or exchangeable for equity interests of such Person, and all options, warrants, and other rights to purchase or otherwise acquire from such Person equity interests, including any equity appreciation or similar rights, contractual or otherwise.
Securities Act means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time.
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Units has the meaning set forth in the LLC Agreement.
Section 2. Required Registration .
(a) If the Requisite Investors shall deliver to the Company a written request that the Company effect the registration of Registrable Shares under the Securities Act (a Demand Registration ), the Company shall promptly use its reasonable best efforts to effect the registration under the Securities Act of such Registrable Shares.
(b) Notwithstanding anything contained in this Section 2 to the contrary, the Company shall not be obligated to effect any registration under the Securities Act except in accordance with the following provisions:
(i) The Company shall not be obligated to file and cause to become effective more than two (2) registration statements initiated pursuant to Section 2(a) above on Form S-1 promulgated under the Securities Act (or any successor form thereto).
(ii) The Company may delay the filing or effectiveness of any registration statement for a period of up to 60 days after the date of a request for registration pursuant to Section 2(a) if at the time of such request: (X) the Company is engaged, or has fixed plans to engage within 30 days of the time of such request, in a firm commitment underwritten public offering of Primary Shares in which the holders of Registrable Shares have been or will be permitted to include all the Registrable Shares so requested to be registered pursuant to Section 3 or (Y) the Board reasonably determines that such registration and offering would interfere with any material transaction involving the Company; provided , however , that the Company shall only be entitled to invoke its rights under this Section 2(b)(ii) one time per consecutive 12 month period the duration of this Agreement.
(iii) With respect to any registration pursuant to this Section 2 , the Company shall give notice of such registration, in accordance with the provisions of Section 3 hereunder, to the Investors who do not request registration hereunder and the Company may include in such registration any Registrable Shares, Primary Shares or Other Shares; provided , however , that if the managing underwriter advises the Company that the inclusion of all Registrable Shares, Primary Shares, and/or Other Shares proposed to be included in such registration would interfere with the successful marketing (including pricing) of the Registrable Shares proposed to be included in such registration, then the number of Registrable Shares, Primary Shares, and/or Other Shares proposed to be included in such registration shall be included in the following order:
(A) first, the Registrable Shares (or, if necessary, such Registrable Shares pro rata among the holders thereof based upon the number of Registrable Shares requested to be registered by each such holder);
(B) second, the Primary Shares; and
(C) third, the Other Shares.
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(iv) If the Requisite Investors so elect, the offering of such Registrable Shares pursuant to such registration shall be in the form of an underwritten offering. The holders of Registrable Shares requesting such registration shall select one or more nationally recognized firms of investment bankers reasonably acceptable to the Company to act as the lead managing underwriter or underwriters in connection with such offering.
(v) At any time before the registration statement covering such Registrable Shares becomes effective, the Requisite Investors may request the Company to withdraw or not to file the registration statement. In that event, unless such request of withdrawal was caused by, or made in response to, (i) a material adverse effect or a similar event related to the business, properties, condition, or operations of the Company not known (without imputing the knowledge of any other Person to such holders) by the holders initiating such request at the time their request was made, (ii) due to pricing conditions which in the good faith judgment of the Requisite Investors are adverse, or (iii) other material facts not known to such holders at the time their request was made, the holders shall be deemed to have used their registration rights under Section 2(a) . In addition, in the event that the registration statement covering such Registrable Shares is not declared effective within 120 days from the date of first filing with the Commission, the holders shall not be deemed to have used one of their registration rights pursuant to Section 2(a) .
(vi) The Company shall use its best efforts to cause any registration effected in accordance with this Section 2 to remain effective for at least 60 days following the date upon which such registration becomes effective.
Section 3. Piggyback Registration .
If the Company at any time proposes for any reason to register Primary Shares or Other Shares under the Securities Act (other than an Excluded Registration), it shall give written notice to the Investors of its intention to so register such Primary Shares or Other Shares at least 30 days before the initial filing of the registration statement related thereto and, upon the request, delivered to the Company within 15 days after delivery of any such notice by the Company, of the Investors to include in such registration Registrable Shares (which request shall specify the number of Registrable Shares proposed to be included in such registration), the Company shall use its reasonable best efforts to cause all such Registrable Shares to be included in such registration on the same terms and conditions as the securities otherwise being sold in such registration; provided , however , that if the managing underwriter advises the Company that the inclusion of all Registrable Shares requested to be included in such registration would interfere with the successful marketing (including pricing) of the Primary Shares or Other Shares proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares, and Other Shares proposed to be included in such registration shall be included in the following order:
(A) first, the Primary Shares;
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(B) second, the Registrable Shares (pro rata among the holders thereof based on the number of Registrable Shares requested to be registered by such holder); and
(C) third, the Other Shares.
Section 4. Registrations on Form S-3 .
Anything contained in Section 2 to the contrary notwithstanding, at such time as the Company shall have qualified for the use of Form S-3 promulgated under the Securities Act or any successor form thereto, the holders of Registrable Shares shall have the right to request up to one (1) registration per calendar year during the duration of this Agreement of Registrable Shares on Form S-3 (which may, at such holders request, be shelf registrations pursuant to Rule 415 promulgated under the Securities Act) or its successor form, which request or requests shall (i) specify the number of Registrable Shares intended to be sold or disposed of and the holders thereof and (ii) relate to Registrable Shares having an aggregate offering price of at least one million dollars ($1,000,000). A requested registration on Form S-3 (or its successor form) in compliance with this Section 4 shall not count as a registration statement initiated pursuant to Section 2(a) for purposes of the registration request limitation set forth under Section 2(a ), but shall otherwise be treated as a registration initiated pursuant to Section 2(b) and shall be subject to the provisions thereof (including Section 2(b)(iii)) .
Section 5. Preparation and Filing .
(a) If and whenever the Company is under an obligation pursuant to the provisions of this Agreement to effect the registration of any Registrable Shares, the Company shall, as expeditiously as reasonably practicable:
(i) use its reasonable best efforts to cause a registration statement that registers such Registrable Shares to become and remain effective until the first to occur of (A) the date upon which all of such Registrable Shares have been disposed of, and (B) the later of (x) ninety (90) days past the effective date of such registration statement or (y) to the extent that the applicable holder of such Registrable Shares is restricted or limited in its ability to sell all of its Registrable Shares within such ninety (90) day period under applicable securities laws, the date on which such restrictions or limitations are no longer applicable to such holder;
(ii) furnish, at least five business days before filing a registration statement that registers such Registrable Shares, a prospectus relating thereto or any amendments or supplements relating to such a registration statement or prospectus, to one counsel selected by the Requisite Investors (the Investors Counsel ), copies of all such documents proposed to be filed, and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as the Investors whose Registrable Shares are to be covered by such registration statement may reasonably propose and shall not file any such document to which the Investors object in writing, unless in the judgment of the Company such filing is necessary to comply with applicable law;
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(iii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective during the period set forth in Section 5(a)(i) above and to comply with the provisions of the Securities Act with respect to the sale or other disposition of such Registrable Shares;
(iv) notify in writing the Investors Counsel (i) of the receipt by the Company of any notification with respect to any comments by the Commission with respect to such registration statement or prospectus or any amendment or supplement thereto or any request by the Commission for the amending or supplementing thereof or for additional information with respect thereto, (ii) of the receipt by the Company of any notification with respect to the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or prospectus or any amendment or supplement thereto or the initiation or threatening of any proceeding for that purpose, and (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification of such Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purposes;
(v) use its reasonable best efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as the holders of Registrable Shares reasonably request and do any and all other acts and things which may be reasonably necessary or advisable to enable the Investors to consummate the disposition in such jurisdictions of the Registrable Shares owned by the Investors; provided , however , that the Company will not be required to qualify to do business, subject itself to general taxation or consent to service of process in any jurisdiction where it would not otherwise be required to do so but for this Agreement;
(vi) furnish to the Investors such number of copies of a summary prospectus, if any, or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Investors may reasonably request in order to facilitate the public sale or other disposition of such Registrable Shares;
(vii) notify the Investors holding such Registrable Shares on a timely basis at any time when a prospectus relating to such Registrable Shares or any document related thereto includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and, at the request of the Investors prepare and furnish to such Investors a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the offerees of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;
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(viii) make available upon reasonable notice and during normal business hours, for inspection by any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by the underwriter (collectively, the Inspectors ), all pertinent financial and other records, pertinent documents, and properties of the Company (collectively, the Records ), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Companys officers, directors, managers, and employees to supply all information (together with the Records, the Information ) reasonably requested by any such Inspector in connection with such registration statement. Any of the Information which the Company determines to be confidential, and of which determination the Inspectors are so notified, shall not be disclosed by the Inspectors unless (A) the disclosure of such Information is necessary to avoid or correct a material misstatement or omission in the registration statement, (B) the release of such Information is ordered pursuant to a subpoena or other order from a court or governmental agency or authority of competent jurisdiction, (C) such Information has been made generally available to the public through no breach of the nondisclosure obligations of the Inspectors or their Affiliates, or (D) such disclosure is required to be made under applicable law;
(ix) use its reasonable best efforts to prevent the issuance of an order suspending the effectiveness of a registration statement, and if one is issued, use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement at the earliest possible moment;
(x) use its reasonable best efforts to obtain from its independent certified public accountants cold comfort letters in customary form and at customary times and covering matters of the type customarily covered by cold comfort letters;
(xi) use its reasonable best efforts to obtain from its counsel an opinion or opinions in customary form;
(xii) enter into such customary agreements (including, if applicable, an underwriting agreement in customary form, including customary representations, warranties, covenants and indemnities) and take such action as the underwriters may reasonably request in order to expedite or facilitate the disposition of Registrable Shares;
(xiii) provide a transfer agent and registrar (which may be the same entity and which may be the Company) for such Registrable Shares;
(xiv) permit any selling equity holder that might reasonably be deemed a controlling Person of the Company to participate in the preparation of a registration statement;
(xv) promptly issue to any underwriter to which the Investors holding such Registrable Shares may sell shares in such offering certificates evidencing such Registrable Shares;
(xvi) in connection with an underwritten offering, participate, to the extent reasonably requested by the managing underwriter for the offering or the Investors selling Registrable Shares in the offering, in customary efforts to sell Registrable Shares being offered, and cause such steps to be taken to ensure good faith participation of senior management officers of the Company in due diligence meetings and road shows as is customary;
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(xvii) use its reasonable best efforts to qualify such Registrable Shares for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc., or such other national securities exchange on which any shares of Common Stock are listed or quoted, or, if the Common Stock is not then listed or quoted, use reasonable best efforts to list such Registrable Shares on a national securities exchange as the holders of a majority of such Registrable Shares shall reasonably request;
(xviii) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission and make available to its securityholders, as soon as reasonably practicable, earnings statements covering a period of 12 months beginning within three months after the effective date of the subject registration statement; and
(xix) otherwise use its reasonable best efforts to take all other steps necessary to effect the registration of such Registrable Shares contemplated hereby.
(b) Each holder of the Registrable Shares, upon receipt of any notice from the Company of any event of the kind described in Section 5(a)(vii) hereof, shall forthwith discontinue disposition of the Registrable Shares pursuant to the registration statement covering such Registrable Shares until such holders receipt of the copies of the supplemented or amended prospectus contemplated by Section 5(a)(vii) hereof, and, if so directed by the Company, such holder shall deliver to the Company all copies, other than permanent file copies then in such holders possession, of the prospectus covering such Registrable Shares at the time of receipt of such notice.
(c) The Company shall not permit any officer, director, manager, underwriter, broker or any other Person acting on behalf of the Company to use any Free Writing Prospectus in connection with the registration statement covering Registrable Shares, without the prior written consent of the Requisite Investors, which consent shall not be unreasonably withheld or delayed. Any consent to the use of a Free Writing Prospectus included in an underwriting agreement to which the Investors are parties shall be deemed to satisfy the requirement of such consent.
All expenses incurred by the Company and the Investors, other than underwriting discounts and commissions, in complying with its obligations pursuant to this Agreement and in connection with the registration and disposition of Registrable Shares, including, without limitation, (a) all registration and filing fees, and any other fees and expenses associated with filing fees, and any other fees and expenses associated with filings required to be made with any stock exchange, the Commission and FINRA (including, if applicable, the fees and expenses of any qualified independent underwriter and its counsel as may be required by the rules and regulations of FINRA); (b) all fees and expenses of compliance with state securities or blue sky laws (including fees and disbursements of counsel for the underwriters or the Investors in
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connection with blue sky qualifications of the Registrable Shares and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters may designate); (c) all printing and related messenger and delivery expenses (including expenses of printing certificates for the Registrable Shares in a form eligible for deposit with The Depository Trust Company) and of printing prospectuses, all fees and disbursements of all independent certified public accountants of the Company (including the expenses of any special audit and cold comfort letters required by or incident to such performance); (d) Securities Act liability insurance if the Company so desires or the underwriters so require; (e) all fees and expenses incurred in connection with the listing of Registrable Shares on any securities exchange and all rating agency fees; (f) all reasonable fees and disbursements of counsel to the holders of Registrable Shares to represent such Persons in connection with such registration (including such fees and disbursements incurred in connection with any registration or qualification of Registrable Shares under the securities or blue sky laws of any state); (g) all fees and disbursements of underwriters customarily paid by an issuer, excluding underwriting discounts and commissions and transfer taxes, if any, related to the disposition by the Investors of Registrable Shares; and (h) reasonable fees and expenses of outside counsel and advisors to the Company, will be borne by the Company, regardless of whether a registration statement becomes effective.
(a) To the extent permitted by law, in connection with any registration of any Registrable Shares under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless the holders of Registrable Shares, each of such holders officers, directors, employees, equityholders, members, partners, and advisors, and their respective Affiliates, each underwriter, broker or any other person acting on behalf of the holders of Registrable Shares and each other Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act against any losses, claims, damages, liabilities, or actions joint or several (or actions in respect thereof), to which any of the foregoing persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or allegedly untrue statement of a material fact contained in the registration statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus, Issuer Free Writing Prospectus, or final prospectus contained therein or otherwise filed with the Commission, any amendment or supplement thereto or any document incident to registration or qualification of any Registrable Shares, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any prospectus, necessary to make the statements therein in light of the circumstances under which they were made not misleading, or any violation by the Company of the Securities Act or state securities or blue sky laws applicable to the Company or relating to action or inaction required of the Company in connection with such registration or qualification under such state securities or blue sky laws; and shall promptly reimburse such Persons for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action (including any legal or other expenses incurred) arises out of or is based upon an untrue statement or allegedly untrue statement or omission or
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alleged omission made in said registration statement, preliminary prospectus, Issuer Free Writing Prospectus, final prospectus, amendment, supplement or document incident to registration or qualification of any Registrable Shares in reliance upon and in conformity with written information furnished to the Company by the holders of Registrable Shares specifically for use in the preparation thereof.
(b) To the extent permitted by law, in connection with any registration of Registrable Shares under the Securities Act pursuant to this Agreement, each holder of Registrable Shares shall severally (based on the percentage of the securities included in such registration that were owned by such holder) and not jointly and severally indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 7(a)) the Company, each director or manager of the Company, each officer of the Company who shall sign such registration statement, each underwriter, broker or other person acting on behalf of the holders of Registrable Shares and each person who controls any of the foregoing persons within the meaning of the Securities Act with respect to any statement or omission from such registration statement, any preliminary prospectus, Issuer Free Writing Prospectus or final prospectus contained therein or otherwise filed with the Commission, any amendment or supplement thereto or any document incident to registration or qualification of any Registrable Shares, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company or such underwriter by such holder of Registrable Shares specifically for use in connection with the preparation of such registration statement, preliminary prospectus, Issuer Free Writing Prospectus, final prospectus, amendment, supplement or document; provided , however , that the maximum amount of liability in respect of such indemnification shall be limited, in the case of each holder of Registrable Shares, to an amount equal to the net proceeds actually received by such holder from the sale of Registrable Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in this Section 7 , such indemnified party will, if a claim in respect thereof is made against an indemnifying party, give written notice to the latter of the commencement of such action. The failure of any indemnified party to notify an indemnifying party of any such action shall not (unless such failure shall have a material adverse effect on the indemnifying party) relieve the indemnifying party from any liability in respect of such action that it may have to such indemnified party hereunder. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided , however , that if any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified party which are additional to or conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided hereunder, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party (but shall have the right to participate therein with counsel of its choice) and such indemnifying party shall
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reimburse such indemnified party and any Person controlling such indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity agreement provided hereunder. No indemnifying party shall be liable for any settlement of any proceeding affected without its prior written consent. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel with respect to such claim.
(d) If the indemnification provided for hereunder is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to herein. No indemnifying party shall be required to contribute pursuant to this Section 7(d) if there has been a settlement of any proceeding effected without its prior written consent. No person guilty or liable of fraudulent misrepresentation shall be entitled to contribution from any person.
Section 8. Underwriting Agreement .
(a) Notwithstanding any provisions of this Agreement, to the extent that in connection with a proposed sale of Registrable Shares which have been registered with the Commission pursuant to this Agreement, the holders of Registrable Shares shall enter into an underwriting agreement or similar agreement that contains customary provisions covering one or more issues addressed in such Sections of this Agreement, the provisions contained in such Sections of this Agreement addressing such issue or issues shall be of no force or effect with respect to such registration, but this provision shall not apply to the Company if the Company is not a party to the underwriting agreement or similar agreement.
(b) In connection with any proposed sale through an underwritten offering of Registrable Shares which have been registered with the Commission pursuant to this Agreement through an underwritten offering, the Company shall negotiate in good faith and enter into a reasonable and customary underwriting agreement with the underwriters thereof on terms reasonably satisfactory to the Requisite Investors. The Company shall be entitled to receive customary indemnities from lead underwriters, selling brokers, dealer managers and similar security industry professionals participating in the distribution, to the same extent as provided above with respect to the information so furnished in writing by such Persons specifically for inclusion in any prospectus or registration statement.
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Section 9. Information by Holder .
The Investors shall furnish to the Company such written information regarding the Investors and the distribution proposed by any Investors as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration referred to in this Agreement.
Section 10. Delay of Registration .
No Investor shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.
Section 11. Exchange Act Compliance .
The Company shall use reasonable best efforts to comply with all of the reporting requirements of the Exchange Act applicable to it and shall use reasonable best efforts to comply with all other public information reporting requirements of the Commission which are conditions to the availability of Rule 144. The Company shall cooperate with the Investors in supplying such information as may be necessary for the Investors to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of Rule 144. In addition, the Company shall cooperate with the Investors in providing for the delivery of any legal opinions (including paying the reasonable legal costs of obtaining such opinion) or other documents necessary or otherwise requested of the Investors by the Company or its transfer agent in order to have legends removed or otherwise effect sales pursuant to Rule 144.
Section 12. No Conflict of Rights; Future Rights .
The Company shall not, after the date hereof, without the prior written consent of the Requisite Investors, grant any registration or other rights which conflict with, or are senior to or pari passu with, or impair the rights granted to the Investors hereby. If at any time following the date hereof, the Company shall grant to any present or future equityholder of the Company rights to in any manner cause or participate in any registration statement of the Company that, in the judgment of the Investors, are superior to or conflict with, or are senior to or pari passu with, the rights granted to the Investors hereby, such grant shall be null, void and ultra vires.
This Agreement shall terminate and be of no further force or effect when each Investor no longer holds any Registrable Shares. Each Investors rights as set forth in this Agreement will terminate at such time as such Investor no longer holds any Registrable Shares.
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Section 14. Benefits of Agreement; Third Party Beneficiaries .
Except as provided herein, this Agreement shall bind and inure to the benefit of the Company, the Investors and subject to Section 15 , the respective successors and assigns of the Company and the Investors. Holdings is an intended third party beneficiary of the agreements of the parties contained in Section 24 .
Each Investor may assign its rights hereunder to any affiliate or third party to whom such Investor transfers Registrable Shares or Units in accordance with the Companys Organizational Documents and the LLC Agreement; provided , however , that such purchaser or transferee shall, as a condition to the effectiveness of such assignment, be required to execute a counterpart to this Agreement agreeing to be treated as an Investor whereupon such third party shall have the benefits of, and shall be subject to the restrictions contained in, this Agreement as if such purchaser or transferee was originally included in the definition of an Investor herein and had originally been a party hereto. The Company may not assign any rights hereunder without the consent of the Investors.
Section 16. Entire Agreement .
This Agreement, and the other writings referred to herein or delivered pursuant hereto (including, without limitation, the LLC Agreement), contain the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings, both written and oral, among the parties with respect thereto.
All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by telecopy, nationally-recognized overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed to such party at the address set forth below or such other address as may hereafter be designated in writing by such party to the other parties:
(i) if to the Company, to:
Pluralsight, Inc.
182 North Union Avenue
Farmington, Utah 84025
Attn: Chief Executive Officer
with a copy, which shall not constitute notice, to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Rezwan Pavri, Esq. and Allison B. Spinner, Esq.
Facsimile: (650) 493-6811
E-mail: rpavri@wsgr.com and aspinner@wsgr.com
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(ii) if to the Investors, to their respective addresses set forth on Annex I hereto.
All such notices, requests, consents, and other communications shall be deemed to have been delivered (a) in the case of personal delivery or delivery by telecopy, on the date of such delivery, (b) in the case of dispatch by nationally-recognized overnight courier, on the next business day following such dispatch, (c) in the case of mailing, on the third business day after the posting thereof, and (d) in the case of facsimile or email, on the date of receipt by the recipient thereof if received prior to 5:00 PM on a business day in the place of receipt.
Section 18. Modifications; Amendments; Waivers .
The terms and provisions of this Agreement may not be modified or amended except pursuant to a writing signed by the Company and Investors holding at least a majority of all Registrable Shares then outstanding. Any waiver of any provision of this Agreement requested by any party hereto must be granted in advance, in writing by the party granting such waiver; provided , however , that the holders of a majority of all then outstanding Registrable Shares may grant a waiver on behalf of all Investors.
Section 19. Counterparts; Facsimile Signatures .
This Agreement may be executed in any number of original or facsimile counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement.
The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Delaware.
Section 22. Waiver of Jury Trial; Consent to Jurisdiction .
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. Each party hereby irrevocably submits to the exclusive jurisdiction of the federal courts located in the State of Delaware or the Delaware Court of Chancery for the purpose of adjudicating any
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dispute arising hereunder. Each party hereby irrevocably and unconditionally waives and agrees not to plead or claim in any such court any objection to such jurisdiction, whether on the grounds of hardship, inconvenient forum or otherwise. Each party further agrees that service of any process, summons, notice or document by U.S. registered mail to such partys respective address set forth in Section 17 shall be effective service of process for any action, suit or proceeding with respect to any matters to which it has submitted to jurisdiction in this Section 22 .
It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
By signing below, each of the signatories to this Agreement agrees that the Prior Agreement is, and shall be deemed, amended and restated to read in its entirety as set forth in this Agreement.
* * * *
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IN WITNESS WHEREOF , the parties hereto have executed this Amended and Restated Registration Rights Agreement on the date first written above.
COMPANY | ||
PLURALSIGHT, INC. | ||
By: | ||
Name: Aaron Skonnard Title: Chief Executive Officer |
[Pluralsight, Inc. Amended and Restated Registration Rights Agreement]
INVESTORS | ||
INSIGHT VENTURE PARTNERS VII, L.P. | ||
By: | Insight Venture Associates VII, L.P., its General Partner | |
By: | Insight Venture Associates VII, Ltd., its General Partner | |
By: |
Name: | ||
Title: |
INSIGHT VENTURE PARTNERS VII (CO-INVESTORS), L.P. |
||
By: | Insight Venture Associates VII, L.P., its General Partner | |
By: | Insight Venture Associates VII, Ltd., its General Partner | |
By: |
Name: | ||
Title: |
IVP CIF II (AIP A), L.P. | ||
By: | Insight Venture Associates Coinvestment II, L.P., its General Partner | |
By: | Insight Holdings Group, LLC, its General Partner | |
By: |
Name: | ||
Title: |
IVP CIF II (AIP B), L.P. | ||
By: | Insight Venture Associates Coinvestment II, L.P., its General Partner | |
By: | Insight Holdings Group, LLC, its General Partner |
[Pluralsight, Inc. Amended and Restated Registration Rights Agreement]
By: |
Name: | ||
Title: |
INSIGHT VENTURE PARTNERS (DELAWARE) VII, L.P. | ||
By: |
Insight Venture Associates VII, L.P., its General Partner |
|
By: |
Insight Venture Associates VII, Ltd., its General Partner |
|
By: |
Name: | ||
Title: |
INSIGHT VENTURE PARTNERS (CAYMAN) VII, L.P. | ||
By: |
Insight Venture Associates VII, L.P., its General Partner |
|
By: |
Insight Venture Associates VII, Ltd., its General Partner |
|
By: |
Name: | ||
Title: |
[Pluralsight, Inc. Amended and Restated Registration Rights Agreement]
ACKNOWLEDGED AND ACCEPTED : | ||||
PLURALSIGHT HOLDINGS, LLC | ||||
By: | ||||
Name: | Aaron Skonnard | |||
Title: | Chief Executive Officer |
[Pluralsight, Inc. Amended and Restated Registration Rights Agreement]
Annex I
INVESTORS
INSIGHT VENTURE PARTNERS VII, L.P.
c/o Insight Venture Partners
1114 Avenue of the Americas, 36th Floor
New York, New York 10036
Telephone: (212) 230-9200
Facsimile: (212) 230-9272
Attn: Ryan Hinkle
E-mail: rhinkle@insightpartners.com
INSIGHT VENTURE PARTNERS VII (CO-INVESTORS), L.P.
c/o Insight Venture Partners
1114 Avenue of the Americas, 36th Floor
New York, New York 10036
Telephone: (212) 230-9200
Facsimile: (212) 230-9272
Attn: Ryan Hinkle
E-mail: rhinkle@insightpartners.com
IVP CIF II (AIP A), L.P.
c/o Insight Venture Partners
1114 Avenue of the Americas, 36th Floor
New York, New York 10036
Telephone: (212) 230-9200
Facsimile: (212) 230-9272
Attn: Ryan Hinkle
E-mail: rhinkle@insightpartners.com
IVP CIF II (AIP B), L.P.
c/o Insight Venture Partners
1114 Avenue of the Americas, 36th Floor
New York, New York 10036
Telephone: (212) 230-9200
Facsimile: (212) 230-9272
Attn: Ryan Hinkle
E-mail: rhinkle@insightpartners.com
INSIGHT VENTURE PARTNERS (DELAWARE) VII, L.P.
c/o Insight Venture Partners
1114 Avenue of the Americas, 36th Floor
New York, New York 10036
Telephone: (212) 230-9200
Facsimile: (212) 230-9272
Attn: Ryan Hinkle
E-mail: rhinkle@insightpartners.com
INSIGHT VENTURE PARTNERS (CAYMAN) VII, L.P.
c/o Insight Venture Partners
1114 Avenue of the Americas, 36th Floor
New York, New York 10036
Telephone: (212) 230-9200
Facsimile: (212) 230-9272
Attn: Ryan Hinkle
E-mail: rhinkle@insightpartners.com
in each case, with a copy to:
Goodwin Procter LLP
620 Eighth Avenue
New York, New York 10018
Telephone: (212) 813-8822
Facsimile: (212) 355-3333
Attn: Paul N. Cicero, Esq.
E-mail: pcicero@goodwinlaw.com
22
PLURALSIGHT, INC.
OUTSIDE DIRECTOR COMPENSATION POLICY
Adopted and approved by the Board of Directors on May 3, 2018
Pluralsight, Inc. (the Company ) believes that providing cash and equity compensation to its members of the Board of Directors (the Board , and members of the Board, the Directors ) represents an effective tool to attract, retain and reward Directors who are not employees of the Company (the Outside Directors ). This Outside Director Compensation Policy (the Policy ) is intended to formalize the Companys policy regarding cash compensation and grants of equity to its Outside Directors. Unless otherwise defined herein, capitalized terms used in this Policy will have the meaning given to such terms in the Companys 2018 Equity Incentive Plan (the Plan ), or if the Plan is no longer in place, the meaning given to such terms or any similar terms in the equity plan then in place. Each Outside Director will be solely responsible for any tax obligations incurred by such Outside Director as a result of the equity and cash payments such Outside Director receives under this Policy.
This Policy will be effective as of the effective date of the registration statement in connection with the initial public offering of the Companys securities (the Registration Statement ) (such date, the Effective Date ).
1. | C ASH C OMPENSATION |
Annual Cash Retainer
Each Outside Director will be paid an annual cash retainer of $30,000. There are no per-meeting attendance fees for attending Board meetings. This cash compensation will be paid quarterly in arrears on a prorated basis.
Committee Annual Cash Retainer
Effective as of the Registration Date, each Outside Director who serves as the lead Outside Director or the chair or a member of a committee of the Board will be eligible to earn additional annual fees (paid quarterly in arrears on a prorated basis) as follows:
Lead Independent Director: |
$ | 17,000 | ||
Chair of Audit Committee: |
$ | 20,000 | ||
Member of Audit Committee: |
$ | 9,500 | ||
Chair of Compensation Committee: |
$ | 14,000 | ||
Member of Compensation Committee: |
$ | 5,000 | ||
Chair of Nominating and Governance Committee: |
$ | 7,500 | ||
Member of Nominating and Governance Committee: |
$ | 3,500 |
For clarity, each Outside Director who serves as the chair of a committee will receive the additional annual fee as the chair of the committee, but will not receive the additional annual fee as a member of the committee.
2. | E QUITY C OMPENSATION |
Outside Directors will be eligible to receive all types of Awards (except Incentive Stock Options) under the Plan (or the applicable equity plan in place at the time of grant), including discretionary Awards not covered under this Policy. All grants of Awards to Outside Directors pursuant to this Section 2 will be automatic and nondiscretionary, except as otherwise provided herein, and will be made in accordance with the following provisions:
(a) No Discretion . No person will have any discretion to select which Outside Directors will be granted any Awards under this Policy or to determine the number of Shares to be covered by such Awards.
(b) Initial Award . Subject to 4 of this Policy, each individual who first becomes an Outside Director following the Effective Date will be granted an award of restricted stock units (an Initial Award ) covering a number of Shares having a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) (the Grant Value ) equal to (x) $186,000 multiplied by (y) the fraction obtained by dividing (A) the number of full months during the period beginning on the date the individual first becomes an Outside Director and ending on the one-year anniversary of the date of the then-most recent Annual Meeting (the Initial Award Vesting Period ) by (B) 12, rounded to the nearest whole Share. The Initial Award will be made on the first trading date on or after the date on which such individual first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy. If an individual was a member of the Board and also an employee, becoming an Outside Director due to termination of employment will not entitle the Outside Director to an Initial Award.
Subject to Section 3 of this Policy, each Initial Award will vest on the earlier of (i) the last day of the Initial Award Vesting Period or (ii) the day prior to the date of the Annual Meeting next following the date the Initial Award is granted, in each case, subject to the Outside Director continuing to be a Service Provider through the applicable vesting date.
(c) Annual Award . Subject to Section 4 of this Policy, on the date of each annual meeting of the Companys stockholders following the Effective Date (each, an Annual Meeting ), each Outside Director will be automatically granted an award of restricted stock units (an Annual Award ) covering a number of Shares having a Grant Value of $186,000, rounded to the nearest whole Share.
Subject to Section 3 of this Policy, each Annual Award will vest on the earlier of (i) the one-year anniversary of the date the Annual Award is granted or (ii) the day prior to the date of the Annual Meeting next following the date the Annual Award is granted, in each case, subject to the Outside Director continuing to be a Service Provider through the applicable vesting date.
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3. | C HANGE IN C ONTROL |
In the event of a Change in Control, each Outside Director will fully vest in his or her outstanding Awards, including any Initial Award or Annual Award, provided that the Outside Director continues to be an Outside Director through such date.
4. | A NNUAL C OMPENSATION L IMIT |
No Outside Director may be paid, issued or granted, in any Fiscal Year, cash compensation and Awards with an aggregate value greater than $600,000 (with the value of each Award based on its Grant Value for purposes of the limitation under this Section 4). Any cash compensation paid or Awards granted to an individual for his or her services as an Employee, or for his or her services as a Consultant (other than as an Outside Director), will not count for purposes of the limitation under this Section 4.
5. | T RAVEL E XPENSES |
Each Outside Directors reasonable, customary and documented travel expenses to Board meetings will be reimbursed by the Company.
6. | A DDITIONAL P ROVISIONS |
All provisions of the Plan not inconsistent with this Policy will apply to Awards granted to Outside Directors.
7. | A DJUSTMENTS |
In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under this Policy, will adjust the number of Shares issuable pursuant to Awards granted under this Policy.
8. | S ECTION 409A |
In no event will cash compensation or expense reimbursement payments under this Policy be paid after the later of (i) 15th day of the 3rd month following the end of the Companys fiscal year in which the compensation is earned or expenses are incurred, as applicable, or (ii) 15th day of the 3rd month following the end of the calendar year in which the compensation is earned or expenses are incurred, as applicable, in compliance with the short-term deferral exception under Section 409A of the Internal Revenue Code of 1986, as amended, and the final regulations and guidance thereunder, as may be amended from time to time (together, Section 409A ). It is the intent of this Policy that this Policy and all payments hereunder be exempt from or otherwise comply with the requirements of Section 409A so that none of the compensation to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be so exempt or comply. In no event will the Company reimburse an Outside Director for any taxes imposed or other costs incurred as a result of Section 409A.
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9. | R EVISIONS |
The Board may amend, alter, suspend or terminate this Policy at any time and for any reason. No amendment, alteration, suspension or termination of this Policy will materially impair the rights of an Outside Director with respect to compensation that already has been paid or awarded, unless otherwise mutually agreed between the Outside Director and the Company. Termination of this Policy will not affect the Boards or the Compensation Committees ability to exercise the powers granted to it under the Plan with respect to Awards granted under the Plan pursuant to this Policy prior to the date of such termination.
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Amendment No. 2 to Registration Statement (No. 333-224301) 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
May 7, 2018
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Amendment No. 2 to Registration Statement (No. 333-224301) 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
May 7, 2018